The Wednesday Market Minute
- Global stocks extend gains as China unveils US tariff exemptions, raising hopes of detente in upcoming trade talks.
- Rising global bond yields add to equity attraction, with investors fading bets on an ECB re-start of quantitative easing in favor or deeper rate cuts and bank lending support.
- Global oil prices extend gains after a bigger-than-expected 7.2 million drawdown in domestic U.S crude stocks last week, offsetting yesterday’s downside move following the firing of Iran hawk John Bolton as National Security Adviser.
- Wall Street futures suggest the Dow could extend its five-day winning streak with a modest opening bell gain ahead of factory gate inflation data at 8:30 eastern time.
Global stocks extended gains Wednesday, lifting U.S. equity futures towards a sixth consecutive session gain, as investors reacted to news that China will allow some exemptions to additional tariffs on U.S. imports as the two side prepare to re-start trade talks between the world’s two biggest economies.
China’s Finance Ministry revealed the exemptions, which cover 16 different products linked to the first round of tariffs it applied in July of last year, on its website Wednesday, just weeks ahead of what is expected to be a key meeting between senior U.S. trade officials, led by Robert Lighthizer and Steven Mnuchin, in Washington.
The move could signal both a conciliatory position for the Chinese as they prepare for talks that have been dormant since late May, or suggest a desire from Beijing to mitigate the obvious slowing seen in the domestic economy — particularly in the manufacturing sector — the the trade dispute began last year.
Investor sentiment was further bolstered by the ongoing rise in global bond yields, which has taken benchmark 10-year Treasury notes to a four-week high of 1.74% as investors fade bets on bond-buying stimulus from the European Central Bank tomorrow in Frankfurt and eye developments in Germany’s budget debate which could unleash new borrowing — and much-needed bond supply — from Europe’s biggest economy.
U.S. equity futures bumped higher on the China tariff move, although the Dow Jones Industrial Average is only expected to book a modest gain at the opening bell as it attempts to extend its current winning streak to a fifth consecutive session.
Contracts liked to the S&P 500, which has gained 1.76% so far this month and 18.8% for the year, were marked for a 1.2 point opening bell dip while those linked to the tech-focused Nasdaq Composite were indicating a 2.7 point pullback.
European stocks were firmer at the open in Frankfurt, with the Stoxx 600 rising 0.3% as the euro drifted to 1.1041 against the U.S. dollar and bank stocks gained amid the rise in global bond yields. Britain’s FTSE 100, meanwhile, jumped 0.37% even as the pound held at 1.2347 against the greenback.
Overnight in Asia, the improving equity market sentiment added to regional risk appetites, pushing the yen to a fresh 5-week low of 107.40 against the U.S. dollar and helping Japan’s Nikkei 225 to a 0.96% gain by the close of trading in Tokyo.
The region-wide MSCI ex-Japan benchmark, meanwhile, was poised for a 0.54% gain heading into the final hours of trading, even as China’s main indices slipped lower on the session as investors priced in more competition for domestic companies as U.S. tariff exemptions kick-in.
Global oil prices were also back on the rise, boosted by data from the American Petroleum Institute yesterday that showed a much bigger-than-expected 7.2 million drawdown in domestic crude supplies over the week ending September 6.
The API data, alongside comments supporting OPEC cuts from Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman, helped offset yesterday’s downside move that followed President Donald Trump’s decision to fire noted Iran-hawk John Bolton as National Security Adviser.
Brent crude contracts for November delivery, the global benchmark, were seen 46 cents higher from their Monday close in New York and changing hands at a near six-week high of $62.87 per barrel in early European trading while WTI contracts for October were marked 44 cents higher at $57.84 per barrel.