Trade Hopes Lift Stocks, Brexit Deadline Extended, Chinese Inflation At 5 Month High

Trade hopes continue to support stocks while traders wait on the final deal, and the start of earnings season on Friday.
Thomas Hughes
The side entrance of New York Stock Exchange, NYC

Trades Hope Is Supporting Equities Ahead Of Earnings

Trade hope is supporting equities in early Thursday trading. The U.S. futures are pointing to a modestly higher open, about 40 points for the Dow and a comparably low figure for the S&P 500 and NASDAQ Composite. Hopes are driven by tantalizing evidence the U.S. and China are coming close to a trade deal. Yesterday, Steve Mnuchin said negotiators had basically agreed on an enforcement mechanism, a development pointing to a quick end to the talks.

The FOMC minutes are also helping to support indices. The minutes were mixed, some members think rate hikes are still coming, but the consensus is no more rate hikes this year. The committee is committed to its dual stance of patience and data dependency. They will patiently wait until the data tells them it is time to cut or hike rates again.

In economic news the PPI and jobless claims data were both better than expected. The PPI came in at 0.6% and double the consensus. On a YOY basis PPI is up 2.2% which is also above expectations and tops the FOMCs 2.0% target. This data shows a rebound in the economy forecast by the FOMC and helped strengthen the dollar.

Brexit Deadline Extended, EU Markets Get Reprieve

Theresa May and the UK got a reprieve from the EU late yesterday. The EU has granted a flexible 6-month extension to the Brexit deadline staving off a potentially market-shaking hard-Brexit. The extension comes with an admonishment from the EU; use this time wisely. EU markets responded with a sigh of relief but the news was not enough to spark a rally. The FTSE 100 was trading near flat at midday while the DAX and CAC were both showing modest to moderate gains.

Traders are cautious if hopeful after yesterday’s ECB meeting. The ECB held rates steady but reinforced its newly dovish stance citing increased downside risks to the economy. The bank will continue with its TLTR-III plans and may increase those facilities if needed.

Asia Mixed After Chinese CPI Hits 5 Month High

Asian markets were wildly mixed on Thursday with a definite bearish bias. The Japanese Nikkei posted the only advance and that was a slim 0.11%. Shares of Fast Retailing did most of the heavy lifting but it rose only 0.50%. The Korean Kospi was unchanged while shared in Australia, Hong Kong, and mainland China all fell. Australia made the smallest decline at -0.40% while the Hong Kong Hang Seng shed -0.93% and the Shanghai Composite dropped -1.60%.

Chinese consumer inflation rose 0.4% in the last month and is up 2.3% over last year. This is the highest level in 5 months but slightly below expectations. The rise is driven by a seasonal rise in vegetable prices as higher prices for pork. Chinse farmers are culling their pigs in an attempt to control the spread of fever. The food index rose 4.1%

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