Dow set for the best day in three months on rising trade optimism, brighter financial data

U.S. stocks collapsed Thursday afternoon after US and Chinese officials declared a cautious resumption of tariff talks, seen by Wall Street as a sign of progress in the annual trade dispute between the economic superpowers.

Also, a number of positive financial reports helped boost sentiment, including data from the ADP that estimated the private sector added 195,000 jobs in August and a better-than-expected reading of activity in the US service sector.

How is the most important benchmark performance going?

Dow Jones Industrial Average

DJIA, + 1[ads1].54%

rose 384 points, or 1.5%, to 26,738, while the S&P 500 index

SPX, + 1.40%

advanced 37 points, or 1.3%, to reach 2,975. Nasdaq Composite Index

COMP, + 1.80%

rose 127 points to 8104, a gain of 1.6%.

Dow's rally puts it on the track for its sharpest points and percentage gain since June 4, according to FactSet data. The Nasdaq is poised for its best win since August 13, while the S&P 500 was on the track for its best day since August 16.

On Wednesday, the Dow gained 237.45 points to close at 26,355.47, up 0.9%, as the S&P 500 ended 31.51 points at 2,937.78, booking a gain of 1 , 1%. The Nasdaq Composite Index advanced 102.72 points, or 1.3%, to end at 7,976.88.

Read: History says that the stock market's unstable August paves the way for more losses in September

What drives the market?

China's Ministry of Commerce said in a statement that Beijing and Washington had set a preliminary date for "early October" following a conference call between Vice Prime Minister Liu He and US Trade Representative Robert Lighthizer, according to the translated version of the text .

Read: China says trade talks with US which will take place in October

U.S. Commerce officials confirmed the calls and noted that both sides need to have discussions with lower-level officials to lay the groundwork for more serious negotiations to take place next month.

China-US communications come after tariffs were raised by both sides over the weekend, and another increase is scheduled to happen in the coming weeks. The customs conflict between the world's two largest economies has proved to be a decisive driver of market sentiment because the trade dispute has put pressure on the global economies and threatened to throw the US into a recession.

Read : Here's why this big bank expects stocks to fall through the end of the year

A new round of Sino-US trade negotiations was expected in September until President Donald Trump announced an increase to import duties, and China declared retaliatory measures.

"On the one hand, the fact that these conversations were happening this month, and the fact that this has been a known pattern for two years now, markets still prefer to take an optimistic view," wrote Michael Hewson, chief market analyst at CMC Markets, in a research note from Thursday.

However, the analyst said that the recent news on trade development reflects a well-known playbook in which the market rallies and then falls on reports of halted progress.

"For now, the markets seem to be looking toward the horizon with optimism, then we will probably follow a well-known playbook of another President Trump twitter rage, which will send the markets lower before we get more talk about possible conversations, which then sees the markets rise again, before a flush and repeat, "he said.

The US stocks ended solidly higher Wednesday, with the S&P 500 and Nasdaq indices more than wiping out losses a day ago, when a business study in the Federal Reserve's central districts showed that economic activity in non-financial services sectors was steady or improved even while trade-related industry and agriculture were weak.

Important reference items also slipped to the back to ease tensions in Hong Kong, with CEO Carrie Lam said she would scrap an extradition bill that sparked months of protests in the region and raised concerns that the conflicts could eventually harm the business environment and global

Probably contributing to raising sentiment was data on the US labor market, including payroll processor Automatic Data Processing Inc.

ADP, + 2.03%

estimates that the private sector laid 195,000 jobs in August, over 150,000 consensus expectations, according to Econoday. New applications for unemployment benefits today marked up to 217,000 during the week ended August 31, near historic lows.

"This morning's ADP reading really blew the doors of estimates and is likely to set expectations high for tomorrow's reading by the government, especially on the pay front," Mike Loewengart, vice president of investment strategy at E-Trade Financial Corp., wrote in an e-mail. "What investors really need to take away here is that this is another high and clear sign that the economy is continuing to move nicely despite weaknesses in pockets and trade tensions."

Economists caution, however. that ADP data has not proved to be a solid guide to the official work report.

A final estimate of productivity growth for the second quarter confirmed an increase of 2.3%, following an increase of 3.1% in the first quarter. However, the unit's labor costs were raised to a 2.6% gain from a 2.4% gain.

Labor measurements came ahead of the important Friday non-farm report, which may have is the significant measure to date of the health of the US economy.

The US service sector declined in August, according to the Markit Services Purchasing Leaders Index, which fell from 53.0 in July to 50.7 in August, under the "flash" estimate released two weeks ago. However, the closely monitored ISM non-producing index came in at 56.4%, up from the 53.7% reading in July and above the consensus estimate of 54.2% expected by economists polled by MarketWatch.

Factory orders in July rose 1.4%, up 0.6% in June and 1.2% consensus forecast.

Which shares are in focus?

Slack Technologies Inc .

WORK, -3.38% ,

workplace communications company, reported second-quarter results that exceeded Wall Street estimates, but predicted a somewhat larger loss than expected for the current quarter, and renewed concerns about the path to profitability and revenue growth. Shares fell 3.5% Thursday.

Shares of Ciena Corp .

CIEN, -3.37%

fell 4.6%, even after the optical network company reported fiscal surplus and revenue in the third quarter that exceeded expectations, providing a positive full-year outlook.

Palo Alto Networks Inc .

PANW, + 6.10%

reported fourth-quarter financial revenues after trading closed Wednesday, beating earnings and sales forecasts while announcing the $ 75 million acquisition of Internet-of-things company Zingbox. The shares increased by 4.5% on Thursday.

Shares of Signet Jewelers Ltd .

SIG, + 25.84%

rose 23.7% on Thursday, after the jewelry retailer reported revenue in the second quarter that beat expectations while raising the outlook for the full year. The company's stock had reached a ten-year low on Wednesday.

How do other markets trade?

Return on the 10-year US Treasury

TMUBMUSD10Y, + 6.79%

jumped o 1.572% on Thursday afternoon from 1.456% late Wednesday.

In commodity markets, the price of crude oil was

CLV19, -0.20%

edged higher, gaining a profit to trade at $ 56.30 a barrel, after completing 4% a day ago, while the price of gold

GCZ19, -2.13%

notched its sharpest daily decline in about three years, on a dollar basis. ICE U.S. Dollar Index

DXY, -0.05%

a target of the US currency against a basket of six major rivals, withdrew 0.1%, and extended a backlash for the index.

In Asia, stocks closed higher when China's CSI 300

000300, + 1.01%

rose 1% and Japan's Nikkei 225

NIK, + 2.12%

rose 2.1%, while Hong Kong's Hang Seng index

HSI, -0.03%

fell less than 0.1% after its best daily gain since November.

Meanwhile, European stocks rose like Stoxx Europe 600

SXXP, + 0.72%

closed 0.7% higher.

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