S&P 500, Nasdaq hold near record levels after Trump remarks

S&P 500, Nasdaq hold near record levels after Trump remarks
By Lewis Krauskopf

(Reuters) – The S&P 500 and Nasdaq indexes edged higher after earlier hitting record peaks on Tuesday while the Dow dipped slightly as President Donald Trump said the United States is close to signing an initial trade deal with China but offered no new details about negotiations.

Stocks were off session highs after a highly anticipated midday speech from Trump, with investors concerned ahead of time about any comments that would worsen the tariff dispute that has convulsed markets for more than a year.

Trump said U.S. and Chinese negotiators were “close” to a “phase one” trade deal, but largely repeated well-worn rhetoric about China’s “cheating” on trade in remarks at The Economic Club of New York.

“The commentary was exactly what folks wanted to hear: that ‘phase one’ talks are still ongoing, that we are controlling them, but yet the belief is that China is very willing to make a deal,” said Delores Rubin, senior equities trader at Deutsche Bank Wealth Management in New York.

“There was nothing contrary to what we’d already known … so it was back to business,” Rubin said.

Investors have pointed to U.S.-China trade tensions as the main market uncertainty as stocks have climbed to record levels, fueled by rate cuts by the Federal Reserve, third-quarter earnings coming in above low expectations, and signs the economy may be bottoming.

On Tuesday, the Dow Jones Industrial Average <.DJI> fell 15.67 points, or 0.06%, to 27,675.82, the S&P 500 <.SPX> gained 2.54 points, or 0.08%, to 3,089.55 and the Nasdaq Composite <.IXIC> added 10.53 points, or 0.12%, to 8,474.81.

Most S&P 500 sectors were in positive territory, with healthcare <.SPXHC> gaining the most. Energy <.SPNY> lagged the most, falling 0.9%.

Among stocks, Walt Disney Co <DIS.N> rose 1.3% as the company said demand for its much-anticipated streaming service, Disney+, was well above its expectations in a launch.

Shares of Netflix Inc <NFLX.O> were down 1.2%.

Rockwell Automation Inc <ROK.N> jumped 11.1% after the U.S. factory equipment maker easily beat quarterly results and forecast 2020 earnings above estimates.

CBS Corp <CBS.N> dropped 3.3% after the media company missed quarterly revenue estimates. Shares of Viacom Inc <VIAB.O>, which is merging with CBS, were also down 3.6%.

With third-quarter earnings season drawing to a close, about three-quarters of S&P 500 companies have topped profit estimates, but overall they are expected to have posted a 0.5% drop in earnings, according to Refinitiv.

Earnings from big firms including Walmart Inc <WMT.N>, Nvidia Corp <NVDA.O> and Cisco Systems Inc <CSCO.O>, as well as a fresh set of economic data, are due this week.

Advancing issues outnumbered declining ones on the NYSE by a 1.02-to-1 ratio; on Nasdaq, a 1.02-to-1 ratio favored advancers.

The S&P 500 posted 41 new 52-week highs and two new lows; the Nasdaq Composite recorded 104 new highs and 88 new lows.

(Additional reporting by Arjun Panchadar and Agamoni Ghosh in Bengaluru; Editing by Shounak Dasgupta and Jonathan Oatis)

U.S. consumer spending strong; manufacturing struggling

FILE PHOTO: People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales surged in July as consumers bought a range of goods even as they cut back on motor vehicle purchases, which could help to assuage financial market fears that the economy was heading into recession.

The upbeat report from the Commerce Department on Thursday, however, will likely not change expectations that the Federal Reserve will cut interest rates again next month as news from the manufacturing sector remains dour, underscoring the darkening outlook for the economy against the backdrop of trade tensions and slowing growth overseas.

A key part of the U.S. Treasury yield curve inverted on Wednesday for the first time since June 2007, triggering a stock market sell-off. An inverted Treasury yield curve is historically a reliable predictor of looming recessions.

Financial markets have fully priced in a 25-basis-point rate cut at the U.S. central bank’s Sept. 17-18 policy meeting. The Fed lowered its short-term interest rate by a quarter of a percentage point last month, citing the acrimonious U.S.-China trade war and slowing global economies.

But the data could push markets to dial back expectations of a 50-basis-point rate cut next month.

“So yes, consumers are lifting economic growth and easing pressure on the Federal Reserve to cut more aggressively, but the trade war itself, and the rhetoric that accompanies it will push for more rate cuts,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

Retail sales increased 0.7% last month after gaining 0.3% in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 1.0% last month after advancing by an unrevised 0.7% in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

U.S. stock index futures extended gains after the release of the data. U.S. Treasury yields rose while the dollar <.DXY> was slightly weaker against a basket of currencies.

