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Chinese Tariff Exemptions May Generate Early Buying Interest

The major U.S. index futures are pointing to a higher opening on Wednesday following the lackluster performance seen over the past few sessions.

Early buying interest may be generated in reaction to news that China is granting tariff exemptions for 16 types of American-made products as a sign of goodwill ahead of the next round of trade talks.

The list included varieties of animal feed such as alfalfa and fish meal, cancer drugs gefitinib and capecitabine, base oil for lubricants and lubricating grease, and some farm chemicals.

The Chinese Customs Tariff Commission said the tariff suspension would take effect next Tuesday and remain in place for a year.

Overall trading activity may remain somewhat subdued, however, as traders look ahead to the European Central Bank's monetary policy decision on Thursday as well as next week's Federal Reserve meeting.

In a post on Twitter this morning, President Donald Trump urged the Fed to lowest interest rates to zero or less, allowing the U.S. to refinance its debt.

"INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet," Trump tweeted.

"The USA should always be paying the lowest rate. No Inflation!" he added. "It is only the naïveté of Jay Powell and the Federal Reserve that doesn't allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of 'Boneheads.'"

Stocks experienced another lackluster performance during trading on Tuesday, eventually closing mixed for the third consecutive session. The major averages recovered from an early move to the downside but still ended the day roughly flat.

Despite a late-day surge, the tech-heavy Nasdaq edged down 3.28 points or less than a tenth of a percent to 8,084.16. Meanwhile, the Dow rose 73.92 points or 0.3 percent to 26,909.43 and the S&P 500 inched up 0.96 points or less than a tenth of a percent to 2,979.39.

The early weakness on Wall Street partly reflected uncertainty ahead of the European Central Bank's monetary policy decision on Thursday as well as next week's Federal Reserve meeting.

Both the ECB and the Fed are expected to cut interest rates in reaction to recent indications of a slowdown by the global economy.

With the major averages back within striking distance of record highs, traders may be questioning whether stocks will see further upside in an economy that requires support from global central banks to avoid recession.

Selling pressure remained somewhat subdued, however, with some traders sticking to the sidelines amid another quiet day on the U.S. economic front.

The weaker than expected jobs data released last Friday raised concerns about the economic outlook but also reinforced expectations of another interest rate cut by the Fed next week.

Reports on producer and consumer price inflation, retail sales, and consumer sentiment are likely to attract attention in the coming days.

Stocks showed a notable recovery after a report from the South China Morning Post said China is expected to agree to buy more American agricultural products in hopes of a better trade deal.

A source familiar with the situation told the SCMP working-level officials are discussing the text of a deal that would be reviewed at the high-level meeting scheduled for next month.

However, Scott Kennedy, senior adviser with the Washington-based Centre for Strategic and International Studies, warned that a deal on soybeans won't dispel distrust between Beijing and Washington.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Steel stocks showed a substantial move to the upside, however, with the NYSE Arca Steel Index surging up by 3.1 percent to its best closing level in over a month.

Notable strength also emerged among banking stocks, as reflected by the 1.7 percent gain posted by the KBW Bank Index. The index also reached a one-month closing high.

Tobacco, biotechnology, and transportation stocks also saw some strength on the day, while weakness remained visible among commercial real estate and software stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.56 to $57.96 a barrel after falling $0.45 to $57.40 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,500.30, up $1.10 compared to the previous session's close of $1,499.20. On Tuesday, gold tumbled $11.90.

On the currency front, the U.S. dollar is trading at 107.78 yen compared to the 107.54 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1003 compared to yesterday's $1.1043.

Asia

Asian stocks ended Wednesday's session on a mixed note as investors adopted a cautious stance ahead of the European Central Bank's meeting on Thursday, when policymakers are widely expected to cut interest rates, ramp up asset purchases or both.

China's Shanghai Composite Index ended down 12.39 points, or 0.4 percent, at 3,008.81, as caution prevailed ahead of the next round of U.S.-China trade talks.

Meanwhile, Hong Kong's Hang Seng Index rallied 475.38 points, or 1.8 percent, to finish at 27,159.06 after reports the Hong Kong Government will announce another major concession to protestors.

Japanese shares ended higher for the seventh straight session, with sentiment helped by a weakening yen and Prime Minister Shinzo Abe's Cabinet reshuffle.

The Nikkei 225 Index jumped 205.66 points, or 1 percent, to 21,597.76, while the broader Topix closed 1.7 percent higher at 1,583.66.

