Trade Talks Uncertainty Weigh on Wall Street

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The major U.S. index futures are currently pointing to a lower opening on Monday, with stocks likely to give back ground following the rally seen last Friday.

Lingering concerns about the ongoing U.S.-China trade war may weigh on the markets ahead of the next round of high-level trade talks in Washington later this week.

Ahead of the talks, scheduled to begin on Thursday, a report from Bloomberg News said Chinese officials are signaling they?re increasingly reluctant to agree to the broad trade deal being pursued by President Donald Trump.

Citing people familiar with the discussions, Bloomberg said senior Chinese officials have indicated the range of topics they?re willing to discuss has narrowed considerably.

An offer from Chinese Vice Premier Liu He would purportedly not include reforming Chinese industrial policy or government subsidies.

The upcoming negotiations come as the trade war continues to hang over the economy, with a survey by the National Association for Business Economics showing 53 percent of economists see trade policy as the key downside risk to the economy.

The NABE said four out of five panelists believe that risks to the economic outlook are weighted to the downside, an increase from the 60 percent who held this view in June.

?The panel turned decidedly more pessimistic about the outlook over the summer, with 80% of participants viewing risks to the outlook as tilted to the downside,? said Survey Chair Gregory Daco, chief U.S. economist at Oxford Economics.

He added, ?The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to U.S. economic activity.?

Following the significant rebound seen over the course of the trading day last Thursday, stocks showed another substantial move to the upside during trading last Friday. With the rally, the major averages further offset the steep losses posted last Tuesday and Wednesday.

The major averages finished the session just off their best levels of the day. The Dow soared 372.68 points or 1.4 percent to 26,573.72, the Nasdaq surged up 110.21 points or 1.4 percent to 7,982.47 and the S&P 500 spiked 41.38 points or 1.4 percent to 2,952.01.

For the week, the major averages turned in a mixed performance. While the Nasdaq rose by 0.5 percent, the S&P 500 fell by 0.3 percent and the Dow slid by 0.9 percent.

The rally on Wall Street came following the release of a closely watched Labor Department report showing weaker than expected job growth but an unexpected drop in the unemployment rate to a nearly 50-year low.

The mixed data seemed to serve the dual purpose of reinforcing expectations the Federal Reserve will continue cutting interest rates while at the same offsetting concerns about a potential recession.

The report said non-farm payroll employment rose by 136,000 jobs in September compared to economist estimates for an increase of about 145,000 jobs.

Meanwhile, the increases in employment in July and August were upwardly revised to 166,000 jobs and 168,000 jobs, respectively, reflecting the addition of 45,000 more jobs than previously reported.

The average monthly job growth has still slowed from 223,000 jobs per month in 2018 to 161,000 jobs per month so far in 2019.

The Labor Department also said the unemployment rate fell to 3.5 percent in September from 3.7 percent in August. Economists had expected to unemployment rate to remain unchanged.

With the unexpected decrease, the unemployment rate dropped to its lowest level since hitting a matching rate in December of 1969.

The unexpected drop in the unemployment rate came as a 391,000-person jump in the household survey measure of employment more than offset an 117,000-person increase in the size of the labor force.

Even with the unemployment rate hitting a nearly 50-year low, the report said average hourly employee earnings edged down by a penny to $28.09 in September after rising by 11 cents in August.

Compared to the same month a year ago, average hourly earnings were up by 2.9 percent in September, reflecting a notable slowdown from the 3.2 percent increase in August.

Citing headwinds from weaker global growth, trade uncertainty and the strong U.S. dollar, ING Chief International Economist James Knightley expects job growth to average closer to 120,000 for the rest of the year.

“This suggests pay growth is unlikely to accelerate markedly from here and with inflation picking up, the real wage growth story may not be as positive for spending power,” Knightley said. “All in all, it looks as though the Fed will need to step in with more policy easing to support the economy.”

Stocks saw further upside in afternoon trading after Fed Chairman Jerome Powell described the U.S. economy as “in a good place,” and said it is the central bank’s job to “keep it there as long as possible.”

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.1 percent. The rally by gold stocks came despite a modest decrease by the price of the precious metal.

Significant strength also emerged among semiconductor stocks, with the Philadelphia Semiconductor Index surging up by 1.9 percent.

Financial, housing, software, and healthcare stocks also saw considerable strength amid broad based buying interest on Wall Street.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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