LONDON (Reuters) – Stocks rallied and bonds retreated on Monday as the United States and China agreed to restart trade talks, leading investors to cut back wagers on aggressive policy easing by the major central banks.

The dollar gained against the safe-haven yen as Treasury yields rose and futures reined in bets for a half-point rate cut from the U.S. Federal Reserve this month.

“It (Trump-Xi G20 meeting) played out as well as possible,” said Hans Peterson, SEB Investment Management’s global head of asset allocation. “So it gives us time to digest and get a bit better activity in the global economy.”

The United States and China agreed on Saturday to resume trade negotiations after President Donald Trump offered concessions to his Chinese counterpart Xi Jinping when the two met at the sidelines of the G20 summit in Japan.

Those included no new tariffs and an easing of restrictions on tech company Huawei. China agreed to make unspecified new purchases of U.S. farm products and return to the negotiating table.

The initial reaction was one of relief that at least new tariffs were avoided.

Europe’s STOXX 600 climbed 1% and Japan’s Nikkei 2.1% to hit two-month highs. MSCI’s broadest global index added 0.3%, having just missed its best first half to a year.

Chinese blue chips jumped 2.6% to their highest since late April and Germany’s export-heavy DAX gained 1.5% to its highest since August. The Huawei hiatus and M&A activity pushed Europe’s tech sector to a one-year peak. [.EU]

Wall Street was looking on course to return to record highs with S&P 500 and Nasdaq futures up 1.1% and 1.7%.[.N] In the bond market, though, Treasury futures dipped as yields on 10-year notes edged up to 2.02%. [GVD/EUR

Fed funds dropped over five ticks as the market scaled back the probability of a half-point rate cut this month to around 15%, from nearer 50% a week ago.

Central bank umbrella group, the Bank for International Settlements, had urged top central banks at the weekend to preserve their ammunition rather than deplete it chasing higher growth.

“I think the Fed expectations in the market are very aggressive. Possibly a bit too aggressive,” SEB’s Peterson said.

DAMAGE DONE

No deadline was set for a trade deal at the weekend G20 summit, however, and much damage has already been done. Two surveys of Chinese manufacturing showed activity contracting.

The official Purchasing Managers’ Index (PMI) held at 49.4 in June, just missing forecasts, while the Caixin/Markit PMI dropped to 49.4, the worst reading since January.

Surveys from Japan and South Korea showed similar slowdowns. So did the reading for the euro zone, which contracted for a fifth month running and at a faster pace than previously expected.

“Euro zone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years,” said Chris Williamson, chief business economist at IHS Markit.

There were some unusual issues, too. South Korea lagged, in part as Japan tightened restrictions on exports of high-tech materials in response to a South Korean ruling on war-time forced labour.

European Union leaders were struggling to agree on who will take over the EU’s top jobs. Swiss stocks seemed unfazed that they had been barred from EU exchanges amid a row between Brussels and Bern.

The post-G20 cheer dominated, though. In currency markets, safe havens like the yen and Swiss franc gave up some recent gains. The dollar rose 0.4% on the yen to 108.26 and 0.7% on the franc to 0.9830. [/FRX]

The dollar added 0.4% on a basket of currencies to 96.531. The euro eased to $1.1350. The dollar went the other way on the Chinese yuan, dipping 0.4% to 6.8403.

The dollar’s gains hurt gold, which fell 1.5% to $1,388 per ounce

Industrial metals did better. Copper scored a six-week high and oil prices rose as OPEC and its allies looked set to extend supply cuts at least until the end of 2019. Iraq joined top producers Saudi Arabia and Russia in endorsing the policy.

Brent crude futures rose $1.55, or 2.4%, to $66.31 a barrel. U.S. crude gained $1.35, or 2.3%, to $59.82.