UKX FTSE 100 Index

By Jon Sindreu 
   -- U.S. dollar, 10-year Treasury yields up 
 
   -- Oil prices rise 
 
   -- Some European markets closed for holiday 

Global stocks rose Monday as concerns about a trade war between the U.S. and China eased.

Futures pointed to 0.6% and 0.9% opening rises for the S&P 500 and the Dow Jones Industrial Average, respectively, after Asian stocks powered higher -- all of China's indexes notched gains and Japan's Nikkei Stock Average closed up 0.3%.

In Europe, the Stoxx Europe 600 was up 0.4% in morning trade, with markets in Germany and some other countries in the region closed for a holiday. Britain's FTSE 100 rose 0.8% marking an all-time high.

The WSJ Dollar Index, which measures the greenback against a basket of currencies, was up 0.3% Monday, while yields on 10-year Treasurys rose to 3.075%, from 3.067% Friday. Yields rise as prices fall.

Money managers believe discussions between the U.S. and China this weekend have helped to avoid an all-out trade war, a positive development in their view. In an interview Monday, Treasury Secretary Steven Mnuchin said the U.S. will suspend the $150 billion that it had previously threatened to levy on Chinese imports.

The U.S. is set to complete the procedural steps to apply tariffs on $50 billion of Chinese imports this week, and has threatened to apply levies to a further $100 billion. While China had pledged to retaliate, it has now agreed to purchase a larger amount of American goods to help close the U.S. trade deficit.

Investors had never expected the announced tariffs to significantly affect the world economy, but were concerned that further tensions could lead to more countries erecting larger gates on trade. Stocks have gained several times on the belief that trade tensions were easing, only to fall back down as investors took the opposite view.

"It's not in anyone's interests to have severe escalation," said Caroline Simmons, deputy head of U.K. investment at UBS Wealth Management, who believes investors won't ultimately put too much weight on geopolitical spats. "It's noise; in the midterm, it's going to come down to what's being delivered growth-wise and earnings-wise."

While the global economy remains robust and first-quarter earnings have been strong, stock markets have mostly traded sideways this year because many investors have started to fear that the pace of the expansion has already peaked.

"The muted market reaction to earnings is indicating that the upside is priced in," said Witold Bahrke, senior macro strategist at Nordea Asset Management, who favors U.S. stocks because he believes equities overseas will be further dragged down by a stronger dollar, higher Treasury yields and weakening economic indicators in Europe.

"U.S. stocks are very liquid and they tend to be a good safety bet, and in relative terms U.S. growth dynamics are still looking kind of best-in-class," he said.

Meanwhile, spreads between Italian and German government bonds continued to widen and Italy's FTSE MIB stock-market index dropped 0.3% Monday, a sign that investors remain concerned about antiestablishment parties' advances in forming a new government. While bond markets initially brushed off such worries, it has been slightly rattled by recent revelations that the new government could seek to threaten some of the eurozone's fiscal and monetary rules.

Later this week, money managers will pay close attention to the release of the minutes of the Federal Reserve's May policy meeting, which are expected to shed further light on how fast officials are likely to raise rates to react to higher inflation.

Yields on 10-year Treasurys rose to 3.072% Monday, from 3.067% Friday.

Five-year market expectations of inflation have moved up over the past month as oil prices rose to multiyear highs, but longer-term measures of inflation expectations remain contained, raising questions about how much the Fed will react to one-off price increases.

On Monday, Brent crude futures, the global crude benchmark, rose 0.3% to $78.74 a barrel.

"The Fed has been saying for a while now that they expect inflation to pick up," said David Slater, manager of Trium's macro rates fund, who has a bet on short-term U.S. inflation edging higher, but believes officials have already taken it into account when communicating their interest-rate policy.

"I'm a bit surprised we've gotten to the place we are in 10-year Treasurys, frankly," he added.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

May 21, 2018 08:50 ET (12:50 GMT)

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