Stocks Rally on Trade Optimism; Treasuries Slip: Markets Wrap

(Bloomberg) --

U.S. equities rallied Thursday after China indicated it wouldn’t immediately retaliate against the latest American tariff increase. Treasuries edged down, while a dollar gauge hit a two-year high.

The S&P 500 Index rose for the second straight day after a spokesman for China’s commerce ministry said that escalating the trade war won’t benefit either side and that it was more important to discuss removing the extra duties. Stocks across Asia trimmed declines on the remarks, while the Stoxx Europe 600 Index closed higher.

Market sentiment remains delicate after President Donald Trump’s recent pronouncements on trade and as investors await resolution. Trump said Thursday that the U.S. and China are scheduled to have a conversation about trade today. U.S. economic growth slowed in the second quarter by more than initially reported, on weaker readings for categories including exports and inventories. Still, consumer spending remained robust, topping forecasts.

“Positive news on trade has investors looking to move back into some of the equity markets and maybe a little more risk on,” Chris Gaffney, president of world markets at TIAA, said by phone. “The GDP number -- while there was a slight pullback in second-quarter estimates, consumers still are looking strong. That’s the key. The earnings component was very good -- corporate profits are looking robust.”

Meanwhile, the bond rally paused for breath after the yield on 30-year U.S. Treasuries sank to a record low of 1.90% Wednesday. Treasury Secretary Steven Mnuchin said issuing ultra-long U.S. bonds is “under very serious consideration,” possibly setting up a move that would mark a historic revamp of the $16 trillion Treasuries market. Gold turned lower, while West Texas crude held at about $56 a barrel.

In Europe, Italy’s bonds jumped and its equities outperformed as the country moved toward forming a new government. The pound declined on the increasing risk of a no-deal Brexit. The euro touched a session high after a European Central Bank policy maker said the region’s economy isn’t weak enough to warrant the resumption of bond purchases. The Chinese mainland yuan strengthened for the first time in 11 sessions.

Events to keep an eye on this week:

• Bank of Korea policy decision and briefing is on Friday.
• Euro-zone CPI data for August is also due Friday.

Here are the main moves in markets:

Stocks

• The S&P 500 Index increased 1.3% as of 2:58 p.m. New York time.
• The Stoxx Europe 600 Index increased 1% to near a four-week high.
• The U.K.’s FTSE 100 Index rose 1%.
• The MSCI Emerging Market Index increased 0.6%.

Currencies

• The Bloomberg Dollar Spot Index rose 0.2% to the highest in almost two years.
• The euro declined 0.2% to $1.1057.
• The British pound fell 0.3% to $1.218.
• The Japanese yen fell 0.4% to 106.50 per dollar.

Bonds

• The yield on 10-year Treasuries gained two basis points to 1.49%.
• The yield on two-year Treasuries advanced three basis points to 1.53%.
• Germany’s 10-year yield increased two basis points to -0.69%.
• Britain’s 10-year yield fell one basis point to 0.436%.

Commodities

• West Texas Intermediate crude increased 1.4% to $56.57 a barrel.
• Gold fell 0.6% to $1,529.21 an ounce.

--With assistance from Min Jeong Lee, Andreea Papuc and Yakob Peterseil.

To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Andrew Dunn

©2019 Bloomberg L.P.