Stocks rally around the globe on hopes of US-China trade deal

Summary:

• Donald Trump asks official to draft a potential trade agreement with China

• Stocks rally around the world, a big report from Apple

• Dollar offered this morning awaiting the jobs report

Global equities are on the rise while bonds languish this morning on new hopes related to a possible trade deal between the United States and China. Asian indices had been already substantially up prior to reports we were offered this morning that the US President Donald Trump asked his key officials to begin drafting potential terms ahead of the G20 summit in Argentina where Trump and Xi are expected to discuss. Let us note that Asian stocks were gaining even before the above-mentioned news came out fuelled by firm gains on Wall Street as well as yesterday’s information that Trump and Xi had a “very good” phone discussion. What’s more, China seems to also share similar optimism confirming that the Thursday’s phone conversation was “quite positive”. On the flip side, the US Justice Department accused some companies headquartered in China and Taiwan of stealing trade secrets from a US semiconductor company Micron. Either way, the revelations we got this morning pushed global equities significantly higher with the Hang Seng (CHNComp) trading 3.6% above its yesterday’s close. The Shanghai Composite is rising 2.2% while the Japanese NIKKEI (JAP225) closed 2.6% higher. At the same time US bonds declined meaningfully as investors switched to a risk-on mode. As a consequence, the US 10Y yield jumped to above 3.17% from below 3.14% reflecting a decreased demand for safe haven assets.

The SP500 (US500) make take a stab at getting back above its 50WMA during the last trading day this week. Source: xStation5

The US stock market has had a great week as evidenced by the chart above and if this rally extends to Friday we may be offered a big comeback above the crucial technical level in form of the 50-week moving average. Wall Street ended Thursday’s session in upbeat moods with the NASDAQ (US100) rallying by 1.8%. The two remaining major indices added 1.1% each. As far as earnings are concerned it is worth mentioning Apple. The company reported $2.91 earnings per share easily beating the consensus of $2.78 while revenue totalled $62.9 billion against expectations pointing to $61.57 billion. However, the other numbers were not so encouraging. First of all, iPhone sales during the fourth fiscal quarter came in at 46.89 million falling short of the consensus of 47.5 million. As a result of higher revenue and a lower number of iPhone sold the average price for a smartphone was $793 against expectations suggesting $760.8. Apple’s year-over-year iPhone unit sales were virtually flat and only due to strong pricing power the company was able to beat revenue expectations. The guidance we were offered also was not so good with total revenue in the first quarter expected between $89 billion to $93 billion compared to analysts’ estimates of $93.02 billion. The firm saw a 27% YoY increase in services revenue to $9.98 billion signalling that this part of the firm is becoming more important quarter by quarter. Apple also said that it will stop reporting unit sales data for iPhone, iPad and Mac and start reporting cost of sales for services since the next fiscal quarter. Finally, the company announced a dividend of $0.73 per share payable on November 15. On the back of changes in reporting as well as the rather soft guidance the stocks plunged as much as 7% in extended trading. By and large, October was the worst month for tech stocks since the recession in 2008.

Expect Apple (AAPL.US) to open closer to the lower bound of the bearish channel. The 38.2% retracement could be found there hence the question is whether the stock manages to hold above this line. Source: xStation5

Looking around currencies one may notice that the US dollar is poised this morning owing to increased risk appetite. As a result, the Aussie is gaining 0.5% and the Japanese yen is falling 0.2%. From Australia we were offered retail sales for September which grew 0.2% MoM and missed the median estimate of a 0.3% MoM increase. In response to the weaker performance of the US dollar the Chinese offshore yuan strengthened to the highest since October 12 being traded below 6.90 as of 6:47 am GMT.

In the other news:

• The US is said to offer eight countries (including China, Japan, India and South Korea) waivers under Iran sanction taking effect on November 5

• Japan’s PM Abe said the country could further postpone a consumption tax increase to 10% from 8% if the economy is hit by a shock of the scale of the collapse of Lehman Brothers

• EURUSD trades around 1.1420 after a solid bounce from 1.13 on Thursday