U.S. Stock Futures Improve Amid Potential Thaw in China Trade Tensions

The Thursday Market Minute

  • Global stocks were modestly firmer as investors hoped a potential thaw in trade war tensions between the U.S. and China will renew bullish sentiment.
  • European markets, however, started cautiously ahead of policy meetings from the Bank of England and the European Central Bank.
  • U.S. dollar index drifts lower as sentiment improves, with traders also citing yesterday's surprise dip in factory gate inflation.
  • Global oil prices trend lower amid demand questions linked to global trade, but falling U.S. crude stocks, as well as looming Iranian sanctions, provide price support.
  • U.S. equity futures pointing to a higher amid the improving global sentiment. 

Market Snapshot

Global stocks were broadly firmer Thursday as investors reacted to a small step forward in trade war negotiations between the U.S. and China, helping shares in Asia bounce from a fourteen month low and setting up U.S. markets for a positive open on Wall Street.

European stocks, however, are likely to proceed more cautiously in the morning session ahead of policy meetings from the European Central Bank and the Bank of England, both of which will be keenly scrutinized for clues as to how each intends to react to Britain's impending exit from the European Union and the broader economic uncertainty linked to developments in Italy and Turkey. 

U.S. equity futures, which had been improving for much of the session, extended gains after the Labor Department said consumer price inflation slowed to 2.7% in August from 2.9% in the previous month and clothing and healthcare costs declined. Contracts tied to the Dow Jones Industrial Average  are pointing to a 107-point rise while those linked to the S&P 500  suggest a 10-point bump for the broader benchmark.

Asia stocks notched solid gains Thursday following news that White House economic adviser Larry Kudlow told reporters in Washington that Treasury Secretary Steve Mnuchin has invited top Chinese officials to re-start trade talks amid speculation that President Donald Trump may delay imposing planned tariffs on $200 billion worth of China-made goods until after the November elections, owing to increasing pressure from U.S. business leaders.

"There's some discussions and information that we received that the Chinese government - the top of the Chinese government wished to pursue talks," Kudlow told FOX Business Network Wednesday. "And so, Secretary Mnuchin, who is the team leader with China, has apparently issued an invitation."

#Shanghai Composite gained 1.2% to 2686 boosted by US proposing new trade talks with China, 5-day moving average recovered.
Shenzhen Component and Chinext was up 0.65% and 0.4%.
Financial stocks and defense stocks led the gains, while health care sector was under correction. pic.twitter.com/MTSE51gdXe

— YUAN TALKS (@YuanTalks) September 13, 2018

China's Commerce Ministry confirmed receipt of the invitation Thursday, and said in a statement that it hopes the two sides can avoid escalating the current trade war rhetoric. The Ministry also urged the U.S. to respect WTO rules, a reference to its move earlier this week to impose sanctions on $7 billion worth of American goods linked to a 2013 anti-dumping dispute. 

The potential thaw in tensions between the world's two biggest economies lifted the MSCI Asia ex-Japan index, the broadest measure of regional share prices, 0.6% higher in the Thursday session, led to the upside by stocks in China, as Japan's Nikkei 225 jumped 0.96% to end the session at 22,821.32 points.

European stocks gained strength in morning trading, with the Stoxx 600 rising 0.14% as regional benchmarks booked solid gains. Britain's FTSE 100, however, was 0.27% lower from its previous closes as traders preferred to wait out the hours ahead the BoE rate decision at noon London time and a emergency meeting by the cabinet of under-pressure U.K. Prime Minister Theresa May that is expected to discuss preparations for a "no-deal" Brexit.

Apple Inc.s (AAPL) European supply chain, however, traded firmly higher than that market following the group's much-anticipated product launch which unveiled new iPhones, watches and sundry supporting gadgets that will collectively raise the average selling price of its flagship product to around $800. 

Action Alerts PLUS holding Apple shares were marked 0.75% higher in pre-market trading Thursday, indicating an opening bell price of $223.73 each, a move that would take back some of yesterday's 1.2% decline and give the stock a year-to-date advance of just over 30%.

Austria-based AMS AG, (AMSSY) which earns an estimated 35% of its revenue from chip sales to Apple, was marked 2.76% higher in the opening hour of trading, while Frankfurt-listed Dialog Semiconductor plc (DLGNF) gained 1.52% and STMicroelectronics (STM)  jumped 2.6% in Amsterdam.

Tesla Inc. (TSLA) shares slipped lower in pre-market trading after founder and CEO Elon Musk added to the group's recent headline woes by warning customers that they may see "longer response times" from the carmaker amid what he said was a surge in North American volumes.

Tesla shares were marked 1.22% lower in pre-market trading Thursday, indicating an opening bell price of $287.00 each, a move that stills leave the stock some $16 higher than last week's multi-month low but still $133 shy of Musk's now-abandoned target to take the company private at $420 per share.

The U.S. dollar index, which benchmarks the greenback against a basket of six global currencies, slipped to 94.93 in early European trading -- about 0.25% lower from the same time yesterday -- in part because of the more optimistic market tone but also in response to factory gate inflation from the U.S. yesterday, which slowed for the first time in eighteen months.

That said, Federal Reserve officials were keen to assure markets that the central bank isn't backing away from its signaled rate path, with Fed Governor Lael Brainard telling the Detroit Economic Club that the strength of the domestic economy will allow for rate hikes both this year and next.

Reaction in the bond markets, however, was clouded by strong demand for the $23 billion auction of 10-year notes yesterday, which drew much stronger-than-expected interest from so-called indirect bidders, which are comprised of foreign buyers, including governments, and helped push borrowing costs and Treasury yields lower, with benchmark 10s trading at 2.952% in European dealing before falling to 2.88% after the August inflation data.

Global oil prices were similarly complicated, with investors sifting through a raft of mixed signals that collectively pushed prices lower in the early session, but could easily reverse course later in the day, after the International Energy Agency trimmed its forecast for global crude demand by 200,000 barrels a day, while different figures showed that OPEC members boosted production by 278,000 barrels last month.

U.S. domestic crude stocks also fell below the 400 million barrel level last week, the Energy Information Administration said yesterday, which, along with looming sanctions on the sale of Iranian crude only two months away, should be lifting global prices.

Brent crude contracts for November delivery, however, were marked 25 cents lower at $79.04 per barrel while WTI contracts for the same months were seen 50 cents lower at $69.66 per barrel.

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