STRONG LABOR MARKET

July’s gain in core retail sales suggested strong consumer spending early in the third quarter, though the pace will likely slow from the April-June quarter’s robust 4.3% annualized rate. Consumer spending, which accounts for more than two-thirds of the economy, is being underpinned by the lowest unemployment rate in nearly half a century.

While a separate report from the Labor Department on Thursday showed an increase in the number of Americans filing applications for unemployment benefits last week, the trend in claims continued to point to a strong labor market.

Solid consumer spending is blunting some of the hit on the economy from the downturn in manufacturing, which is underscored by weak business investment. There are, however, red flags for the labor market coming from manufacturing.

The sector’s struggles were highlighted by a third report from the Fed on Thursday showing factory production dropped 0.4% in July. Output at factories has declined more than 1.5% since December 2018. Manufacturing, which makes up about 12% of the economy, is also being weighed down by an inventory overhang, especially in the automotive sector.

Manufacturing productivity tumbled at its fastest pace in nearly two years in the second quarter, with factories cutting hours for workers, another report from the Labor Department showed.

Manufacturing’s troubles appear to have persisted into the third quarter. Though a report from the Philadelphia Fed on Thursday showed factory activity in the mid-Atlantic region slowed less than expected in August amid an increase in new orders, manufacturers reported hiring fewer workers.

A measure of factory employment dropped to its lowest level since November 2016. The weakness in factory employment in the region that covers eastern Pennsylvania, southern New Jersey and Delaware was mirrored by another survey from the New York Fed. Activity in New York state was little changed this month, with employment measures deteriorating further.

“The health of factories is still an important driver of growth and the soft patch for production remains a factor that is keeping economic growth in the slow lane,” said Chris Rupkey, chief economist at MUFG in New York.

The economy grew at a 2.1% rate in the second quarter, decelerating from the first quarter’s 3.1% pace. Growth estimates for the third quarter are below a 2.0% rate.

In July, auto sales fell 0.6% after rising 0.3% in June. Receipts at service stations rebounded 1.8%, reflecting higher gasoline prices. Sales at building material stores gained 0.2%.

Receipts at clothing stores increased 0.8%. Online and mail-order retail sales jumped 2.8%, the most in six months, after rising 1.9% in June. They were likely boosted by Amazon.com Inc’s <AMZN.O> Prime Day.

Receipts at furniture stores rose 0.3%. Sales at restaurants and bars accelerated 1.1%. But spending at hobby, musical instrument and book stores dropped 1.1% last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Fed rate-cut signal sends stocks surging, wounds yields, dollar

FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 19, 2019. REUTERS/Brendan McDermid/File Photo

By Lewis Krauskopf

NEW YORK (Reuters) – World stock markets surged on Thursday, with the U.S. benchmark S&P 500 hitting a record high, while the 10-year U.S. Treasury yield fell below 2% as investors digested a signal from the Federal Reserve of potential U.S. interest rate cuts as soon as its next meeting.

The U.S. dollar also weakened after the Fed – the U.S. central bank – on Wednesday indicated a marked shift in sentiment even as it left its benchmark rate unchanged for now.

“We have obviously morphed into the Fed taking the pole position as far what&rsquo;s driving the market right now, both domestically and on a global basis as well,” said Mike Mullaney, director of global markets research at Boston Partners.

“It’s risk-on trade again right now for the time being and I don’t see anything on a near-term basis that is going to disrupt that.”

Oil prices also surged, lifted by the Fed as well as by news that Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington.

MSCI’s gauge of stocks across the globe gained 1.02%. The index hit its highest since May 1.

On Wall Street, the Dow Jones Industrial Average rose 203.87 points, or 0.77%, to 26,707.87, the S&P 500 gained 21.98 points, or 0.75%, to 2,948.44 and the Nasdaq Composite added 65.04 points, or 0.81%, to 8,052.36.

Energy, technology and industrials were among the best-performing S&P 500 sectors.

“Cyclicals are definitely getting a big pop today,” Mullaney said.

The pan-European STOXX 600 index rose 0.52%, reaching its highest since early May.

Benchmark government bond yields in the United States and Europe tumbled following the Fed’s decision, with the U.S. 10-year note yield falling below 2% for the first time in 2-1/2 years.

Benchmark 10-year U.S. notes last rose 12/32 in price to yield 1.9855%, from 2.027% late on Wednesday.

“The statement indicated the Fed no longer insists on a pause or patience, providing an open ear to doves at upcoming meetings. Also critical … acknowledgment that inflation pressures are muted,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.

“As difficult as it might be to imagine, rates are also free to fall further,” he added.

The dollar index, which measures the greenback against a basket of currencies, fell 0.46%, with the euro up 0.6% to $1.1291.

