Powell Wakes Up Bull, but Investors Need Trade Talk Progress to Sustain Rally

The major stock indexes in Asia are trading higher early Thursday, following the lead set by Wall Street on Wednesday. With Fed Chair Jerome Powell’s speech out of the way, investor focus will shift to the crucial meeting between President Donald Trump and Chinese leader Xi Jinping. Investors are hoping the sudden euphoria in the stock market fueled by Powell’s dovish message will continue if the U.S. and China reach a deal that will ease trade tensions between the two economic powerhouses.

At 0139 GMT, Japan’s NIKKEI 225 Index is trading 22357.16, up 180.14 or +0.81%. South Korea’s KOSPI is at 2125.73, up 17.51 or +0.83%. In Australia, the ASX 200 is at 5761.20, up 36.10 or +0.63%.

While market sentiment is a little more positive after Powell’s speech, trade uncertainty may be limiting gains. Investors will want to see progress this week-end at the Trump-Xi meeting, especially since President Trump is weighing additional tariffs on China if the talks fail to yield any fruit.

According to top White House economic advisor Larry Kudlow, the Trump administration has restarted talks with the Chinese government “at all levels” ahead of the meeting between both presidents at the G-20 summit in Argentina.

The key areas that Trump is set to discuss include alleged Chinese theft of intellectual property, ownership of American companies in China and tariffs and non-tariff barriers.

U.S. Stock Markets

Stock market bulls received an early gift on Wednesday from Federal Reserve Chairman Jerome Powell after the central bank chief said interest rates are close to neutral. This was a marked change in tone from comments Powell made in early October. Short-term Treasury yields fell on the news and investors celebrated by driving up the blue chip Dow Jones Industrial Average more than 600 points. This was its biggest one-day gain since March 26. It was also the Dow’s second-best day of the year.

The benchmark S&P 500 Index surged more than 2-percent as investors interpreted Powell’s comments to mean the Fed would pull-back on its plans to raise rates at least three more times in 2019. The NASDAQ Composite jumped 2.95 percent and posted its best day since October 25.

The Dow Jones Industrial Average and S&P 500 Index are now trading higher for the month.

Banks stocks benefited the most from the drop in short-term interest rates and the rise in long-term rates. This helped widen the spread between the two debt instruments. The SPDR S&P Bank ETF (KBE) rose 1.3 percent while Morgan Stanley, Goldman Sachs and Bank of America all closed more than 2 percent higher. Shares of J.P. Morgan Chase rose 1.1 percent.

Technology shares also posted a strong recovery after getting beaten up for weeks. The rally was led by a rebound in shares of Amazon and Netflix which jumped 6 percent. Apple and Alphabet rose more than 3.5 percent. Facebook gained 1.3 percent, but the stock underperformed the rest of the market which means the move may have been a sympathy rally.