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While you were sleeping: Equities rally as US, China plan trade talks

Friday 6th April 2018

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Equities on both sides of the Atlantic rallied amid signs that the US and China will negotiate to halt an escalating trade dispute that has dampened an otherwise optimistic outlook for corporate profits and economic growth. 

In 12.33pm trading in New York, the Dow Jones Industrial Average climbed 1 percent, while the Nasdaq Composite Index gained 0.5 percent. In 12.18pm trading, the Standard & Poor’s 500 Index rose 0.8 percent.

“After the initial introduction of trade tensions and the back and forth between the US and China and consternation around Nafta, the markets are now beginning to see through the bluster of negotiations and they’re dialling back some of their most significant fears of a full on trade war,” Kevin Caron, a senior portfolio manager at Washington Crossing Advisors, told Bloomberg. 

US Treasuries eased, sending yields on the 10-year note one basis point higher to 2.81 percent.

The Dow rallied, led by gains in shares of Boeing and those of DowDuPont, recently up 2.8 percent and 2.6 percent respectively. The only stock in the Dow to decline was Pfizer, down 0.8 percent recently.

“There is a lot of bad news on the trade front built into the market,” John Brady, senior vice president at RJ O’Brien & Associates in Chicago, told Reuters. “So the ability of the equity markets to push significantly lower is going to be limited.”

“We’re going to need brand new, bad news on trade for the equity markets to push lower,” Brady said.

Shares of Facebook rallied, up 2.4 percent at U$158.75 as of 12.46pm in New York, after climbing as high as US$160.17 earlier in the day. Chief Executive Officer Mark Zuckerberg said the company had not observed "any meaningful impact" on usage or ad sales following reports that the privacy of its users has been compromised.

"I don't think there has been any meaningful impact we've observed," Zuckerberg told reporters, when asked if Facebook has seen a change in the behaviour of users or buying pattern of advertisers, according to CNBC.

"But, look, it's not good," Zuckerberg said, CNBC reported. "Even if we can't really measure a change and the usage of a product, or the business or anything like that, it still speaks to people feeling like this is a massive breach of trust and that we have a lot of work to do to repair that."

In Europe, the Stoxx 600 Index ended the day with a 2.4 percent jump from the previous close. The UK’s FTSE 100 Index rallied 2.4 percent, France’s CAC40 Index gained 2.6 percent, while Germany’s DAX Index added 2.9 percent.

RBC Wealth Management has an overweight rating on continental European stocks, according to Bloomberg.

“We expect the earnings story and the valuation story to attract investors to Europe going forward,” Frédérique Carrier, a managing director and head of investment strategy at RBC Wealth Management, told Bloomberg. The consensus profit growth estimate of about 11 percent for the Stoxx Europe 600 Index in 2018 is “achievable,” according to Carrier. 


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