U.S. crude rose 5.73% to $56.84 per barrel and Brent was last at $64.51, up 4.35%.

 

(Additional reporting by Gertrude Chavez-Dreyfuss in New York and Tom Wilson in London; editing by Larry King and James Dalgleish)

Strong U.S. jobs data boosts stocks, soothes economic fears

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 27, 2018. REUTERS/Eduardo Munoz

By April Joyner

NEW YORK (Reuters) – World stock markets rallied on Friday while bond yields rose after sharply declining earlier in the week as Beijing announced a new round of trade talks with Washington and U.S. employment data pointed to economic strength.

Equities around the globe were buoyed by the news that China and the United States will hold trade talks in Beijing on Monday and Tuesday.

In the United States, stocks got another boost as stronger-than-expected U.S. employment data soothed some concerns of slowing economic growth. That was welcome news to investors after sharp declines on Thursday following Apple Inc’s cut in its revenue forecast.

“As nervous as we all were yesterday on this Apple news, this does help to soften that a bit, that maybe the consumer or the average person still is more confident than we are giving them credit for,” said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.

The strong U.S. jobs report raised questions among some market watchers about the Federal Reserve’s monetary policy, which has been scrutinized in recent weeks as economic worries have mounted. However, Wall Street surged further after Fed Chair Jerome Powell spoke at a meeting of the American Economic Association and said he would not resign if asked to by U.S. President Donald Trump.

Conversely, safe-haven assets that had climbed this week as equity markets were roiled came down substantially. Treasury yields rose sharply after the release of U.S. employment data, and the dollar gained 0.6 percent against the yen. Spot gold prices, which reached a six-month peak on Thursday, dropped 0.8 percent.

In U.S. equities, the Dow Jones Industrial Average rose 681.9 points, or 3.01 percent, to 23,368.12, the S&P 500  gained 66.58 points, or 2.72 percent, to 2,514.47 and the Nasdaq Composite added 218.87 points, or 3.39 percent, to 6,682.37.

The pan-European STOXX 600 index jumped 2.67 percent, while MSCI’s gauge of stocks across the globe gained 2.16 percent.

Benchmark 10-year Treasury notes last fell 32/32 in price to yield 2.6641 percent, from 2.553 percent late on Thursday.

Earlier, an announcement from China’s central bank that it would cut the amount of cash that banks must hold as reserves for the fifth time in the past year lifted Asian and European stocks. The move frees $116 billion for new lending as Beijing tries to reduce the risk of a sharper economic slowdown.

Japanese equity markets, which opened for their first session of the new year, were the main exception, weighed down by the sharp rise in the yen in the past few days.

The news of the U.S.-China trade talks boosted oil prices, with both Brent and U.S. crude futures around 4 percent higher.

 

(Reporting by April Joyner; Additional reporting by Virginia Furness, Swati Pande, Wayne Cole and Chuck Mikolajczak; editing by Jon Boyle, Larry King and Dan Grebler)

Forget gridlock, Republican win may be better for stock market

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., November 1, 2018. REUTERS/Brendan McDermid

By Noel Randewich

SAN FRANCISCO (Reuters) – U.S. President Donald Trump has warned that his favorite measure of success, the stock market, is imperiled if voters favor Democrats in next week’s congressional elections.

While not fully accurate – stocks tend to rise regardless of who controls the government – it does bear out that the market has delivered a slightly stronger performance on average when Republicans dominate in Washington.

A Reuters analysis of the past half-century shows stocks fared better in the two calendar years after congressional elections when Republicans control Congress and the presidency than when Democrats controlled the two branches, and at least as well as during times of gridlock. Many investors are now hoping for a continuation of the Republican agenda.

“There is Trump ‘the person’, who is very controversial,” said Stephen Massocca, Senior Vice President at Wedbush Securities in San Francisco. “And there’s also Trump ‘the agenda’. The Trump agenda, the stock market loves. To the extent it continues, the market will like that.”

Republicans traditionally push pro-business policies such as tax cuts and deregulation, which boost stock prices. The market has, on the whole, given Trump a thumbs-up, with the market rising almost 20 percent during his presidency so far.

Polls show strong chances that the Democratic Party may win control of the House of Representatives in the Nov. 6 midterm elections after two years of wielding no practical political power in Washington, with Republicans likely to keep the Senate.

Trump warned in a tweet on Tuesday that a change in Congress would be bad for the market, saying: “If you want your Stocks to go down, I strongly suggest voting Democrat.”

Investors often favor Washington gridlock because it preserves the status quo and reduces uncertainty.

“Traditionally, gridlock is good for the markets. But I think this election is very tricky; I’m not sure that’s the preferred market outcome because a lot of the benefits of the past two years have come from not being in a gridlock environment,” said Mike O’Rourke, Chief Market Strategist at JonesTrading.

