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U.S. Stocks Extend Yesterday's Rally On Trade Talk Optimism

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Following the strong upward move seen in the previous session, stocks saw some further upside during trading on Thursday. With the gains, the major averages further offset the sharp pullback that was seen earlier in the week.

The major averages pulled back off their best levels of the day but remained firmly positive. The Dow climbed 150.66 points or 0.6 percent to 26,496.67, the Nasdaq advanced 47.04 points or 0.6 percent to 7,950.78 and the S&P 500 rose 18.73 points or 0.6 percent to 2,938.13.

Buying interest emerged on Wall Street after President Donald Trump revealed he plans to meet with Chinese Vice Premier Liu He as part of high-level U.S.-China trade talks.

"Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House," Trump tweeted.

The tweet from Trump offset concerns generated by reports suggesting Liu could leave Washington earlier than originally planned.

Adding to the positive sentiment, Liu told Chinese state-run media Xinhua the Chinese delegation has come to the talks with "great sincerity and is willing to make serious exchanges with the U.S. on issues of common concern."

"On the basis of equality and mutual respect, China is willing to reach consensus with the U.S. through this round of consultations on issues of mutual concern to prevent further escalation and spread of friction," Liu said.

Traders are likely to remain focused on reports regarding the highly anticipated negotiations and any signs of progress or lack thereof.

As a result of the focus on the trade talks, traders largely shrugged off a usually closely watched report from the Labor Department showing U.S. consumer prices were essentially flat in the month of September.

The Labor Department said its consumer price index was unchanged in September after inching up by 0.1 percent in August. Economists had expected another 0.1 percent uptick.

Consumer prices came in unchanged as higher prices for shelter and food were offset by declines in prices for energy and used cars and trucks.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent in September after rising by 0.3 percent for three straight months. Core prices had been expected to rise by 0.2 percent.

"The muted gain in core consumer prices in September underlines that even after the introduction of additional tariffs on Chinese imports, inflationary pressures are still well-contained," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

"With wage growth leveling off and unit labor costs growth stable, we don't think core inflation will rise further from here," he added. "As a result, the Fed will remain focused on the incoming activity data, which we expect to prompt one more 25bp rate cut by year-end."

A separate report released by the Labor Department showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended October 5th.

Sector News

Steel stocks turned in some of the market's best performances of the day, benefiting from the optimism about the U.S.-China trade talks.

Reflecting the strength in the steel sector, the NYSE Arca Steel Index surged up by 2.9 percent, climbing further off the more than one-month closing low set on Tuesday.

Significant strength also emerged among oil service stocks, as reflected by the 1.8 percent gain posted by the Philadelphia Oil Service Index. The index also continued to rebound after ending Tuesday's trading at its lowest closing level in well over a month.

The strength in the sector came amid a notable increase by the price of crude oil, with crude for November delivery jumping $0.96 to $53.55 a barrel.

Financial, transportation, and natural gas stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan's Nikkei 225 Index rose by 0.5 percent, while China's Shanghai Composite Index advanced by 0.8 percent.

The major European markets also moved to the upside over the course of the session. While the French CAC 40 Index surged up by 1.3 percent, the German DAX Index climbed by 0.6 percent and the U.K.'s FTSE 100 Index rose by 0.3 percent.

In the bond market, treasuries moved significantly lower over the course of the trading day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, advanced 6.9 basis points to 1.658 percent.

Looking Ahead

News out of the trade talks is likely to remain in the spotlight on Thursday, overshadowing reports on import and export prices and consumer sentiment.

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