European stocks have surged higher in early trading as optimism swept through the financial markets after China and the US struck a deal over tariffs.
The two countries are set to suspend most tariffs for 90 days and slash future rates after negotiations in Switzerland over the weekend.
The UK’s FTSE 100 jumped as much as 1% shortly after markets opened but then retreated, settling about 0.1% higher in morning trading.
The index was dragged down by losses for pharmaceutical stocks following Donald Trump’s pledge to lower the price of some medication for US patients.
The US president said he would use his executive powers to reduce prices by between 30% and 80%, a move which could cost the pharmaceutical companies which make the drugs.
Shares in London-listed pharma giants AstraZeneca, Hikma Pharmaceuticals, and GSK were all falling around 3% in early Monday trading.
Gains were stronger in other European stock markets. In France and Germany, the Cac 40 and the Dax were surging more than 1%.
US markets are expected to open strongly in the afternoon in reaction to the de-escalation of trade tensions between the US and China.
US trade representative Jamieson Greer announced a 90-day pause on tariffs on Monday morning, and said both countries had agreed to cut their rates by 115%.
Mr Trump had previously imposed a 145% tariff rate on most Chinese exports, while China had reciprocated with a 125% rate on US exports.
While more details are still to be released, the update signals a significant easing of trade pressure between the world’s two largest economies.
The agreement follows the UK Government unveiling its own trade deal as talks ramp up in a bid to limit the impact of Mr Trump’s “liberation day” policies announced last month.
A new UK-US agreement, unveiled on Thursday, saw tariffs slashed on steel and car exports, which were threatened by higher rates.
The deal was viewed by many economists as a political success, but that will do little to boost the economy, with most UK exports to the US still being subject to a blanket 10% tariff.
The market reaction was therefore muted, with the FTSE 100 ending its record run of consecutive gains last week.
Susannah Streeter, head of money and markets for Hargreaves Lansdown, said: “Hopes are high for significant deal between the US and China after fruitful weekend negotiations.
“Progress was made on key sticking points for both countries and talks were extended as trade dominoes fell into place.
“With more details about the outcome expected later, there’s optimism around that the spat between the world’s two largest economies won’t inflict as much damage globally as had been feared.”
Lynn Song, chief economist for China at ING, said: “These rates return tariffs to pre-Liberation Day levels and represent a better-than-expected de-escalation.
“Although the de-escalation of the trade war benefits both economies, the agreement, which significantly lowers tariffs without any concessions, is likely to be viewed as a particular victory for China.
“China had previously demanded a reduction in tariffs before negotiations, and this now seems to have been achieved.”
The dollar was surging following the announcement with the pound dropping by about 0.7% against the currency, at 1.317, on Monday morning.
The price of oil also surged by more than 2.5%, to about 65.60 US dollars per barrel, amid hopes of stronger global energy demand.