Should his fellow Republicans maintain or extend their grip on Congress, Trump may be emboldened to pursue more of his political agenda, including further tax overhauls.

By contrast, Democratic gains that allow the party to control the House of Representatives, and possibly the Senate, could stifle Trump’s policy aims and perhaps lead to attempts to impeach him. It could also lead to resistance to increasing the government’s debt limit next year.

“Our economists believe that two likely consequences of a divided Congress would be an increase in investigations and uncertainty surrounding fiscal deadlines, which could raise equity volatility,” Goldman Sachs said in a report this week.

Over the past 50 years, gridlock has been the norm rather than the exception in Washington, with the presidency and Congress won by one party in just seven out of 25 congressional election year.

Looking at the two calendar years following each congressional election, the S&P 500 had a mean annual increase of 12 percent under Republican-controlled governments, compared to an increase of 9 percent for Democrat-controlled governments and a 7 percent rise for gridlocked governments.

However, using median averages, which exclude outliers, differences are less clear, with the S&amp;P 500 seeing annual increases of 11 percent under Republican-controlled governments and under gridlock, and 10 percent gains under Democrat-controlled governments.

An analysis by BTIG brokerage of data going back to 1928 also indicates gridlock is not necessarily ideal. It showed U.S. stocks performing better under united governments.

“While government control is by no means the sole determinant of market performance, investors clearly favor a unified regime,” BTIG strategist Julian Emanuel wrote in his report.

Interest rates, economic growth, company earnings and inflation are widely viewed as strong influences on stock prices, making the balance of power in Washington just one of many factors affecting investor sentiment.

Two Democratic presidents – Bill Clinton and Barack Obama – have presided over the strongest S&amp;P 500 performances http://tmsnrt.rs/2jtEpzi since 1952, with gains of 208 percent and 166 percent, respectively.

Wall Street has applauded Trump since he took power in January 2017 and quickly pushed through measures to deregulate banks and other companies. Last December, his Republican party passed sweeping corporate tax cuts that have S&amp;P 500 companies on track this year to grow their earnings per share by over 20 percent, the biggest jump since 2010, according to Refinitiv IBES data.

“Volatility may rise regardless of the outcome, but, based on historical relationships, equities may be more likely to rise if Republicans manage to maintain control of Congress,” Deutsche Bank said in a recent report.

(Reporting by Noel Randewich; Editing by James Dalgleish)

Twelve charts to watch for signs of the next U.S. downturn

FILE PHOTO: The Dow Jones Industrial average is displayed on a screen after the closing bell at the New York Stock Exchange (NYSE) in New York, U.S., May 29, 2018. REUTERS/Brendan McDermid/File Photo

By Megan Davies

NEW YORK (Reuters) – Economists and investors are watching for signs they hope can predict when the wheels will come off a near-record U.S. economic expansion and equities bull market.

Some are already worried about a flattening Treasuries yield curve and slowing housing market, even as other economic vital signs remain healthy.

U.S. economic growth will probably slow gradually over the next two years and the threat of a trade war has made a recession more likely, a recent Reuters poll predicted.

A majority of bond market experts in a separate poll now predict a yield curve inversion in the next one to two years, a red flag for those who believe short-term yields rising above longer-term yields means an imminent recession.

“Almost every client meeting includes questions about where the economy and markets sit in the cycle,” JPMorgan head of cross-asset fundamental strategy John Normand wrote in a recent research note.

The U.S. economy is a year away from surpassing the record 120-month 1991-2001 expansion, according to data from the National Bureau of Economic Research.

The stock market bull run is also nearing a record. Bull markets are typically measured retroactively, but U.S. equities could hit their longest bull run in history on Aug. 22, according to S&amp;P.

The U.S. economy is “late cycle” but a recession is not imminent, a number of economists and strategists say.

“We believe that the U.S. economic expansion is entering the final third of its cycle,” wrote analysts at Wells Fargo Investment Institute, although they said various indicators do not suggest a recession this year.

1. THE YIELD CURVE

The U.S. yield curve plots Treasury securities with maturities ranging from 4 weeks to 30 years. The spread between two-year and 10-year notes is typically used when discussing yield curve inversion. The gap between long- and short-dated yields turning negative has been a reliable predictor of recessions. The yield curve has been flattening in recent months.

2. SHORT-TERM BILLS

An alternative yield curve measures the difference in the current interest rate on 3-month Treasury bills and expectations for the yields 18 months from now. Federal Reserve officials have found this measure is a stronger predictor of recession in the coming year. The measure currently suggests little recession risk.

