Stocks, Bonds Rise on China Trade, Stimulus Hopes: Markets Wrap

(Bloomberg) -- U.S. stocks approached all-time highs on optimism that President Donald Trump will de-escalate his trade war with China, adding to gains sparked by the ECB’s signal it is ready to cut interest rates if warranted. Treasuries and oil rallied.

The S&P 500 trimmed a rally that topped 1.4% at its height as markets digested news that the Trump administration explored demoting Federal Reserve Chairman Jerome Powell in February. Stocks had jumped within 1% of its all-time high after Trump tweeted earlier that he will meet with Chinese President Xi Jinping at the Group of 20 summit next week. Trade tensions have weighed on stocks since Trump escalated his trade war in early May.

“Up until now, the markets have been quite skeptical that a Trump, Xi meeting would happen,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle. “This pivot to an attempt to get a deal done is certainly a lot of what’s driving the market.”

European Central Bank President Mario Draghi said that officials are ready with stimulus if needed, adding to expectations for easier monetary policies. Central banks in Australia, Russia, India and Chile have recently loosened policy. The Reserve Bank of Australia said Tuesday that further easing is more likely than not.

The Fed is widely expected to strike a more dovish tone with its decision at the end of it’s two-day meeting Wednesday. The yield on the benchmark 10-year Treasury approached 2% before the notes pared gains. German 10-year yields tumbled further below zero.

Oil surged to its biggest gain in five months as OPEC and its allies moved closer to a meeting to extend supply cuts while the Draghi’s comments raised hopes for increased demand.
Elsewhere, the yen briefly weakened after a magnitude 6.8 earthquake struck off the northwest coast of Japan, triggering a tsunami advisory. Bitcoin dropped after a four-day surge.

Here are some key events coming up:

• The Fed, Bank of Japan and Bank of England all set monetary policy, along with central banks in Norway, Brazil, Taiwan and Indonesia.
• The Fed’s two-day meeting ends Wednesday with a decision and press conference. Officials are expected to debate a rate cut to shelter the U.S. economy, in part, from the fallout caused by escalating trade disputes.
• Final May CPI data for Britain are due on Wednesday.
• U.K. retail sales are set for release on Thursday.

These are the main moves in markets:

Stocks

• The S&P 500 Index rose 1% as of 4:02 p.m. New York time, while the Nasdaq Composite Index gained 1.4% and the Dow Jones Industrial Average increased 1.4%.
• The Stoxx Europe 600 jumped 1.7%, the biggest increase since January.
• The MSCI Emerging Market Index rose 1.5%.
• The MSCI Asia Pacific Index gained 0.6%, the first increase in five trading sessions.

Currencies

• The Bloomberg Dollar Spot Index fell less than 0.1%, the first drop in three days.
• The euro eased 0.2% to $1.1196, while the yen strengthened 0.1% to 108.42 per dollar.
• The British pound rose 0.2% to $1.2560.
• The MSCI Emerging Markets Currency Index rose 0.5%, the first increase in five trading sessions.

Bonds

• The yield on 10-year Treasuries dropped 4 basis points to 2.06%.
• Germany’s 10-year yield fell 8 basis points to negative 0.32%.

Commodities

• West Texas Intermediate surged 4.1% to $54.08 a barrel.
• Gold rose 0.5% to $1,346 an ounce, the first increase in three days.
• The Bloomberg Commodity Index rose 0.6%.

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

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

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