Stock Futures Rise on Trade Talks, China Cuts Rate: Markets Wrap

(Bloomberg) -- Equity-index futures rose as plans for trade negotiations between China and the US spurred optimism tensions between the world’s two largest economies will ease.

Futures contracts for the S&P 500 and the Nasdaq 100 both climbed 0.6% on news US and Chinese officials will meet this week in Switzerland. European stocks were also poised to rise after Asian stocks inched up 0.1% - they pared earlier gains of as much as 0.7% - as China reduced its policy rate to boost the economy. A gauge of the dollar strengthened, snapping three days of declines, while gold fell 1.4%

The Indian rupee weakened 0.2% and stocks in Mumbai fell 0.1% as investors looked beyond the India-Pakistan military strikes and focused on trade talks. On Tuesday, India and the UK agreed to a landmark trade deal. Pakistan’s equity benchmark slumped more than 6%.

The US-China meeting will be the first confirmed trade talks between the countries since President Donald Trump declared sweeping tariffs last month, led by punishing levies on China. While the thawing of trade tensions provided the markets with a temporary reprieve ahead of Wednesday’s rate decision by the Federal Reserve, further rallies will depend on whether the discussions produce significant outcomes.

“While the optics are reassuring, it’s still too early to expect meaningful breakthroughs from the US-China trade talks, given the complexity of negotiations,” said Charu Chanana, chief investment strategist for Saxo Markets in Singapore.

The planned talks may encourage investors eager to see a reduction in tariffs that risk crippling trade between the countries. Trump placed duties as high as 145% on many Chinese imports, and Beijing retaliated with import taxes of 125% on American goods. The moves prompted companies to withdraw earnings guidance and threatened to drive up prices for manufacturing equipment as well as day-to-day items such as clothing and toys.

On Tuesday, Trump said he would dictate tariff levels and trade concessions for partners looking to avoid higher duties, appearing to move away from the idea that he would engage in back-and-forth negotiations.

US Treasury Secretary Scott Bessent, in an interview on Fox News, said the current tariff rates aren’t sustainable. The talks on Saturday and Sunday will center on de-escalation rather than a big trade deal, “but we’ve got to de-escalate before we move forward,” he said.

“All of these are indicating that the external pressure is starting to fade,” said Aidan Yao, Senior Investment Strategist for Asia at Amundi Investment Institute, said on Bloomberg Television. “Hopefully the negotiation goes well and that leads to tangible declines of tariff rates.”

In geopolitical news, India said it conducted targeted military strikes against Pakistan, an expected move after it pledged retaliation for a militant attack last month in Kashmir that killed 26 people. Pakistan said it shot down five Indian airplanes.

Meanwhile, shares in Hong Kong rose 0.5% - they pared earlier gains of as much as 2.4% - as China lowered rates. Beijing is ramping up efforts to help an economy caught in a second trade war with the US. 

The People’s Bank of China cut the seven-day reverse repurchase rate to 1.4% from 1.5%, according to Governor Pan Gongsheng. The central bank will also trim the reserve requirement ratio by half a percentage point, Pan said at a briefing on Wednesday, without saying when that would be effective.

“The real impact is quite limited, but helps at the margin to support markets and provide liquidity,” said Sat Duhra, a portfolio manager at Janus Henderson Investors. “It’s the trade talks that matter much more here.”

Investors are also focused on Wednesday’s rate decision by the Federal Reserve, with traders expecting policymakers to stay on hold.

While Trump has been ratcheting up pressure on the central bank to resume cutting rates, officials have mostly emphasized a need to wait and see how trade policies announced last month affect the economy.

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.6% as of 1:55 p.m. Tokyo time
• Japan’s Topix rose 0.5%
• Australia’s S&P/ASX 200 rose 0.5%
• Hong Kong’s Hang Seng rose 0.5%
• The Shanghai Composite rose 0.6%
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.2% to $1.1346
• The Japanese yen fell 0.6% to 143.24 per dollar
• The offshore yuan fell 0.2% to 7.2227 per dollar

Cryptocurrencies

• Bitcoin rose 2% to $96,601.71
• Ether rose 3% to $1,828.68

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.31%
• Australia’s 10-year yield declined six basis points to 4.27%

Commodities

• West Texas Intermediate crude rose 1.1% to $59.73 a barrel
• Spot gold fell 1.4% to $3,383.10 an ounce

This story was produced with the assistance of Bloomberg Automation.

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