US stock futures rise amid trade talk optimism

by Anand Krishnamoorthy

US equity-index futures rose and the dollar snapped three days of declines as the planned trade negotiations between China and the US spurred optimism tensions between the world’s two largest economies are easing.

Futures contracts for the S&P 500 and the Nasdaq 100 both climbed 0.5% on news US and Chinese officials will meet this week in Switzerland. Asian shares gained after China reduced its policy rate to boost the economy. Treasuries dropped while gold fell 1.3%. European stocks dipped, weighed down by declines for drugmakers after Novo Nordisk A/S cut its sales forecast.

The Indian rupee weakened 0.1% and stocks in Mumbai were little changed as investors looked beyond the India-Pakistan military strikes and focused on trade talks. On Tuesday, India and the UK agreed to a landmark trade deal. Pakistan’s equity benchmark slumped as much as 6%.

The US-China meeting will be the first confirmed trade talks between the countries since President Donald Trump declared sweeping tariffs last month, led by punishing levies on China. While the thawing of trade tensions provided the markets with a temporary reprieve ahead of Wednesday’s rate decision by the Federal Reserve, further rallies will depend on whether the discussions produce significant outcomes.

Traders are expecting Fed policymakers to stay on hold while waiting to see how the evolving trade war affects economic growth and inflation.

“I’m more than happy to stick with my rally selling strategy here for the time being,” said Michael Brown, senior research strategist at Pepperstone Group Ltd. The market has “seemingly been lulled into a false sense of security by the relative calmness on the tariff front last week, while ignoring continued elevated economic and political uncertainty, and forgetting that there is no ‘Fed put’ to ride to the rescue just yet,” he said.

Trump placed duties as high as 145% on many Chinese imports, and Beijing retaliated with import taxes of 125% on American goods. The moves prompted many companies to withdraw earnings guidance and threatened to drive up prices for manufacturing equipment as well as day-to-day items such as clothing and toys.

US Treasury Secretary Scott Bessent, in an interview on Fox News, said the current tariff rates aren’t sustainable. The talks on Saturday and Sunday will center on de-escalation rather than a big trade deal, “but we’ve got to de-escalate before we move forward,” he said.

On Tuesday, Trump said he would dictate tariff levels and trade concessions for partners looking to avoid higher duties, appearing to move away from the idea that he would engage in back-and-forth negotiations.

“All of these are indicating that the external pressure is starting to fade,” said Aidan Yao, Senior Investment Strategist for Asia at Amundi Investment Institute, said on Bloomberg Television. “Hopefully the negotiation goes well and that leads to tangible declines of tariff rates.”

In other tariff news, the European Union plans to hit about €100 billion ($113 billion) in US goods with additional tariffs in the event ongoing trade talks fail to yield a satisfactory result for the bloc, according to people familiar with the matter. 

The proposed retaliatory measures will be shared with member states as early as Wednesday and consultations will last for a month before the list is finalized, said the people, who spoke on the condition of anonymity because the plans are private.

Shares in Hong Kong rose 0.8% - they pared earlier gains of as much as 2.4% - as China lowered rates. Beijing is ramping up efforts to help an economy caught in a second trade war with the US. 

The People’s Bank of China cut the seven-day reverse repurchase rate to 1.4% from 1.5%, according to Governor Pan Gongsheng. The central bank will also trim the reserve requirement ratio by half a percentage point, Pan said at a briefing on Wednesday, without saying when that would be effective.

“The real impact is quite limited, but helps at the margin to support markets and provide liquidity,” said Sat Duhra, a portfolio manager at Janus Henderson Investors. “It’s the trade talks that matter much more here.”

 Stocks

• The Stoxx Europe 600 fell 0.3% as of 8:07 a.m. London time
• S&P 500 futures rose 0.5%
• Nasdaq 100 futures rose 0.6%
• Futures on the Dow Jones Industrial Average rose 0.5%
• The MSCI Asia Pacific Index rose 0.2%
• The MSCI Emerging Markets Index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro was little changed at $1.1365
• The Japanese yen fell 0.4% to 143.01 per dollar
• The offshore yuan fell 0.2% to 7.2257 per dollar
• The British pound fell 0.1% to $1.3352

Cryptocurrencies

• Bitcoin rose 2% to $96,618.42
• Ether rose 3.2% to $1,832.29

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.32%
• Germany’s 10-year yield was little changed at 2.54%
• Britain’s 10-year yield was little changed at 4.51%

Commodities

• Brent crude rose 1.2% to $62.90 a barrel
• Spot gold fell 1.2% to $3,390.30 an ounce

This story was produced with the assistance of Bloomberg Automation.

Copyright Bloomberg News