New Level of Trade Talks Remains Most Positive Influence on U.S. Equity Markets

The major Asian equity markets are trading higher Wednesday, following the tone set by their U.S. counterparts on Tuesday. Additionally, investors are also reacting to news reports that China is planning to cut tariffs on cars made in the United States to 15 percent from the current 40 percent. This may actually represent a softening in its tone toward U.S.-China trade relations.

At 0504 GMT, Japan’s Nikkei 225 Index is trading 21579.49, up 431.47 or +2.04 percent. The rally is being fueled by strong performances in Japanese automakers including Yamaha Motor, Mitsubishi Motor, Toyota and Nissan.

South Korea’s Kospi is also up, trading at 2076.32, up 23.35 or 1.14 percent. The index is being underpinned by a nearly 9 percent surge in Hyundai Motor and a 4.6 percent jump in shares of Kia Motors.

The Greater China stock markets are inching higher with the Shenzhen Composite trading at 1348.03, up 0.307 percent and the Shanghai Composite at 2599.16, up 5.08 or +0.20 percent.

In other news, Japan’s Preliminary Machine Tool Orders fell 16.8%, but the previous report was revised higher to an annual rate of -0.7%. Core Machinery Orders were 7.6% higher, but below the 10.2% forecast. It was also a marked improvement from the previous read of -18.3%. Japan’s Producer Price Index came in at 2.3%, slightly below the 2.4% estimate. Tertiary Industry Activity rose 1.9% percent, exceeding the 0.9% forecast. The previous report showed a 1.2% decline.

In China, M2 Money Supply was 8.0% as expected. New Loans increased to 1250B from 1200B.

U.S. Equity Markets

The major U.S. equity indexes finished mixed on Tuesday with the Dow Jones Industrial Average closing lower, while the S&P 500 Index and NASDAQ Composite posted moderate gains. Volatility was the theme yesterday with all major indices posting dramatic price swings throughout the session.

In the cash market, the benchmark S&P 500 Index settled at 2636.78, up 3.70 or +0.14%. The benchmark Dow Jones Industrial Average closed at 24370.24, down 18.71 or -0.08% and the tech-based NASDAQ Composite finished at 7031.83, up 11.31 or +0.16%.

Trade Dispute News Mostly Bullish

The major indexes initially jumped more than 1 percent on signs of a softening tone in U.S.-China trade relations. Investors were reacting to a Bloomberg News report which said China is moving toward cutting tariffs on cars made in the U.S. to 15 percent from the current 40 percent. The report went on to say that the proposal has been submitted to the Chinese Cabinet and will be reviewed in the coming days.

While investors were reacting immediately to the report, U.S. officials were a little more subdued. Reuters reported that the U.S. was aware that China may cut the tariffs, but refrained from making any comments with officials saying the U.S. would wait on formal documentation and timing.

President Trump didn’t want to wait for a confirmation of the details. He tweeted the administration was having “very productive conversations going on with China,” adding:  “Watch for some important announcements.”

There was another positive development over U.S.-China trade relations on Tuesday. According to a report, Chinese Vice Premier Liu reportedly said that he had been in discussion with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, with the aim of de-escalating a global trade war.

On the negative side, the Washington Post reported the U.S. will condemn China over hacking and economic espionage, potentially ratcheting up tension between the two countries once again. However, keep in mind that this wasn’t fresh news. The story had been floated since last Friday.

Bears Take Over as President and Democrats Remain Divided

Stocks plunged to their lows of day at the mid-session after a heated exchange between President Trump and Democratic leadership over border security. During the contentious fight, Trump threatened to shut down the government if more money was not allocated towards building a wall along the U.S.-Mexico border.