3. UNEMPLOYMENT

The unemployment rate and initial jobless claims ticked higher just ahead or in the early days of the last two recessions before rising sharply. Unemployment hit an 18-year low in May of 3.8 percent but nudged up to 4 percent in June.

4. OUTPUT GAP

The output gap between the economy’s actual and potential gross domestic product has fallen ahead of the last two recessions.

“Currently we estimate that the output gap is nearly closed, but not yet in the ‘overheating’ territory,” wrote Kathy Bostjancic, head of U.S. investor services at Oxford Economics, in May.

FILE PHOTO: A trader works in a work space on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018. REUTERS/Brendan McDermid/File Photo

FILE PHOTO: A trader works in a work space on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018. REUTERS/Brendan McDermid/File Photo

5. STOCK MARKETS

Falling equity markets can signal a recession is looming or has already started to take hold. Markets turned down before the 2001 recession and tumbled at the start of the 2008 recession.

On a 12-month rolling basis, the market has turned down ahead of the last two recessions. The 12-month rolling average percent move is now below its 2018 peak but higher than recent lows.

6. BOOM-BUST BAROMETER

The Boom-Bust Barometer devised by Ed Yardeni at Yardeni Research measures spot prices of industrials inputs like copper, steel and lead scrap, and divides that by initial unemployment claims. The measure fell before or during the last two recessions and is below its 2018 peak.

7. HOUSING MARKET

Housing starts and building permits have fallen ahead of some recent recessions. Housing starts and permits fell to the lowest level since September 2017 in June.

8. EARNINGS GROWTH

S&amp;P 500 earnings growth dipped ahead of the last recession. Earnings growth is expected to slow slightly this year and more next year, but remain in the high single digits or low double digits in 2019.

9. SOUTH KOREA EXPORTS

South Korean exports fell during the last recession and before the previous recession.

Those exports, which include cars, phones, steel and other products, tend to be a leading indicator, said Bank of America Merrill Lynch chief investment strategist Michael Hartnett. Exports from China are also increasingly important as weak Asian exports tend to coincide with weak global and U.S. growth.

South Korea’s export growth came to a halt in June. China, the world’s largest exporter, reported exports accelerated in June.

The United States and China have fired the first shots in what could become a protracted trade war. The United States and South Korea agreed in March to revise a trade pact.

10. HIGH-YIELD SPREADS

The gap between high-yield and government bond yields rose ahead of the 2007-2009 recession and then widened dramatically. Credit spreads typically widen when perceived risk of default rises. Spreads have fallen slightly this year.

11. INVESTMENT-GRADE YIELDS

Risk premiums on investment-grade corporate bonds over comparable Treasuries have topped 2 percent during or just before six of the seven U.S. recessions since 1970. Spreads on Baa-rated corporate bonds rose to 2 percent this month based on Moody’s Investors Services data, according to Leuthold Group’s chief investment strategist Jim Paulsen.

12. MISERY INDEX

The so-called Misery Index adds together the unemployment rate and the inflation rate. It typically rises during recessions and sometimes prior to downturns. It has nudged higher in 2018 but is still relatively low.

(Additional reporting by Richard Leong, Dan Burns, Jenn Ablan and Howard Schneider; Editing by Meredith Mazzilli)

Wall Street edges higher as strong jobs data offsets trade worries

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., June 28, 2018. REUTERS/Brendan McDermid

By Sruthi Shankar and Savio D’Souza

(Reuters) – U.S. stocks edged higher on Friday on stronger-than-expected job growth in June, offsetting concerns from a trade war between the United States and China.

Nonfarm payrolls increased by 213,000 jobs last month, the Labor Department said, topping expectations of 195,000, while the unemployment rate rose from an 18-year low to 4.0 percent and average hourly earnings rose 0.2 percent.

The moderate wage growth could allay fears of a strong build-up in inflation pressures, keeping the Federal Reserve on a path of gradual interest rate increases.

“It was what the market wanted to see: more jobs created than expected, wage growth moderate and creating jobs where you want to see them … It’s not just creating jobs it’s creating careers,” said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.

The strong jobs data follows the minutes of the Federal Reserve’s latest policy meeting which showed policymakers discussed if recession lurked around the corner and expressed concerns trade tensions could hit an economy that by most measures looked strong.

Earlier stock futures were set for a more cautious start after the United States and China imposed tariffs on each other’s goods worth $34 billion, with Beijing accusing Washington of starting the “largest-scale trade war.”

President Donald Trump warned the United States may ultimately target over $500 billion worth of Chinese goods, but global markets remained broadly sanguine, though concerns about the conflict escalating capped appetite for risk.

“The expectation of things is always worse for the market than the reality,” said Kinahan. “We certainly have to pay attention to trade but it’s been expected for a long time.”

