➤ Stocks rise as U.S.-China trade talks confirmed; Japanese equities plunge.
➤ Chinese central bank cuts reserve requirement for lenders.
➤ Fed chair to take part in panel discussion with predecessors.
Wall Street looks set to rebound from the effects of Apple Inc.'s recent revenue warning as optimism regarding trade negotiations between the U.S. and China appeared to help market sentiment.
A U.S. delegation is set to visit Beijing to discuss trade with their Chinese counterparts at a vice-ministerial level next Monday and Tuesday, the Chinese commerce ministry said earlier today. The news came after Apple cut its revenue outlook due to weaker iPhone sales in China, a move seen by analysts as an impact of the trade rift between the two economic powerhouses.
Kevin Hassett, chairman of the White House Council of Economic Advisers, flagged that a "heck of a lot" of U.S. companies other than Apple could see weaker earnings in 2019 as Washington and Beijing attempt to resolve their ongoing trade dispute. "And I think that puts a lot of pressure on China to make a deal," Hassett added.
The Shanghai SE Composite rebound 2.05% amid the trade developments and after data showed Chinese business activity rising to a five-month high in December 2018. Hong Kong's Hang Seng index closed 2.24% higher, with Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. all up more than 1% after Chinese Premier Li Keqiang pledged to cut banks' reserve requirement ratios to boost the domestic economy. The People's Bank of China announced a 1-percentage-point cut in the ratio hours later.
The Nikkei 225 index started 2019 with a 2.26% drop as Japanese equities caught up with recent losses across the globe on their return from holiday. The yen slipped 0.31% against the dollar as of 6:30 a.m. ET but remained near ¥108 levels, while the yield on 10-year Japanese government bonds stood at negative 0.03%.
European stocks edged higher, with the FTSE 100 adding 1.36% and France's CAC 40 gaining 1.35%. Germany's DAX index surged 1.76%, helped by shares in the auto sector amid the U.S.-China trade developments. Shares in Bayerische Motoren Werke AG, Continental AG and Daimler AG all rose more than 2%.
Sterling appreciated 0.38% versus the dollar, while the euro edged 0.16% higher as annual inflation in the single-currency area decelerated more than expected in December 2018 to 1.6%.
The dollar index ticked down 0.13% to 96.18 while 10-year Treasury yields added 5 basis points to 2.61% ahead of Federal Reserve Chairman Jerome Powell's appearance at a panel discussion in Atlanta, where he will join his predecessors Janet Yellen and Ben Bernanke to discuss monetary policy.
As the Fed gets closer to a "neutral" rate, where it would be neither spurring nor hindering economic growth, some investors doubt that the central bank will proceed with its projections of two interest rate hikes in 2019. Powell has noted that the central bank will monitor U.S. data even more closely for the future path of rate hikes, bringing today's U.S. employment numbers into focus.
ING strategists expect wages to keep rising, supporting confidence and spending. "This should eventually allow the Fed to deliver further tightening this year (we look for two hikes) and support the dollar particularly when the market is now pricing a partial cut by the end of this year."
Meanwhile, Brent crude oil rallied 2.39% to $57.11 per barrel on the ICE Futures Exchange. S&P Global Ratings lowered its average annual price assumption for Brent to $55 per barrel for 2019 from $65 per barrel, citing concerns over the outlook for global demand growth in light of the U.S.-China trade dispute and a slowing Chinese economy, among other things.
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The day ahead:
8:30 a.m. ET — U.S. employment situation (Econoday consensus: nonfarm payrolls 180,000 monthly, unemployment rate 3.7%, average hourly earnings 0.3% monthly, 3.0% yearly)
8:30 a.m. ET — Canada IPPI
8:30 a.m. ET — Canada labor force survey
9:45 a.m. ET — U.S. PMI services index (Econoday consensus: 53.4)
10:15 a.m. ET — U.S. Fed Chair Jerome Powell speaks
10:15 a.m. ET — U.S. Fed's Raphael Bostic speaks
10:30 a.m. ET — U.S. EIA natural gas report
11 a.m. ET — U.S. EIA petroleum status report
1 p.m. ET — U.S. Baker-Hughes rig count