Stocks Rise on Enthusiasm for Everything But Banks: Markets Wrap

(Bloomberg) -- U.S. stocks rallied Tuesday as the possibility of progress in trade talks with China overwhelmed skepticism about the financial sector. The dollar rose, Treasuries slumped and crude surged toward $50 a barrel on expectations the market will be tightened by OPEC’s output cuts.

All major indexes were higher, led by the small-cap Russell 2000 Index for a second day. The S&P 500 Index gained 1 percent on strength in transportation companies, carmakers and telephone stocks. Financials were only major industry group in the benchmark that didn’t rise. Boeing Co. helped lift large-caps with a strong fourth-quarter delivery report. PG&E Corp. was the biggest decliner, dropping 9 percent amid reports that the California utility giant is considering bankruptcy.

“Talks with China are going very well!” Trump tweeted on Tuesday morning as the countries wrapped up the meetings. However, other reports indicated that the two weren’t closing in on a trade deal.

“Any incremental headlines that we receive that imply U.S.-China trade relationships are going better is going to substantially help current sentiment,” said Frances Donald, the head of macro strategy at Manulife Asset Management in Toronto. “From a forward looking perspective, if expectations about US-China trade wars diminish then this will encourage a risk-on environment.”

In Asia, the MSCI Asia Pacific Index and the MSCI China Index rose slightly. Japanese shares and Hong Kong stocks gained, though equities slid in South Korea. Meanwhile, European shares shrugged off unexpectedly weak German industrial production numbers and worsening euro-area consumer confidence to climb on strength among retailers and carmakers. The common currency remained lower after the data.

While 2019 is off to an optimistic start, risks remain. The outcome of U.S.-China trade relations still hangs in the balance. Meanwhile, parts of the American government are shut down with lawmakers unable to agree on a budget proposal that President Donald Trump will sign. Trump will deliver a prime-time televised address on Tuesday evening about his demand for a wall along the Mexican border, which is at the heart of the dispute. And in Europe, machinations over Brexit continue.

“Investors are happy to go with the positive trend in the current environment but remain wary of sharp downside reactions given the moves we’ve seen over the last few weeks and months,” Nick Twidale, chief operating officer at Rakuten Securities Australia, wrote in a note. “Traders are still very much aware that the various geopolitical factors that have been so prevalent in influencing market moves over the last 12 months are still relevant.”

Here are some events investors may focus on this week:

• North Korea’s Kim Jong Un is visiting China ahead of a potential summit with President Trump.
• Wednesday sees the release of minutes from the Federal Reserve’s Dec. 18-19 policy meeting. Chairman Jerome Powell will speak to the Economic Club of Washington D.C. on Thursday.
• Britain’s Parliament resumes a debate on the Brexit withdrawal bill, with Prime Minister Theresa May seeking to avoid defeat in a vote set for the week of Jan. 14.

These are the main moves in markets:

Stocks

• The S&P 500 Index rose 1 percent to 2,574.41, while the Russell 2000 Index gained 1.5 percent.
• The Stoxx Europe 600 Index advanced 0.9 percent to the highest in three weeks.
• The MSCI All-Country World Index climbed 0.7 percent to the highest in more than three weeks.
• The MSCI Emerging Market Index dipped 0.2 percent.

Currencies

• The Bloomberg Dollar Spot Index gained 0.2 percent.
• The euro fell 0.3 percent to $1.1441.
• The Japanese yen was little changed at 108.74 per dollar.
• The British pound declined 0.5 percent to $1.2717.
• The MSCI Emerging Markets Currency Index fell 0.2 percent.

Bonds

• The yield on 10-year Treasuries advanced three basis points to 2.7244 percent.
• Germany’s 10-year yield rose one basis point to 0.226 percent.
• Britain’s 10-year yield added two basis points to 1.274 percent.

Commodities

• The Bloomberg Commodity Index gained 0.5 percent to the highest in almost three weeks on its fifth straight advance.
• West Texas Intermediate crude advanced 2.4 percent to $49.70 a barrel, the highest in three weeks with its seventh consecutive advance.
• Gold dipped 0.3 percent to $1,285.45 an ounce.

--With assistance from Cormac Mullen, Andreea Papuc and Eddie van der Walt.

To contact the reporters on this story: Reade Pickert in New York at epickert@bloomberg.net;Sarah Ponczek in New York at sponczek2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner

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