At 9:54 a.m. EDT the Dow Jones Industrial Average was down 19.67 points, or 0.08 percent, at 24,337.07, the S&P 500 was up 4.26 points, or 0.16 percent, at 2,740.87 and the Nasdaq Composite was up 34.68 points, or 0.46 percent, at 7,621.10.

Eight of the 11 major S&P sectors were higher, led by a 0.8 percent jump in the S&P healthcare index.

Biogen jumped 17.8 percent after the company and Japanese drugmaker Eisai Co said the final analysis of a mid-stage trial of their Alzheimer’s drug showed positive results.

Among the decliners were industrials, energy and materials indexes.

Boeing, the single largest U.S. exporter to China, slipped 0.7 percent and Caterpillar dropped 1.3 percent.

The Philadelphia Semiconductor index, which is made up of chipmakers most of whom rely on China for a substantial chunk of revenue, dropped 0.4 percent.

Advancing issues outnumbered decliners by a 1.65-to-1 ratio on the NYSE and by a 2.07-to-1 ratio on the Nasdaq.

The S&

P index recorded 10 new 52-week highs and two new lows, while the Nasdaq recorded 67 new highs and nine new lows.

(Reporting by Sruthi Shankar and Savio D’Souza in Bengaluru; Editing by Arun Koyyur)

Trump cancels summit with North Korea scheduled for next month

FILE PHOTO: A combination photo shows U.S. President Donald Trump and North Korean leader Kim Jong Un (R) in Washignton, DC, U.S. May 17, 2018 and in Panmunjom, South Korea, April 27, 2018 respectively. REUTERS/Kevin Lamarque and Korea Summit Press Pool/File Photos

By David Brunnstrom and Matt Spetalnick

WASHINGTON (Reuters) – U.S. President Donald Trump on Thursday called off a planned historic summit with North Korean leader Kim Jong Un, even after North Korea followed through on a pledge to blow up tunnels at its nuclear test site.

Referring to a scheduled June 12 meeting with Kim in Singapore, Trump said in a letter to the North Korean leader: “Sadly, based on the tremendous anger and open hostility displayed in your most recent statement, I feel it would be inappropriate, at this time, to have this long- planned meeting.”

Trump called it “a missed opportunity” and said he still hoped to meet Kim someday.

The North Korean mission to the United Nations did not immediately respond to a request for comment on Trump’s cancellation of the summit.

U.S. stocks dropped sharply on the news, with the benchmark S&P 500 Index falling more than half a percent in about 10 minutes. Investors turned to U.S. Treasury debt as a safe alternative, driving the yield on the 10-year note, which moves inversely to its price, down to a 10-day low and back below the psychologically important 3 percent level.

The U.S. dollar also weakened broadly, particularly against the Japanese yen, which climbed to a two-week high against the greenback.

“Please let this letter serve to represent that the Singapore summit, for the good of both parties, but to the detriment of the world, will not take place,” Trump wrote.

“You talk about your nuclear capabilities, but ours are so massive and powerful that I pray to God that they will never have to be used,” he said.

Earlier on Thursday, North Korea repeated a threat to pull out of the summit with Trump next month and warned it was prepared for a nuclear showdown with Washington if necessary.

FADED HOPE

North Korea’s pursuit of nuclear weapons has been a source of tension on the Korean peninsula for decades, as well as antagonism with Washington. The rhetoric reached new heights under Trump as he mocked Kim as “little rocket man” and in address at the United Nations threatened to “totally destroy” North Korea if necessary. Kim had called Trump mentally deranged and threatened to “tame” him with fire.

Kim rarely leaves North Korea and his willingness to meet and Trump’s acceptance sparked hope but it had faded in recent days.

In a statement released by North Korean media, Vice Foreign Minister Choe Son Hui had called U.S. Vice President Mike Pence a “political dummy” for comparing North Korea – a “nuclear weapons state” – to Libya, where Muammar Gaddafi gave up his unfinished nuclear development program, only to be later killed by NATO-backed fighters.

“Whether the U.S. will meet us at a meeting room or encounter us at nuclear-to-nuclear showdown is entirely dependent upon the decision and behavior of the United States,” Choe said.

A small group of international media selected by North Korea witnessed the demolition of tunnels at the Punggye-ri site on Thursday, which Pyongyang says is proof of its commitment to end nuclear testing.

The apparent destruction of what North Korea says is its only nuclear test site has been widely welcomed as a positive, if largely symbolic, step toward resolving tension over its weapons. North Korean leader Kim has declared his nuclear force complete, amid speculation the site was obsolete anyway.

Cancellation of what would have been the first ever summit between a serving U.S president and a North Korean leader denies Trump what supporters hoped could have been the biggest diplomatic achievement of his presidency, and one worthy of a Nobel Prize.

