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Stocks mixed amid US-China trade talks; dollar drops on dovish Fed chief

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Stocks mixed amid US-China trade talks; dollar drops on dovish Fed chief

➤ Stock markets mixed as U.S.-China trade talks begin.

➤ Dollar weakens on Fed chief's dovish comments.

➤ Brent crude oil gains; gold edges higher.

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Wall Street looks set for a muted open as China and the U.S. begin face-to-face trade discussions and as the effects of dovish comments from the Federal Reserve's chairman appeared to fade.

U.S. officials are in Beijing for two-day talks with their Chinese counterparts amid a 90-day truce in the trade dispute between the world's two largest economies that is slated to end in March.

The Shanghai SE Composite index rose 0.72% and Hong Kong's Hang Seng gained 0.82% amid the trade talks, and after the People's Bank of China announced a cut in banks' required reserves in a bid to stimulate lending amid a slowing economy. Japan's Nikkei 225 index climbed 2.44%, bouncing back from a 2% fall last week.

A surge in U.S. stocks last Friday also appeared to help sentiment in Asian trading. The S&P 500 closed 3.43% higher and the Nasdaq Composite soared 4.26% on Jan. 4 on the back of stronger-than-expected jobs numbers in the U.S. and after Fed Chairman Jerome Powell noted that the central bank "will be patient" on tightening monetary policy and is "listening carefully" to market concerns over decelerating growth.

Powell added that the Fed "wouldn't hesitate to change" its tightening plans, including the monthly trimming of its $4.1 trillion balance sheet that is currently on auto-pilot. The comments marked a departure from his remarks in December 2018, when he had said he does not see the Fed changing its balance sheet cuts.

The rally failed to extend to European markets, where the FTSE 100 dipped 0.61% as of 6:30 a.m. ET, Germany's DAX index fell 0.48% and France's CAC 40 slipped 0.42%. Meanwhile, futures for the S&P 500 dipped 0.18%, while those for the Nasdaq 100 were down 0.36%.

In currencies, the dollar lost its footing against most majors following Powell's remarks, with the index tracking the currency's performance against a basket of peers slipping 0.24% to 95.94. The euro rose 0.37% to more than $1.14 as retail sales in the single-currency area rose more than expected in November 2018, while sterling edged 0.10% higher against the dollar as Brexit returns to the limelight.

The dollar is likely to weaken further in the coming days as long as the Fed "stays on point with its dovish change of tone," wrote Michael Hewson, chief market analyst at CMC Markets UK, in a daily note.

Meanwhile, Treasurys rose as 10-year yields dropped 2 basis points to 2.65%. Brent crude oil surged 2.23% to $58.33 per barrel on the ICE Futures Exchange, while gold gained 0.54% to $1,292.80 per ounce.

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The day ahead:

10 a.m. ET — U.S. factory orders (Econoday consensus: 0.4% monthly)

10 a.m. ET — U.S. ISM non-manufacturing index (Econoday consensus: 58.4)

12:30 p.m. ET — U.S. TD Ameritrade IMX

12:40 p.m. ET — U.S. Fed's Raphael Bostic speaks