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Optimism About Trade Deal May Lead To Continued Strength On Wall Street

The major U.S. index futures are currently pointing to a higher opening on Friday, with traders expressing renewed optimism about a possible U.S.-China trade deal.

The markets may benefit from signs of easing trade tensions as China's Ministry of Commerce revealed plans to exempt U.S. agricultural products, including soybeans and pork, from additional tariffs.

China will add the agricultural products to a list of 16 types of American-made products granted tariff exemptions as a sign of goodwill ahead of the next round of trade talks.

The Commerce Ministry also said it welcomes President Donald Trump's move to temporarily delay raising the rate of tariffs on $250 billion worth of Chinese imports.

Meanwhile, Trump said he would think about an interim deal with China but would prefer a full agreement as the world's two largest economies look to end the widening trade war.

"If we're going to do the deal, let's get it done," Trump told reporters on Thursday. "A lot of people are talking about it, I see a lot of analysts are saying an interim deal — meaning we'll do pieces of it, the easy ones first."

"But there's no easy or hard. There's a deal or there's not a deal," he added. "But it's something we would consider, I guess."

The futures remained positive following the release of a Commerce Department showing U.S. retail sales increased by more than expected in August amid a jump in auto sales.

Following the strong upward move seen on Wednesday, stocks fluctuated over the course of the trading day on Thursday but largely maintained a positive bias. The major averages once again ended the session at their best closing levels in over a month.

The major averages came under pressure going into the close but remained in positive territory. The Dow edged up 45.41 points or 0.1 percent to 27,182.45, the Nasdaq climbed 24.79 points or 0.3 percent to 8,194.47 and the S&P 500 rose 8.64 points or 0.3 percent to 3,009.57.

Stocks fluctuated throughout much of the session as traders reacted to conflicting reports regarding an interim U.S.-China trade deal.

The major averages showed a notable move to the upside after a report from Bloomberg News said Trump administration officials have discussed offering an interim trade agreement to China.

Citing five people familiar with the matter, Bloomberg said the limited trade agreement would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases.

The people told Bloomberg some of Trump's top trade advisers have discussed the plan ahead of face-to-face negotiations with Chinese officials in the coming weeks.

However, stocks gave back ground after a senior White House official told CNBC the U.S. is "absolutely not" considering an interim trade deal.

The markets maintained a positive bias as Trump revealed in a post on Twitter that he is temporarily delaying raising tariffs on $250 billion worth of Chinese imports.

Calling the move a "gesture of good will," Trump delayed raising the tariffs rate from 25 percent to 30 percent from October 1st to October 15th.

Trump said in a separate tweet that China is expected to purchase large amounts of U.S. agricultural products, although the Chinese have not followed through on previous pledges.

Treasury Secretary Steven Mnuchin claimed in an interview with CNBC that Trump could strike a trade deal with China at "any time" but only wants to do a "good deal."

"President Trump is only going to agree to a deal if it's a good deal, a deal that's good for U.S. companies and U.S. workers," Mnuchin said.

Positive sentiment was also generated in reaction to the European Central Bank's monetary policy decision, with the ECB cutting rates and announcing a massive new bond-buying program.

The ECB lowered its main deposit rate by 10 basis points to 0.50 percent and announced plans to restart its quantitative easing program by purchasing assets at a pace of 20 billion euros per month beginning November 1st.

The central bank said it expects to keep interest rates at their present or lower levels until it has seen a sufficient increase in the inflation outlook.

Nonetheless, buying interest was subdued, as a report from the Labor Department showed the annual rate of core consumer price growth accelerated to an eleven-year high of 2.4 percent in August.

"The further rise in core CPI inflation to an 11-year high of 2.4% in August won't stop the Fed from cutting interest rates again next week," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "But it does provide further reason to believe that market expectations of significant further easing will ultimately be disappointed."

Despite the advance by the broader markets, most of the major sectors finished the session showing only modest moves.

Chemical and steel stocks saw some strength on the day, while energy stocks moved to the downside along with the price of crude oil.

Commodity, Currency Markets

Crude oil futures are rising $0.18 to $55.27 a barrel after sliding $0.66 to $55.09 a barrel on Thursday. Meanwhile, after rising $4.20 to $1,507.40 an ounce in the previous session, gold futures are slipping $0.80 to $1,506.60 an ounce.

On the currency front, the U.S. dollar is trading at 108.09 yen versus the 108.10 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1084 compared to yesterday's $1.1065.

Asia

Asian stocks ended mostly higher on Friday as investors welcomed positive developments on the U.S.-China trade front and a sufficiently dovish ECB rate decision.

