US stocks lifted by optimism over trade tariffs

Thursday, 21.00 GMT

What you need to know

• S&P 500 gains 0.8%; Nasdaq Composite ends 0.7% higher
• Reports suggest Trump administration might lift duties on Chinese imports
• Morgan Stanley shares tumble as much as 6.5%
• Sterling heads toward $1.30 despite Brexit uncertainty
• Oil prices turn volatile

Overview

Media reports claiming US officials were weighing up plans to scale back tariffs on Chinese imports bolstered hopes for a breakthrough in the trade dispute between the two countries, giving shares on Wall Street a mid-afternoon boost.

The optimistic mood also offered some support to oil prices, while the dollar and US Treasuries were little changed from levels seen earlier in the day.

The US Treasury department subsequently disputed the report, with a White House official adding that no new tariff decisions had been made.

The report helped counter earlier concerns that a US investigation into Chinese telecoms equipment group Huawei could disrupt trade talks between Washington and Beijing.

The early mood on Wall Street was also unsettled by a fourth-quarter earnings miss from Morgan Stanley, which sent the bank’s share price down sharply and weighed on the broader financial sector.

In Europe, Société Générale warned that its fourth-quarter results would be hit by a “challenging environment” in global capital markets, driving the French bank’s shares sharply lower.

UK assets remained in focus as participants continued to weigh up the outlook for Brexit following this week’s dramatic events in Westminster.

The pound rose against both the dollar and the euro, while the 10-year gilt yield rose to its highest level for a month.

“Sterling has so far proven quite resilient to the latest political developments in the UK, probably because investors are still confident that an agreement will ultimately be reached and that a solution will prevail over a no-deal scenario,” said analysts at UniCredit.

“This view is also confirmed by what the option market is pricing in, which assigns little chance to ‘extreme scenarios’ — like euro/sterling above £0.95 or sterling/dollar below $1.20 — even after [Theresa] May’s heavy defeat on Tuesday.”

Equities

In New York, the S&P 500 ended 0.8 per cent higher at 2,629, after earlier hitting 2,645.06. The gain left the index up more than 12 per cent from a 20-month intraday low hit on December 27.

The Dow Jones Industrial Average and the Nasdaq Composite both rose 0.7 per cent.

Morgan Stanley shares fell as much as 6.5 per cent, before paring their decline, while the S&P 500 financial sector finished 0.2 per cent higher. S&P energy stocks also reversed early losses, with the sector gaining 0.8 per cent.

Plans unveiled by President Donald Trump to upgrade US missile defence systems helped shares in Northrop Grumman and Lockheed Martin gain ground.

Across the Atlantic, the Europe-wide Stoxx 600 ended fractionally higher, as Frankfurt’s Xetra Dax slipped 0.1 per cent and the FTSE 100 in London shed 0.4 per cent.

SocGen ended 5.7 per cent weaker, helping to pull the CAC 40 index in Paris down 0.3 per cent.

Forex and fixed income

The dollar index was a fraction higher at 96.07, as the euro fell 0.1 per cent to $1.1386. The greenback was up 0.1 per cent against the yen at ¥109.24.

Sterling was 0.8 per cent higher against the dollar at $1.2986, while the euro was 0.8 per cent lower versus the pound at £0.8768.

The yield on the 10-year Treasury was up 2 basis points at 2.75 per cent, and that on the two-year note was 2bp higher at 2.57 per cent. The 10-year gilt yield rose 3bp to 1.34 per cent.

Commodities

Oil prices swung from losses to gains and back, with Brent finally settling 0.2 per cent lower at $61.18 — well off the day’s trough of $60.04. It rallied in post-settlement trading to $61.30, barely changed on the day.

US West Texas Intermediate crude was 0.2 per cent higher in late trade at $52.41.

Gold was down $1 at $1,292 an ounce.

Additional reporting by Michael Hunter in London and Alice Woodhouse in Hong Kong

For market updates and comment follow us on Twitter @FTMarkets