Automakers Toyota, Nissan Motor and Honda Motor climbed 2-3 percent as the dollar gained ground against the yen on the back of a rise in U.S. long-term interest rates. Canon advanced 1.7 percent, Panasonic jumped 2.3 percent and Nikon added 2.5 percent.

Banks Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui Financial jumped 2-4 percent, thanks to rising bond yields.

Apple suppliers Murata Manufacturing and Alps Alpine moved sharply higher after the California-based tech company announced a new lineup of iPhones.

Australian markets ended modestly higher, led by gains in the mining sector. The benchmark S&P/ASX 200 Index edged up 23.90 points, or 0.4 percent, to 6,638, while the broader All Ordinaries Index rose 24.20 points, or 0.4 percent, to 6,752.20.

Miners BHP, Rio Tinto and Fortescue Metals Group rallied around 2 percent as iron ore prices rose on expectations that Beijing would implement more economic stimulus to boost steel demand. The big four banks rose between 0.9 percent and 1.7 percent as Treasury yields recovered.

On the other hand, oil and gas majors ended mostly lower, with Santos tumbling 3.3 percent after Red Sky Energy struck a farm out deal and operating agreement with the company on its Cooper Basin oil and gas licenses.

Seoul stocks ended higher ahead of a long holiday weekend. The local markets will be closed Thursday and Friday for the Chuseok holiday, the Korean autumn harvest celebration.

The benchmark Kospi climbed 17.12 points, or 0.8 percent, to 2,049.20, extending gains for a sixth straight session on expectations that the ECB will dole out stimulus this week.

Europe

European stocks have moved notably higher on Wednesday as investors cheer signs of a thaw in the U.S.-China trade dispute.

Ahead of talks scheduled for next month, China announced that it would exempt 16 American-made products from tariffs as a sign of goodwill.

The list included varieties of animal feed such as alfalfa and fish meal, cancer drugs gefitinib and capecitabine, base oil for lubricants and lubricating grease, and some farm chemicals.

Investors also shifted their focus to bets on near-term stimulus from the world's biggest central banks.

Analysts are split over what to expect from the European Central Bank on Thursday, while the Federal Reserve is expected to cut interest rates once again when it meets next week.

While the French CAC 40 Index has risen by 0.4 percent, the German DAX Index and the U.K.'s FTSE 100 Index both up by 0.9 percent.

Trade-sensitive automakers are moving higher, with BMW, Daimler, Volkswagen, Renault and Peugeot posting notable gains. Banks Commerzbank, Deutsche Bank and Societe Generale have also moved to the upside.

German science and technology company Merck KGaA has also advanced after it won FDA breakthrough therapy designation for its prospective lung cancer treatment tepotinib.

French retailer Casino has also jumped on the buzz that rival Carrefour is weighing a possible bid potentially through an all-share deal.

Galliford Try, a construction and homebuilding company, has also rallied after restarting talks to sell its homebuilding arm to Bovis Homes for £1.1 billion.

Capital & Regional shares have soared after the manager of property assets said South Africa's Growthpoint Properties was in talks to buy a majority stake.

On the other hand, pharma services provider Consort Medical has tumbled after warning that full-year profits could be hurt by up to £9.0 million.

U.S. Economic Reports

A report released by the Labor Department showed a modest uptick in U.S. producer prices in the month of August.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in August after rising by 0.2 percent in July. Economists had expected prices to come in unchanged.

Excluding food and energy prices, core producer prices rose by 0.3 percent in August after edging down by 0.1 percent in July. Core prices had been expected to increase by 0.2 percent.

At 10 am ET, the Commerce Department is due to release its report on wholesale inventories in the month of July. Wholesale inventories are expected to rise by 0.2 percent.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended September 6th at 10:30 am ET.

Crude oil inventories are expected to drop by 2.6 million barrels after tumbling by 4.8 million barrels in the previous week.

At 1 pm ET, the Treasury Department is slated to announce the results of its auction of $24 billion worth of ten-year notes.

Stocks In Focus

Shares of Dave & Buster's (PLAY) are moving sharply lower in pre-market trading after the restaurant operator reported better than expected fiscal second quarter results but lowered its full-year guidance.

Video game retailer GameStop (GME) is also likely to come under pressure after reporting a wider than expected fiscal second quarter loss on revenues that missed analyst estimates.

On the other hand, shares of Micron Technology (MU) may see initial strength after Longbow Research upgraded its rating on the chipmaker's stock to Buy from Neutral.

Home furnishings retailer RH (RH) could also attract attention after reporting fiscal second quarter results that beat estimates and raising its full-year guidance.

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