U.S. President Donald Trump said he would think about an interim deal with China but would prefer a full agreement as the world's two largest economies look to end a widening trade war.

The European Central Bank cut its key interest rate and launched a sweeping package of bond purchases, bolstering expectations the Fed will make a modest quarter-point cut at its meeting next week.

Markets in China, South Korea and Taiwan were closed for public holidays. Hong Kong's Hang Seng Index jumped 265.06 points or 1 percent to 27,352.69 on growing hopes for a resolution to the U.S.-China trade dispute.

Japanese shares rose sharply to extend recent gains as the safe-haven yen continued to weaken following the ECB rate decision. The Nikkei 225 Index surged up 228.68 points, or 1.1 percent, to 21,988.29, while the broader Topix closed 0.9 percent higher at 1,609.87.

Market heavyweight SoftBank Group rallied 3.2 percent and semiconductor test equipment supplier Advantest gained 1.5 percent

Yahoo Japan surged 4.9 percent after the subsidiary of SoftBank offered to acquire a 50.1 percent stake in Japan's largest online fashion retailer Zozo for 400 billion yen, or $3.7 billion.

Australian markets gave up some early gains to end modestly higher. The benchmark S&P/ASX 200 Index inched up 14.30 points, or 0.2 percent, to 6,669.20, while the broader All Ordinaries Index ended up 11.40 points, or 0.2 percent, at 6,777.10.

Commonwealth Bank of Australia gained 1 percent, while ANZ advanced 0.9 percent and NAB added 0.7 percent.

Meanwhile, energy stocks ended modestly lower as oil prices extended losses after the IEA's warning of a looming supply glut.

Miners also declined, with shares of Syrah Resources plunging 6.4 percent after the graphite miner flagged a statutory net loss of US$81.4 million for the six-month period ending June 30, 2019.

Gold miner Evolution tumbled 3.4 percent and Newcrest lost 2.8 percent as gold priced edged lower on improved risk appetite.

Europe

European stocks are moving higher on Friday, although the U.K. markets remain subdued as the pound sterling pushes higher against other currencies on speculation the British government could be softening its red lines on the so-called Northern Irish backstop.

While the U.K.'s FTSE 100 Index is just above the unchanged line, the French CAC 40 Index is up by 0.3 percent and the German DAX Index is up by 0.6 percent.

Underlying sentiment was underpinned after the European Central Bank slashed interest rates for the first time since 2016 and unveiled a sweeping stimulus package to boost growth in the ailing euro zone.

German lender Deutsche Bank has rallied after it became the first of 16 financial services companies to resolve bond-rigging lawsuits concerning the prices of bonds issued by U.S. enterprises Fannie Mae and Freddie Mac.

Commerzbank, BNP Paribas and Societe Generale have also moved notably higher a day after the ECB eased the terms of its long-term loans to banks.

Tariff-sensitive automakers are also broadly higher after U.S. President Donald Trump said he could consider an interim trade deal with China ahead of high-level negotiations in October.

On the other hand, AstraZeneca, Diageo and British American Tobacco have moved to the downside as the pound advances against all rivals.

In economic releases, the euro area trade surplus increased in July on higher exports, data from Eurostat showed. The trade surplus rose to a seasonally adjusted 19 billion euros from 17.7 billion euros in June. Exports grew 0.6 percent in July from June, while imports remained stable.

U.S. Economic Reports

Reflecting a jump in auto sales, the Commerce Department released a report showing U.S. retail sales increased by more than expected in the month of August.

The Commerce Department said retail sales rose by 0.4 percent in August after climbing by an upwardly revised 0.8 percent in July.

Economists had expected retail sales to rise by 0.2 percent compared to the 0.7 percent increase originally reported for the previous month.

Excluding the jump in auto sales, retail sales came in unchanged in August after surging up by 1.0 percent in July. Ex-auto sales had been expected to inch up by 0.1 percent.

With fuel prices pulling back sharply, the Labor Department released a separate report showing a slightly bigger than expected decrease in U.S. import prices in the month of August.

The report showed import prices fell by 0.5 percent in August after inching up by a downwardly revised 0.1 percent in July.

Economists had expected import prices to drop by 0.4 percent compared to the 0.2 percent uptick originally reported for the previous month.

The Labor Department also said export prices slid by 0.6 percent in August after rising by 0.2 percent in the previous month. Export prices had been expected to dip by 0.2 percent.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of September. The consumer sentiment index is expected to inch up to 90.9 in September after plunging to 89.8 in August.

The Commerce Department is also due to release its report on business inventories in the month of July at 10 am ET. Business inventories are expected to rise by 0.3 percent in July after coming in unchanged in June.

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