“I felt a wonderful dialogue was building between you and me, and ultimately it is only that dialogue that matters,” Trump said in his letter to Kim. “Some day, I look very much forward to meeting you.”

(Reporting by Joyce Lee; additional reporting by Ben Blanchard in Beijing and Hyonhee Shin in Seoul; Writing by Josh Smith and Doina Chiacu; Editing by Robert Birsel and Bill Trott)

Wall Street kicks off 2018 on a strong note

The trading floor is seen on the final day of trading for the year at the New York Stock Exchange (NYSE) in Manhattan, New York, U.S., December 29, 2017

By Sruthi Shankar

(Reuters) – Wall Street’s main indexes were higher on Tuesday, the first trading day of the year, buoyed by gains in technology and consumer discretionary stocks.

Major stock indexes closed out 2017 with their best performance since 2013, powered by a combination of strong economic growth, solid corporate earnings, low interest rates and hopes of corporate tax cuts.

“The first week of trading usually suggests the overall trend of the markets which we expect to be positive,” Peter Cardillo, chief market economist at First Standard Financial in New York, wrote in a note.

Oil prices hovered near their mid-2015 highs on Tuesday amid large anti-government rallies in major exporter Iran and ongoing supply cuts led by OPEC and Russia.

Gold and copper prices continued their upward march, but the greenback began the year on the back foot, with the dollar index slipping to its weakest level since September.

“While we don’t expect the Iranian unrest to reach a full blown political situation just yet, the protest will add to an already positive uptrend in oil and gold prices,” Cardillo said.

December payrolls report, data on manufacturing and service sectors are among leading indicators expected during the week, and will be scrutinized for signs of improving economic health and the number of interest rate hikes this year.

Minutes from the Federal Reserve’s December meeting, when the central bank raised rates for the fourth time since the 2008 financial crisis, will be issued on Wednesday.

At 9:34 a.m. ET (1434 GMT), the Dow Jones Industrial Average was up 112.06 points, or 0.45 percent, at 24,831.28 and the S&P 500 was up 9.49 points, or 0.35 percent, at 2,683.1. The Nasdaq Composite was up 21.51 points, or 0.31 percent, at 6,924.90.

Six of the 11 major S&P sectors were higher, led by gains in technology and consumer discretionary stocks.

Shares of Walt Disney rose 1.6 percent, giving the biggest boost to the Dow, after brokerage Macquire upgraded the company’s stock to “outperform”.

Netflix and Discovery Communications also rose on positive recommendations from Macquire.

Shares of casino operators Wynn resorts, Las Vegas Sands and Melco Resorts Entertainment were down after a report showed lower-than-expected rise in Macau gambling revenue in December.

Abbott Labs jumped 2.6 percent after JPMorgan and Morgan Stanley upgraded the healthcare company’s stock to “overweight”.

Advancing issues outnumbered decliners on the NYSE by 1,938 to 652. On the Nasdaq, 1,678 issues rose and 743 fell.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila)

Rookies and robots brace for first UK rate rise since 2007

Office lights are on at dusk in the Canary Wharf financial district, London, Britain,

By Fanny Potkin and Polina Ivanova

LONDON (Reuters) – Financial markets braced this week for what could be the Bank of England’s first rate rise in a decade – a step into the unknown for a generation of young traders who started work after 2007 but also for the state-of-the-art technology they use.

After a decade that included a global financial crash, numerous investigations into market collusion and relentless automation, trading floors at banks in London have been transformed in ways not obvious at first glance.

The newest kid on the block is not necessarily the rookie trader with a PhD in physics but the latest computer model or algorithm. How these models will perform under the almost novel circumstances of tightening monetary policy is as much a question as how the human neophytes will react.

Using past market data, assessments of demand, valuation models and even measures of how upbeat news headlines are, computers crunch the numbers, game the scenarios and buy or sell in the blink of an eye.

But shocks such as Brexit have shown that computer-driven trading can end in stampedes, or so-called flash crashes.

“You’ve got to weigh up the strength of the traders and the strength of the algorithms that have been developed and whether they can manage this kind of a process when the rate hike does come in,” said Benjamin Quinlan, CEO of financial services strategy consultancy Quinlan & Associates.

At Citibank’s expansive trading floor in London, the dealing room doesn’t look much different from a decade ago with traders hunched in front of banks of screens, the odd national flag perched on top, and television screens on mute.

But beneath the outward appearance, foreign exchange trading has undergone a seismic shift: more than 90 percent of cash transactions and a growing proportion of derivatives trades in the global $5 trillion a day FX market are done electronically.

