US Futures Extend Longest Gain Since November As Trade Talks Conclude

Global stocks rose, and US equity futures extended their longest winning streak since November, rising for a 4th day as the US and China concluded three days of trade talks on what Bloomberg reported was an "optimistic note".

 

World stocks extended gains to hit a near-four week high, WTI crude oil rose above $50 and most industrial metals advanced on Wednesday on optimism that the United States and China may be inching toward a trade deal, soothing fears an all-out trade war could hit a slowing global economy, while China stepped up measures to spur consumption. Reuters reported that a senior Chinese official said Beijing plans to introduce policies to boost domestic spending on items such as autos and home appliances this year.

“The positive news around the trade talks is giving a boost to risk assets – it’s what the global economy needs to see,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. “There are also reports of new initiatives by China to boost spending and that’s desirable from the perspective of Chinese and global growth.”

As reported earlier, delegations from China and the U.S. ended talks that had lasted longer than expected in Beijing on Wednesday amid signs of progress on issues including purchases of U.S. farm and energy commodities and increased access to China’s markets. Officials said details will be released soon with Global Times editor Hu Xijin tweeting that "the trade talks, though arduous, were conducted in a pleasant and candid atmosphere. Neither side has made the briefing, because the US delegation is on the plane now. The two sides will release message at the same time on Thursday morning Beijing time."

Trade developments between the U.S. and China have remained a focal point for traders after a report that Trump was eager to strike a deal to help revive the flagging stock rally he was happy to take credit for. While concerns linger about the impact of protectionist tensions on global growth, a favorable outcome would set up a potential Goldilocks scenario for markets after Fed Chair Powell’s apparent dovish shift last week eased fears about tightening financial conditions.

As a result of growing trade optimism, MSCI's all-country index rose another 0.4% in a fourth straight day of gains. Asian bourses saw a strong finish with Japan's Nikkei and China's blue-chip CSI 300 closing up 1% while the tech-heavy South Korean KOSPI jumped nearly 2%.

European bourses then picked up the Asian baton, with the pan-European STOXX 600 rising more than 1% with German and French benchmarks leading the way.

U.S. equity futures also rose, set for another strong day on Wall Street after the S&P 500 gained nearly 1 percent on Tuesday; US futures are now higher for 4 consecutive days - the longest stretch since November.

 

Not everyone was optimistic, however: Kate Moore, chief equity strategist at BlackRock told Bloomberg that "we could get some more stabilization and a floor in the market if we make strides towards an agreement” on trade, but "this is going to be an issue overhanging markets I believe for multiple years.”

Meanwhile, stocks got another boost overnight after Trump demanded in his televised address that Congress provide billions for a border wall with Mexico, but stopped short of declaring a national emergency or making any other dramatic announcements. In Trump's first-ever prime-time address, he said there is an increasing security crisis at the US southern border and that Americans are hurt by uncontrolled, illegal migration, while he also said they requested USD 5.7bln for a border wall which will be a steel barrier. Following the speech, US House Speaker Pelosi responded that President Trump is rejecting bipartisan deal to reopen government and has chosen fear over shutdown impasse, while Senate minority leader Schumer called for the government to reopen while debate over border continues. At the same time, the government shutdown continues, now in its 19th day, thanks to the impasse over funding.

Curiously, and in another sign of subsiding worries about the U.S. economic outlook, Fed funds rate futures show traders are now pricing in a small chance of a rate hike in 2019, a change from late last week when futures markets had priced in a cut by the end of the year. “Slowly but surely, the numerous headwinds that contributed to the market sell-off in the final quarter of 2018 are becoming less gale force and more strong breeze,” Craig Erlam at OANDA wrote in a note. “There is a clear risk that conditions could deteriorate quickly but at the moment, the storm is passing and investors are seeing opportunities in the wreckage.”

In currency markets, the dollar consolidated recent losses before a series of Fed speakers and the minutes of FOMC’s latest decision, while Treasuries were little changed. Commodity currencies and stocks traded in the green on renewed trade hopes, with emerging-market currencies edging north.  The dollar index eased 0.2% to 95.69 against a basket of currencies, hovering close to a 2-1/2 month low hit on Monday. The euro traded at $1.1464 while the dollar stood at 108.90 yen. Theresa May’s Brexit deal returns to Parliament while one-week volatility in the pound rallied on the Jan. 15 vote risk.

In Asia, the yuan led gains, rising in offshore trading by 0.4% to its strongest level in five weeks. Asian currencies as rising on optimism the U.S. and China will be able to defuse their trade war outweighed a worsening global growth outlook. “With little by way of domestic economic data to provide any guidance for Asian currencies, the focus remains on the ongoing U.S.-China trade talks,” says Khoon Goh, head of Asia research at ANZ in Singapore. Expectations some sort of deal could be reached have buoyed regional assets, but foreign investor equity flows into the region remain muted, suggesting there’s still some caution, he said. EM Asian currency prospects have improved owing to factors including the better-than-expected China services PMI and U.S. jobs data, says Christopher Wong, a senior FX strategist at Maybank in Singapore. Still, risks remain as growth momentum is easing and there’s concern over the corporate earnings outlook, Wong said.

Elsewhere, oil prices extended their gains, rising nearly 1% with U.S. WTI crude oil futures rose above $50 per barrel overnight for the first time in 2019, after 9 consecutive days of gains.

 

U.S. bond yields also climbed, with the benchmark 10-year Treasuries yield rising as high as 2.7404%, compared with its one-year low of 2.543% hit just before Friday’s strong payrolls data.

Looking ahead to today, the FOMC minutes this evening will likely be the highlight and with the Brexit debate resuming in parliament any headlines there will also be closely watched. The minutes will provide more color on the Committee’s thinking around several key issues for market participants—namely, their views about headwinds from slowing global growth, progress on the Fed's balance sheet strategy, and the debate around the neutral policy rate. After Powell’s early-year semi U-turn, the minutes could be slightly dated though. Other expected data include mortgage applications, while the Fed is scheduled to release FOMC meeting minutes, ahead of Powell's speech at to the Economic Club of Washington D.C. on Thursday. Constellation Brands and Lennar are among companies reporting earnings

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