The New York Dow Jones index achieved its largest daily jump in the last four months on Thursday, while other major indices on Wall Street also solidly strengthened, buoyed by solid corporate earnings and a reduction in concerns over trade tensions between the U.S. and China.
The New York Dow Jones rose by 396.32 points or 1.58 percent, to 25,558 points, while the S&P 500 index strengthened by 0.79 percent, to 2,840 points, and the tech-heavy Nasdaq by 0.42 percent, to 7,806 points.
All 11 stock sectors posted gains, with telecommunications and consumer sectors leading the way.
The Chinese Ministry of Commerce announced on Thursday that a Chinese delegation will participate in the next round of trade negotiations with the U.S. side in Washington at the end of August.
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The last round of trade talks between the two economic powers took place in early June. Although no significant progress was made during previous rounds of talks, the White House announced on August 3 that the U.S. is open to further discussions with China on how to resolve trade tensions.
The easing of trade tensions lifted the stock prices of companies sensitive to tariffs, such as Boeing and Caterpillar, whose prices rose by 4.3 and 3.2 percent, respectively. On average, the stock prices of industrial companies strengthened by 1.2 percent.
The biggest individual stock was Walmart, which increased by 9.3 percent after the world’s largest retail chain reported better-than-expected earnings and sales growth at the highest rate in the past decade.
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“The market is getting a boost from well-known companies reporting decent earnings, like Walmart. However, I think it also shows its schizophrenic nature in terms of short-term changes closely tied to trade wars and negotiations, especially when it comes to China,” emphasizes Chuck Carlson, an executive at Horizon Investment Services.
The earnings announcement season for the second quarter of this year is slowly winding down. Of the 500 companies whose stocks are included in the S&P index, 463 have reported earnings so far, with 79.3 percent exceeding analysts’ expectations.
European stock prices also solidly rose on Thursday, with the London FTSE index finishing trading up 0.78 percent, at 7,556 points, while the Frankfurt DAX strengthened by 0.6 percent, to 12,237 points, and the Paris CAC by 0.83 percent, to 5,349 points.
Asian markets rise thanks to easing tensions
On Asian markets on Friday, the major indices are posting slight gains, still riding the wave of easing trade tensions between the U.S. and China, while the Turkish lira, having recovered from a record low earlier in the week, is again under pressure due to new U.S. warnings to Turkey.
The MSCI index of Asia-Pacific stocks excluding Japan was up 0.5 percent around 6:30 AM.
The Tokyo Nikkei also strengthened by 0.46 percent, to 22,293 points.
The news that a Chinese delegation, led by Deputy Minister of Commerce Wang Shouwen, will participate in the next round of trade negotiations with the U.S. side in Washington at the end of August helped improve investor sentiment.
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However, analysts believe the impact of this news may be short-lived, as a meeting at such a low level is unlikely to be sufficient to resolve trade disputes between the two economic powers.
Meanwhile, White House economic advisor Larry Kudlow warned Beijing not to underestimate President Donald Trump’s determination to demand changes in Chinese economic policies.
Indeed, Chinese stock markets hardly seemed impressed by the news.
The Shanghai stock index on Friday rose a modest 0.16 percent, after falling 0.66 percent on Thursday, and is just 0.03 points above its lowest level in the last two and a half years.
While the MSCI index of global stocks rose 0.63 percent on Thursday, achieving its largest gain in the past month, the MSCI index of emerging market stocks ended at its lowest level in the last 13 months.
Weakness in emerging market stocks is partly due to the decline of local currencies, after the Turkish lira plummeted this month to a record low due to concerns over diplomatic disputes between Ankara and Washington.
New tightening of Turkish-American relations again pressures the lira
The Turkish lira reached an exchange rate of 5.815 lira per dollar earlier on Friday, recovering by 25 percent compared to Monday, when it was at a record low of 7.24 lira per dollar. Support for such a recovery in the Turkish lira’s exchange rate came from Qatar’s promise to invest $15 billion in Turkey.
However, later in the day, the Turkish currency weakened to 5.86 lira per dollar, as investors ‘digested’ the U.S. warning to Turkey that it could expect new economic sanctions if it does not release American pastor Andrew Brunson.
The lira has fallen 35 percent against the dollar since the beginning of the year due to deteriorating relations between the two NATO allies, as well as investor concerns about President Tayyip Erdogan’s influence on the country’s monetary policy.
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U.S. Secretary of Commerce Steven Mnuchin told Trump at a cabinet meeting on Thursday that sanctions are ready if Brunson, who is awaiting trial for terrorism in Turkey, is not released. Trump later ‘tweeted’ that the U.S. “will not pay anything” for Brunson’s release, but “we are cutting Turkey!” He called Brunson a “great patriotic hostage.” Turkish officials state that the case is under the jurisdiction of the courts. The latest U.S. statements followed Turkish Finance Minister Berat Albayrak, Erdogan’s son-in-law, assuring investors on Thursday that the country will emerge stronger from this currency crisis and insisted that Turkish banks are healthy and will weather the crisis.
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The Chinese yuan, on the other hand, slightly weakened on Friday, after rising 1.2 percent on Thursday, thanks to the announcement of U.S.-China trade talks. This morning it is trading at an exchange rate of 6.8794 yuan per dollar, which is 0.25 percent lower than Thursday, but above the lowest level in 19 months of 6.9587 yuan, which it touched on Wednesday.
“Due to the currency crisis in Turkey, investors are pulling their capital from emerging markets to developed markets. However, if you look at the long-term outlook, the U.S. could be affected by prolonged trade tensions. Given that the U.S. president could fare poorly in his first midterm elections (for Congress in November), he may take more action on trade issues after those elections,” believes Shuji Shirota, a strategist at HSBC Securities in Tokyo.
