Stock-index futures point to rally as U.S., China resume trade talks

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December 11, 2018

Stock-index futures point to rally as U.S., China resume trade talks

Chinese Vice Premier talks trade with Mnuchin, Lighthizer: report

U.S. stock futures marched higher ahead of the open of regular markets on Tuesday, hinting that Wall Street may be ready to build on gains seen at the start of the week, on reports that the U.S. and China have resumed trade talks.

How are benchmarks trading

Dow Jones Industrial Average futures YMZ8, +1.24%  shot up 239 points, or 1%, to 24,731, while S&P 500 futures ESZ8, +1.17%  gained 24 points, or 0.9%, to 2,667. Nasdaq-100 NQZ8, +1.47%  jumped 78 points, or 1.2%, to 6,776.

On Monday, the Dow Jones Industrial Average DJIA, +0.14% rose 34.31 points, or 0.1%, to end at 24,423.26, while the S&P 500 SPX, +0.18% gained 0.2% to 2,637.72 and the Nasdaq Composite Index COMP, +0.74% advanced 51.27 points, or 0.7%, to close at 7,020.52.

Gains came after losses that earlier had left the Dow down more than 500 points, the S&P off 50 points and the Nasdaq down 81 points. The S&P 500 closed 1.9% above its intraday low, its biggest such bounce since Feb. 6; the Dow closed 2.1% above its session low for its biggest intraday, upside reversal since April 4, according to Dow Jones Market Data.

What’s driving the market?

The U.S. and China launched formal trade talks with a phone call including Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, where they reportedly discussed “changes to fundamental Chinese economic policies,” according to The Wall Street Journal.

U.S. stock futures were further boosted early Tuesday after a report from Bloomberg indicating that China is taking steps to reducing tariffs on cars imported from the United States, news that sent shares of auto makers Ford Motor Company F, +2.82%   and General Motors Co. GM, +3.52%   higher in premarket trade.

Tuesday gains would build on a Monday afternoon rally that was powered by the belief that the U.S. economy is resilient enough to continue growing at a healthy rate in 2019 and beyond, in part due to comments from influential banks such as J.P. Morgan and Goldman Sachs that fears about U.S. economic growth are overblown.

What are strategists saying?

The “fragile risk appetite” on display as stocks rallied into the close on Monday “got a boost overnight following reports that China’s Vice Premier Liu He had phone talks over trade with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer,” Charalambos Pissouros, senior market analyst with JFD Brokers, wrote in a Tuesday note to clients.

“As for our view, reports of phone calls are far from suggesting that the dispute near to be resolved, while Lighthizer’s comments over the weekend keep the door for further escalation open,” he wrote, referring to the trade rep’s insistence that the American-imposed 90-day moratorium on new tariffs is a hard deadline.

“We specifically point out yesterday that the amount of bearish market calls have increased to levels that suggest a rally is near. Indeed, yesterdays technical recovery from the markets lows points to another positive session in the makings,” said Peter Cardillo, chief market economists at Spartan Capital Securities, in a note to clients.

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