Wall Street rallies as US-China agree to trade talks
Wall Street opened higher on Thursday, tracking gains in Europe and Asia, as investors cheered news the US and China will resume trade negotiations.
The S&P 500 climbed 1 per cent to 2,967.55 eyeing its second consecutive day of gains and edging back towards a record high. The Dow Jones Industrial Average rose 1.2 per cent to 26,670.24, while the Nasdaq Composite climbed 1.2 per cent to 8,075.37.
Days after a new round of tariffs imposed by the US and China took effect, the two countries agreed to hold meetings at the ministerial level in Washington in October. These will mark the first direct talks between the two countries since July.
The news offers some respite for investors after a key bond market indicator began flashing its most severe warning since the financial crisis last month amid growing fears about the economic fallout from the trade war.
That was further compounded by data this week showing the first contraction in the US manufacturing sector in three years in August.
The recent optimism in equity markets has also come against waning global geopolitical risks. There was a more upbeat mood in Hong Kong’s stock market after the territory’s chief executive Carrie Lam said she would officially withdraw an extradition bill, raising hopes of a resolution to a months long political crisis.
Receding fears of a no-deal Brexit as British MPs voted to block Boris Johnson’s efforts to call a snap election have also boosted investor sentiment.
So-called haven assets fell out of favour, with Treasuries selling off on Thursday and erasing their gains for the week. The yield on the US 10-year Treasury rose 7.4 basis points to 1.5331 per cent, while that on the two-year climbed 6.4 basis points to 1.498 per cent. Yields move inversely to price. Meanwhile, gold prices slid 1 per cent to $1,537.46 a troy ounce.
The dollar index, a gauge of the buck against a weighted basket of peers, slid 0.2 per cent to 98.23.
Investors are now looking to Friday’s non-farm payroll report for an update on the health of the US labour market even though a 25 basis point rate cut from the Federal Reserve later this month has been priced in, after the central bank moved to reduce rates in July.
While Fed chairman Jay Powell has said fitting trade uncertainty into its policy framework was “a new challenge” and that setting trade policy was “the business of Congress and the administration, not that of the Fed”, pressure has mounted on the central bank to help support the economy.
New York Fed president John Williams in a speech on Wednesday lamented sluggish inflation and acknowledged a “decline in exports and weakening manufacturing data, reflecting slowing global growth and uncertainty related to trade and geopolitical risks”. He added that an uncertain outlook called for “vigilance and flexibility”.