Trade talk hopes keep Wall Street on upward track – Financial Times


Monday 19:30

What you need to know

  • S&P 500 up 1%; Nasdaq Composite 1.3% higher
  • Dollar index falls to weakest since October
  • Oil prices rise for sixth day in a row
  • US ISM service sector index dips to five-month low

Overview

Optimism about the outcome of trade talks between Washington and Beijing helped US stocks start the week on the front foot, with underlying support still coming from Friday’s soothing policy comments from Jay Powell, chairman of the Federal Reserve.

Mr Powell’s remarks that the US central bank would be “patient” with regard to further interest rate rises helped calm worries about a possible Fed policy error, and helped put the dollar under pressure, even as Treasury yields moved higher.

“Now that Fed chair Powell has smoothed over the market’s worries regarding rate policy, the next important catalyst is US corporate earnings season, that kicks off next week,” said Nicholas Colas at DataTrek Research.

“Bottom line: companies must convince investors that 2019 will show further earnings growth even as profit margins actually decline.”

Oil prices extended their recent run of gains to a sixth session, as the markets focused on Opec production cuts due to come into force this month.

The mood was also helped by hopes that an easing of US-China trade tensions could support global growth.

Chang Liu at Capital Economics noted that while few details had emerged after the first day of US-Sino talks, Chinese officials had announced numerous measures ahead of the meeting aimed at addressing US concerns about market access and intellectual property rights protection.

“While these are unlikely to satisfy the hawks in the US administration, with President Trump now personally involved in the negotiations and showing his willingness to make a deal, an agreement might just be reached over the coming weeks,” he said,

Meanwhile, Wall Street appeared unfazed by the latest sign that US economic growth was cooling. The Institute for Supply Management’s headline non-manufacturing index fell to a five-month low in December.

But analysts highlighted that the details of the report were more positive.— notably a rise in the new orders sub-index to a six-month high.

The survey came hard on the heels of a unsettling manufacturing report from the ISM last week

Equities

By mid-afternoon in New York, the S&P 500 was up 1 per cent at 2,556, taking its rise over the past two sessions to 4.4 per cent. The Dow Jones Industrial Average was 0.6 per cent higher while the Nasdaq Composite was up 1.3 per cent.

Across the Atlantic, Frankfurt’s Xetra Dax ended 0.2 per cent softer, having earlier been down as much as 0.8 per cent. The FTSE 100 in London slipped 0.4 per cent while the region-wide Stoxx 600 shed 0.2 per cent.

Japanese stocks outperformed in Asia, with the Topix gaining 2.8 per cent as all its sectors gained ground.

Hong Kong’s Hang Seng index rose 0.8 per cent while in China the CSI 300 index of Shanghai and Shenzhen-listed stocks rose 0.6 per cent.

Forex and fixed income

The dollar index was down 0.5 per cent at 95.66, as the euro climbed 0.8 per cent to $1.1478 and sterling gained 0.3 per cent to $1.2769.

The greenback was flat versus the yen at ¥108.53, after briefly touching a 10-month low of ¥104.96 last week during a sudden sharp appreciation for the Japanese currency.

The Treasury market had a calmer session following a steep sell-off on Friday that pushed the 10-year yield off a one-year low. On Monday, the yield was up a further 2 basis points at 2.68 per cent, while that on the two-year note was 3bp higher at 2.52 per cent.

The 10-year German Bund yield edged up 1bp to 0.22 per cent.

Commodities

Oil prices continued to build on gains made last week, with international benchmark Brent crude up 1.2 per cent at $57.73 a barrel, after earlier hitting $58.93. US West Texas Intermediate was 1.3 per cent higher at $48.58.

Gold was up $3 at $1,288 an ounce.

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