The Tuesday Market Minute

  • Global stocks rally higher as investors react cautiously to news of progress in U.S.-China trade talks but remain unsettled by political uncertainty in Europe.
  • China's chief trade negotiator spoke with Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer to set out a "roadmap" for talks despite the political overhang of the Huawei CFO arrest
  • Huawei CFO Meng Wanzhou faces a third day of bail hearings in Vancouver as U.S. authorities seek her extradition on sanctions violation charges.
  • U.S. Treasury bond yields hold steady ahead of a three-day auction run that will add $78 billion in new bonds to a market that is re-setting rate hike bets from the Federal Reserve
  • U.S. stocks look book a second day of modest gains with Dow futures indicating a 95-point bump at the opening bell.

Market Snapshot

Global stocks rallied Tuesday, with investors reacting cautiously to progress in U.S.-China trade talks but still unnerved by the ongoing political chaos surrounding Britain's Brexit vote, as bond investor prep for a series of Treasury auctions in the United States.

China's chief trade negotiator, Liu He, spoke with U.S. Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer by phone last night, China's Commerce Ministry said in a statement, and agreed to work towards the framework of talks set during the G20 leaders' summit in Argentina.

"Both sides exchanged views on putting into effect the consensus reached by the two countries' leaders at their meeting, and pushing forward the timetable and roadmap for the next stage of economic and trade consultations work," the Ministry said.

The call suggests the two sides are still willing to work towards a broader trade agreement despite the political clouds surrounding the arrest of Huawei CFO Meng Wanzhou in Vancouver earlier this month. Meng, 46, faces a third day of bail hearings today as prosecutors in the United States seek her extradition on charges she helped a company evade State Department sanctions on Iran.

Very productive conversations going on with China! Watch for some important announcements!

— Donald J. Trump (@realDonaldTrump) December 11, 2018

Early indications from U.S. equity futures suggest Wall Street could take yesterday's modest gains into today's session, with contracts tied to the Dow Jones Industrial Average marked 365 points to the upside while those linked to the S&P 500 indicated a 37.5-point opening bell gain for the broader benchmark.

A big portion of the Wall Street surge was linked to a Bloomberg report that suggested China is ready to substantially reduce tariffs on vehicles made in the United States and sold into the world's biggest car market.

President Donald Trump hinted at such a move following his trade summit with China's President Xi Jinping earlier this month in Argentina, and the Bloomberg report, which cited officials in Beijing, could mark an important thaw in U.S.-China trade relations while providing more clarity for European carmakers worried about the fate of tariffs from both Washington and Beijing.

The report also followed data from China showing car sales have hit their weakest patch in five years.

General Motors (GM) shares were marked 2.7% higher at $35.35 each following the report, while Ford Motor Co. (F) jumped 2.5% higher at $8.73 each. Tesla (TSLA) was also on the rise, jumping 1.5% to $370.78 each in pre-market trading.

Pfizer Inc. (PFE) shares were another notable early market mover, slipping 0.9% in pre-market trading Tuesday after analysts at JPMorgan lowered their rating for the drugmaker amid concerns of the loss of exclusivity on one of its key pain treatments.

JPMorgan analyst Chris Schott maintained a $46 price target for Pfizer, but clipped his overall rating to "neutral" from "overweight" as he argued the need for further expansion of the group's product pipeline following the patent expiration of its blockbuster pain treatment Lyrica next year.

Benchmark 10-year U.S. Treasury bonds were marked at 2.881% in early European trading, with investors prepping for $78 billion in new supply from three separate auctions that start with the sale of $38 billion in 3-year notes later today. 

The sales come just as investors are asking testing questions over the pace of Federal Reserve rate hikes next year, following weaker-than-expected employment data last week and consistent signals of slowing growth in the housing market.

The CME Group's FedWatch tool suggests a 75% chance of a hike from the Fed next week, which would take the target rate to a range of 2.25% to 2.5%, but less than a 20% chance of a follow-up move in March. 

The changing tenor of rate bets, however, hasn't blunted gains for the U.S. dollar, as investors pile into the greenback amid increasing political uncertainty in Europe, where both the pound and the euro have drifted lower, boosting the dollar index 3.4% since late September.

That uncertainty was nowhere more evident than in Britain, where the pound fell to a 20-month low of 1.2505 against the dollar after Prime Minister Theresa May postponed a key parliamentary vote on her Brexit deal with the EU that she herself admitted had no chance of passing the House.

Parliament will hold an emergency debate today, with the possibility of a no-confidence vote that could trigger a leadership change or, potentially, fresh national elections.

However, the most likely outcome is that May will attempt to get further assurances from EU leaders this week on the so-called "backstop" portion of the agreement (that prevents a hard border in Northern Ireland) before returning to the House in early January. 

The pound bumped higher to 1.2620 in the opening minutes of trading in London, while the FTSE 100 gained 0.7% and markets in Europe jumped higher, with the Stoxx 600 rising more than 1.7%, as investors swept into beaten-down regional stocks.

Germany's DAX index was marked 2% higher as domestically-listed automakers Daimler AG (DMLRY) and BMW AG (BMWYY) were marked 1.6% and 1.2% higher respectively following the China tariff story, while rival Volkswagen AG (VLKAY) surged 4% to €146.62.

China shares edged higher Tuesday, helping the MSCI Asia ex-Japan index bump 0.1% into the green, although the advance was somewhat offset by a 0.34% dip for the Nikkei 225 in Tokyo where investors continue to fret over the underlying strength of the world's third largest economy following a sharp downward revision to third quarter GDP.

Global oil prices were active in early European trading, with investors citing the 'force majeure' on crude delivers from Libya, owing to the closure of a key pipeline, as supporting prices ahead of concerns over slipping global demand into the early months of next year.

CFTC data also suggests futures and options traders have the fewest "long bets" on crude in more than two years, indicating a lack of faith in the ability of OPEC members to boost prices following their 1.2 million production cut agreed last week in Vienna.

Brent crude contracts for February delivery, the global benchmark, were marked 46 cents  higher from their Monday close in New York and changing hands at $60.43 per barrel while WTI contracts for January delivery, which are more tightly liked to U.S gas prices, were 43 cents higher at $51.43 per barrel.