Trade Hopes Spur Rally, Europe Up On Earnings, FOMC Back In The Spotlight

Trade News Spurs Global Stocks To New Highs

An unexpected vote of approval from US President Donald Trump has spurred global markets to new highs. The news, that President Trump thinks the trade negotiations are progressing well and that the March 1st tariff deadline may be extended, are a welcome sign for hopeful markets.

The Korean Kospi led the gains with an advance of 1.09%, boosted by tech and autos, while others in the region were less euphoric. The Hong Kong-based Hang Seng posted the second largest advance, about 1.01%, while the Japanese Nikkie and Shanghai Composite advanced 0.60% and 0.20% respectively. The Australian ASX posted the only loss, -0.17%.

Word on the street is US negotiators have requested China maintain Yuan stability as part of a larger trade deal. The yuan, whose valuation is closely regulated by the PBOC, strengthened on the news pushing the USD/CHN down towards its one-month low, just above the six-month low.

European Markets Drift Higher On Earnings

European markets were also positive in early Wednesday trading as earnings reports continue to be released. Today’s news includes reports from Irelands’s Glanbia and Britain’s Sainsbury. Supplements company Glanbia reported that its pretax profit rose 16% over the last year and it expects to see growth in the high single digits in 2019. Shares of that stock rose more than 10% on the news.

Shares of Sainsbury, however, were not buoyant after a UK regulator weighed in on the supermarket chain’s plans to take over the Walmart-owned ASDA. The UK anti-trust regulator says the takeover should be blocked or Sainsbury will need to close or sell a large portion of its existing stores. Shares of that stock tumbled more than -15% on the news.

In political news, UK Prime Minister Theresa May is heading back to Brussels. This is the latest effort in her attempt to renegotiate/reword her Brexit deal as the deadline fast approaches. The German DAX was in the lead in midmorning trade, up about 0.40%, while the French CAC and UK FTSE 100 were trailing at 0.27% and 0.18%.

The FOMC Is Back In The Spotlight

US futures were indicating a flat to slightly negative open in the early pre-opening session. The cautious tone comes a day after major indices surged to new highs and is due to today’s FOMC minutes. The minutes are the latest read on sentiment with the FOMC and will play a major role in shaping the market outlook for future rate hikes and quantitative tightening.

Quantitative tightening, otherwise known as the Fed’s Balance Sheet Runoff or Unwind, has been criticized for curbing US economic expansion. At the current rate, the wind-down is equal to 25 basis points of policy tightening per quarter above and beyond interest rate policy. The market is expecting to hear something along the lines the wind-down will be slowed or stopped, news that will likely catalyze the equity indices to new highs.