Market Analysis

Beyond the Number

Easing Trade Tensions May Lead To Rally On Wall Street
12/3/2018 8:56 AM

The major U.S. index futures are pointing to a sharply higher open on Monday, with stocks likely to extend the strong upward move seen last week.

Early buying interest is likely to be generated amid a positive reaction to the highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping over the weekend.

At the meeting, Trump and Xi agreed to a 90-day truce in the escalating trade war between the world’s two largest economies as they work to reach a long-term trade deal.

A White House statement said Trump agreed not to raise the tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent on January 1st as planned.

In return, China agreed to purchase a “not yet agreed upon, but very substantial, amount” of agricultural, energy, industrial, and other product from the U.S.

The White House said the U.S. and China will use the next 90 days to attempt to reach an agreement on issues such as forced technology transfer, intellectual property protection, and non-tariff barriers.

If the two countries are not able to reach an agreement by the end of the time period, the 10 percent tariffs on Chinese goods will be raised to 25 percent.

In remarks to reporters aboard Air Force One, Trump called the agreement with Xi an “incredible deal,” claiming it will have an “incredibly positive impact” on “every type of product.”

Trump also said China will be “opening up” and “getting rid of tariffs,” stating in a subsequent post on Twitter that China has agreed to reduce and remove tariffs on cars coming into the country from the U.S.

After recovering from an early move to the downside, stocks moved mostly higher over the course of the trading session on Friday. The major averages more than offset Thursday's modest losses, adding to the strong gains posted earlier in the week.

The major averages saw further upside going into the close, ending the day just off their highs of the session. The Dow climbed 199.62 points or 0.8 percent to 25,538.46, the Nasdaq advanced 57.45 points or 0.8 percent to 7,330.54 and the S&P 500 rose 22.40 points or 0.8 percent to 2,760.16.

With the rebound on the day, the major averages moved sharply higher for the week. The Nasdaq soared by 5.6 percent, while the Dow and the S&P 500 spiked by 5.1 percent and 4.8 percent, respectively.

The strength that emerged on Wall Street seemed to reflect optimism ahead of a highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping.

Trump and Xi are due to hold a dinner meeting on Saturday on the sidelines of the G20 summit in Buenos Aires, Argentina.

Ahead of the meeting, Trump has offered mixed remarks about the likelihood the U.S. and China will reach an agreement to end the escalating trade dispute between the world's two largest economies.

"I think we're very close to doing something with China, but I don't know that I want to do it because what we have right now is billions and billions of dollars coming into the United States in the form of tariffs or taxes. So I really don't know," Trump said Thursday before departing for the summit.

"But I will tell you that I think China wants to make a deal. I'm open to making a deal," he added. "But, frankly, I like the deal we have right now."

In U.S. economic news, MNI Indicators released a report unexpectedly showing a substantial acceleration in the pace of growth in Chicago-area business activity in the month of November.

MNI Indicators said its Chicago business barometer spiked to 66.4 in November after falling to 58.4 in October, with a reading above 50 indicating growth in business activity. Economists had expected the index to edge down to 58.0.

The unexpected jump reflected increases across all five of the barometer's subcomponents, with resurgent orders, solid output and higher unfinished orders the month's key drivers.

Utilities stocks showed a significant move to the upside over the course of the trading session, resulting in a 1.8 percent jump by the Dow Jones Utilities Average.

Considerable strength was also visible among transportation stocks, as reflected by the 1.3 percent advance by the Dow Jones Transportation Average. With the gain, the average reached its best closing level in well over a month.

Semiconductor stocks also turned in a strong performance on the day, driving the Philadelphia Semiconductor Index up by 1.5 percent.

Pharmaceutical, software and healthcare stocks also moved notably higher, while oil service stocks fell sharply amid a pullback by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are spiking $2.34 to $53.27 a barrel after falling $0.52 to $50.93 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,237.30, up $11.30 from the previous session’s close of $1,226. On Friday, gold slid $4.40.

On the currency front, the U.S. dollar is trading at 113.52 yen compared to the 113.57 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1337 compared to last Friday’s $1.1317.


Asian stocks rallied on Monday after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day truce on their escalating trade war.

While Trump agreed to hold off on his threat to raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent on January 1st, Beijing agreed to buy very substantial amounts of agricultural, energy, industrial and other products from the U.S. to narrow its trade gap with the U.S.

China's Shanghai Composite Index soared 2.6 percent to finish at 2,654.80, while Hong Kong's Hang Seng Index surged up 2.6 percent to 27,182.04.

Japanese shares hit a six-week high despite the dollar retreating to the mid-113 yen range on expectations of a slower pace of U.S. rate hikes and ahead of Federal Reserve Chairman Jerome Powell's testimony before a congressional Joint Economic Committee this week.