So-called smart algos, or fully automated algorithmic trading programs that react to market movements with no human involvement, were virtually non-existent in 2007. Now, almost a third of foreign exchange trades are driven solely by algorithms, according to research firm Aite Group.

“Most of these algorithms haven’t really been tested in a rising interest rate scenario so the next few months will be crucial,” said a portfolio manager at a hedge fund in London.

To be sure, the U.S. Federal Reserve’s first rate rise in a decade in 2015 provided a dry run for this week’s UK decision – but the two economies are in very different positions and the knock-on effects on the wider financial markets of a Bank of England move are hard to predict.

 

ROOKIES AND ROBOTS

Much has changed since the Bank of England raised rates by 0.25 percent on July 5, 2007 to 5.75 percent. The first iPhone had yet to reach British shores, the country’s TVs ran on analogue signals and Northern Rock bank was alive and well.

Where once lightning decision-making and a calm head in a crisis were at a premium, the bulk of trading today is done by machines and the job of a foreign exchange sales trader is often little more than minding software and fielding client queries.

Itay Tuchman, head of global FX trading at Citi and a 20-year market veteran, said while the bank employs roughly the same number of people in currency trading as over the last few years, fewer are dedicated to business over the phone.

“We have an extensive electronic trading business, powered by our algorithmic market making platform, which is staffed by many people that have maths and science PhDs from various backgrounds,” said Tuchman, who heads trading for Citi’s global developed and emerging currency businesses.

London is the epicenter of those changes with the average daily turnover of foreign exchange trades executed directly over the phone down by a fifth to $566 billion in just three years to 2016, according to the Bank of England.

At Dutch bank ING’s London trading room, Obbe Kok, head of UK financial markets, said the floor now has about 165 people but the bank wants to make it 210 by the end of the year – searching mainly for traders attuned to technological innovations and keen on artificial intelligence.

The proportion of people employed in trading with degrees in mathematics and statistics has increased by a 58 percent over the last 10 years, Emolument, a salary benchmarking site, said.

“What banks have started to do is trade experience for technological skill and with electronic platforms growing, the average age on the floor is a bit younger,” said Adrian Ezra, CEO of financial services recruitment agency Execuzen.

 

TAPER TANTRUM

The increasing use of technology means traders can gauge the depth of market liquidity at the click of a button or quickly price an option based on volatility – a major change from a few years ago when they had to scour the market discreetly for fear of disclosing their interest to rivals.

Ala’A Saeed, global head of institutional electronic sales and one of the brains behind Citi’s trading platform FX Velocity, said its electronic programs process thousands of trades per minute.

Most of the currency trading models used by banks incorporate variables such as trading ranges, valuation metrics including trade-weighted indexes and trends in demand based on internal client orders to get a sense of which way markets are moving – and the potential impact of a new trade.

Nowadays, the models also incorporate sentiment analysis around news headlines and economic data surprises.

These electronic trading platforms also have years of financial data plugged into them with various kinds of scenario analyses, but one thing they have sometimes appeared unprepared for is a sudden change in policy direction.

Witness the market mayhem exacerbated by trend-following algorithms when Switzerland’s central bank scrapped its currency peg in 2015, or the taper tantrum in 2013 when the U.S. Federal Reserve said it would stop buying bonds.

Or Britain’s vote last year to leave the European Union.

Indeed, the biggest risk for financial markets cited by money managers in a Bank of America Merrill Lynch poll in October was a policy misstep from a major central bank.

 

EASY CREDIT, LOW VOLATILITY

One concern is that the rise in automation has coincided with a prolonged decline in market volatility as central banks from the United States to Japan have kept interest rates close to zero and spent trillions of dollars dragging long-term borrowing costs lower to try to reboot depressed economies.

While central banks have been careful to get their messages across as they end the years of stimulus, there are concerns about whether quantitative trading models can capture all the qualitative policy shifts.

For example, a growing number of investors expect the Bank of England to raise its benchmark interest rate to 0.5 percent on Nov. 2, and then leave it at that for the foreseeable future.

But futures markets are expecting another rate rise within six to nine months, injecting a new level of risk around interest rate moves and potentially boosting volatility.

Neale Jackson, a portfolio manager at 36 South Capital Advisors, a $750 million volatility hedge fund in London, said young traders have never seen an environment other than central banks supporting markets, and that has fueled risk-taking underpinned by the belief that “big brother has got our backs”.

“The problem these days is that there’s a whole generation of traders who have never seen interest rates, let alone interest rates hikes,” said Kevin Rodgers, a veteran FX trader and the author of “Why Aren’t They Shouting?”, a book about the computer revolution within financial markets.

 

(Additional reporting by Maiya Keidan and Simon Jessop; writing by Saikat Chatterjee; editing by Mike Dolan and David Clarke)