Wall Street closes up, investors optimistic on China trade

  • Business
  • Wednesday, 12 Dec 2018

E-Mini futures for the S&P500 gained 0.2 percent and Dow futures added 0.15 percent. Trade was subdued overnight with market holidays in the world's two biggest financial centres - London and New York. Singapore markets are closed on Tuesday. Analysts expect sentiment to improve as South Korean President Moon Jae-in flags more impromptu talks and summits with North Korea's Kim Jong Un after the pair's surprise meeting at the weekend.

NEW YORK: U.S. stocks closed up on Wednesday afternoon, though well below their session highs as investors pulled back in the last few minutes of trading despite optimism about U.S.-China trade relations and some reassuring signs in British politics.

U.S. President Donald Trump, in an interview with Reuters on Tuesday, said trade talks were under way with China. Traders said China made the first major purchase of U.S. soybeans since Washington and Beijing agreed to a temporary trade truce this month.

Also, Trump said he would intervene in a case against a top executive at Huawei Technologies if it would help secure a trade deal.

While investors were still wary of market volatility between now and a March 1 deadline for a trade agreement, they sounded optimistic about the latest news.

"Everything Trump says is a negotiating posture ... You'd want statements that are more data and fact driven from the president. However this approach is making China think twice about their hard stance," said Ernesto Ramos, Managing Director of Active equities for BMO Global Asset Management in Chicago.

"This relentless pushing by Trump is making China give up some ground. That's what's cheering up the market."

Equities trading has been especially choppy in the past few days amid headlines on topics ranging from China trade and a potential U.S. government shutdown to Brexit uncertainty.

And a rapid paring of gains in the last 20 minutes of Wednesday's session pointed to a decline on Thursday, according to Ramos.

The Dow Jones Industrial Average rose 157.03 points, or 0.64 percent, to 24,527.27, the S&P 500 gained 14.29 points, or 0.54 percent, to 2,651.07 and the Nasdaq Composite added 66.48 points, or 0.95 percent, to 7,098.31.

While he expects the market to stay above the 2018 lows it has tested multiple times recently, Robert Phipps, director at Per Stirling in Austin, Texas expects volatility to continue.

"Not only is Trump unlikely to seal a deal until the end of February but the rhetoric gets more abrasive the closer he gets to the deadline," Phipps said. "There's a lot of political issues that are going to keep pressure on the market from now to the end of February."

Investors seemed to shrug after British Prime Minister Theresa May won a confidence vote from her Conservative party as 117 of her lawmakers said she was no longer the right leader to implement Britain's exit from the European Union.

May had failed to reach a Brexit deal this week, creating uncertainty for investors as it opened up the possibility for a delay to Brexit or even another referendum on membership.

With the confidence vote over BMO's Ramos said "she still has to sell the deal to Parliament."

Of the S&P's 11 major sectors 8 showed gains but only one, consumer discretionary <.SPLRCD> increased more than 1 percent on the day. The real estate sector <.SPLRCR> was the biggest loser with a 1.9 percent drop while utilities <.SPLRCU> followed with a 0.6 percent decline and consumer staples nudged 0.2 percent lower, showing a lack of appetite for defensive sectors.

The S&P technology sector <.SPLRCT>, which is heavily exposed to China trade, gained 0.8 percent but well below its session low.

On the bright side, China-based music streaming company Tencent Music Entertainment gained 7.7 percent in its New York Stock Exchange debut on Wednesday.

Advancing issues outnumbered declining ones on the NYSE by a 2.02-to-1 ratio; on Nasdaq, a 2.09-to-1 ratio favored advancers.

The S&P 500 posted 14 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 21 new highs and 169 new lows.

Volume on U.S. exchanges was 8.13 billion shares, compared to the 8.06 billion average for the last 20 trading days

Reuters also reported that a gauge of global stock markets rallied along with U.S. Treasury yields on Wednesday as optimism abounded for a trade thaw between the United States and China while sterling bounced on indications UK Prime Minister Theresa May would survive a no-confidence vote.

U.S. Treasury yields advanced in tandem with Wall Street's gains after U.S. President Donald Trump said trade talks with China were progressing with discussions under way by telephone and more meetings likely among officials of both countries.

In an interview with Reuters on Tuesday, Trump also said he would intervene in the Justice Department's case against a top executive at China's Huawei Technologies Co Ltd [HWT.UL] if it served national security interests or helped to close a trade deal.

China made its first major U.S. soybean purchases in more than six months on Wednesday, two U.S. traders said, and its first since Trump and his Chinese counterpart Xi Jinping struck a trade war truce in early December.

But after a spate of dizzying volatility in the past few days, there was some wariness about whether gains would hold.

"The market just kind of gets whipsawed every time you get a headline," said Tom Hainlin, global investment strategist at Ascent Private Capital Management in Minneapolis.

"These are policies and concerns that don’t have a lot of informational arbitrage - it is hard to know exactly where the U.S.-China trade is going to go.

The Dow Jones Industrial Average <.DJI> rose 158.8 points, or 0.65 percent, to 24,529.04, the S&P 500 <.SPX> gained 14.45 points, or 0.55 percent, to 2,651.23 and the Nasdaq Composite <.IXIC> added 66.48 points, or 0.95 percent, to 7,098.31.

Still, U.S. equities finished well off their session highs and traders were not convinced the market was ready for a sustained move upward after two-straight days of gains.

"The risk right now is to the downside still, even though we had this reversal," said Gordon Charlop, managing director at Rosenblatt Securities in New York.

The pan-European STOXX 600 index <.STOXX> rose 1.69 percent to give the index its best two-day performance in two-and-1/2 years and MSCI's gauge of stocks across the globe <.MIWD00000PUS> gained 1.10 percent.

The British pound sterling jumped off 20-month lows as Prime Minister May vowed to fight a challenge to her leadership, saying a change could jeopardize Britain's divorce from the European Union.

May won a vote of confidence in her leadership right as U.S. markets closed for the session.

Sterling was last trading at $1.261, up 1.01 percent on the day.

The dollar index <.DXY> fell 0.33 percent, with the euro up 0.46 percent to $1.1366.

Benchmark 10-year notes fell 8/32 in price to yield 2.9096 percent, from 2.881 percent late on Tuesday.- Reuters

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