The Nikkei 225 Index advanced 1 percent to 22,574.76, the highest closing level since October 22nd, while the broader Topix Index jumped 1.3 percent to close at 1,689.05.

Exporters Canon, Panasonic, Toyota Motor and Sony climbed 2-3 percent, and top banks Mitsubishi UFJ Financial and Sumitomo Mitsui Financial ended modestly higher. In the tech sector, Advantest gained 1.6 percent, Tokyo Electron added 0.9 percent and Screen Holdings spiked 6.3 percent.

On the economic front, the Japanese manufacturing sector continued to expand in November, albeit at a slower pace, the latest survey from Nikkei revealed with a manufacturing PMI score of 52.2, down from 52.9 in October.

Separately, a government report showed that capital spending in Japan rose 4.5 percent sequentially in the third quarter of 2018, shy of expectations for an increase of 8.5 percent and down from 12.8 percent in the three months prior.

Australian stocks rose across the broad on improved risk sentiment amid the de-escalation in tensions between the U.S. and China, Australia's biggest trade partner. The benchmark S&P/ASX 200 Index shot up 1.8 percent to 5,771.20, while the broader All Ordinaries Index ended 1.9 percent higher at 5,856.30.

Miners BHP, Rio Tinto and Fortescue Metals Group climbed 2-4 percent, and BlueScope Steel soared 11.8 percent on share buyback news.

Woodside Petroleum, Oil Search, Santos and Origin Energy jumped 4-9 percent as oil prices surged up around 5 percent amid the U.S.-China trade truce.

The big four banks ended on a mixed note as the royal commission ended its final round of public hearings.

Shares of GrainCorp spiked 26.7 percent after the agribusiness and food ingredients company announced it has received an unsolicited A$2.4 billion takeover offer from Long-Term Asset Partners.

On the economic front, data on building approvals, company operating profits and manufacturing activity painted a mixed picture of the economy.


European stocks have moved sharply higher on Monday after U.S. President Donald Trump and Chinese President Xi Jinping agreed to a 90-day truce in their escalating trade war, helping ease investor concerns over slowing global growth.

Traders also looked ahead to a weeklong debate on the Brexit deal before a final vote in parliament on December 11th.

While the German DAX Index is up by 2.1 percent, the U.K.’s FTSE 100 Index is up by 1.6 percent and the French CAC 40 Index is up by 0.9 percent.

Miners Anglo American, Antofagasta and Glencore have soared, while oil giant BP Plc and Tullow Oil have also moved significantly higher.

German automakers BMW, Daimler and Volkswagen have also spiked after China agreed to slash auto import tariffs. Banks have also strengthened.

Standard Chartered has jumped in London on a Bloomberg report that the bank is cutting jobs in Dubai and key markets including Singapore as it looks to curb expenses.

Swiss drug major Novartis has also advanced after the U.S. FDA accepted its Biologics License Application for AVXS-101, now known as ZOLGENSMA, an investigational gene replacement therapy for the treatment of spinal muscular atrophy.

In economic news, Eurozone manufacturing growth slowed less than expected in November amid marginal growth in output and weak business confidence, final data from IHS Markit showed.

The manufacturing purchasing managers' index fell to 51.8 in November from 52 in October, hitting the lowest level since August of 2016. The flash reading was 51.5.

Elsewhere, U.K. manufacturing growth recovered from a 27-month low in November on the back of a rise in domestic new orders and stock building, a survey showed. IHS Markit's Purchasing Managers Index for the industry rose to 53.1 from 51.1 in October.

U.S. Economic Reports

At 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of November.

The ISM’s purchasing managers index is expected to inch up to 57.8 in November from 57.7 in October, with a reading above 50 indicating growth in the manufacturing sector.

The Commerce Department is also due to release its report on construction spending in the month of October at 10 am ET. Construction spending is expected to rise by 0.4 percent.

At 10:30 am ET, Federal Reserve Board Governor Lael Brainard is scheduled to give the keynote address at a New York Fed conference on the “Evolving Structure of the U.S. Treasury Market.”

Dallas Federal Fed Robert Kaplan is due to speak at a community forum at Texas A&M International University in Laredo, Texas, at 1 pm ET.

Stocks In Focus

Shares of Tribune Media (TRCO) are moving sharply higher in pre-market trading after the media conglomerate agreed to be acquired by Nextstar Media Group (NXST) for $46.50 per share in cash.

Cancer drug maker Tesaro (TSRO) is also seeing substantial pre-market strength after agreeing to be acquired by GlaxoSmithKline (GSK) for approximately $5.1 billion.

Shares of Caterpillar (CAT) may also move to the upside after Back of America Merrill Lynch upgraded its rating on the heavy equipment maker to Buy from Neutral.

On the other hand, GlaxoSmithKline is under pressure in pre-market trading after announcing its deal to acquire Tesaro. The drug giant also announced the sale of its Indian consumer business to Unilever.
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