The Dow Jones Industrial Average was headed modestly higher Thursday morning, putting the blue-chip index on track to log its longest win streak in more than a year, after the European Central Bank announced a fresh stimulus measures, including an interest rate cut that moved a deposit rate further into negative territory and the relaunch of a program of government bond buying that it hopes will reinvigorate a flagging European economy.
Stock futures had earlier climbed overnight also after President Donald Trump late Wednesday said the U.S. would delay implementing higher tariffs on $250 billion of Chinese goods for two weeks as gesture of goodwill ahead of trade talks in October.
How are the major benchmarks performing?
The Dow Jones Industrial Average rose 29 points, or 0.1%, at 27,164, and a seventh advance on Thursday would the best series of gains since an eight-session rally ended May 14, 2018, according to FactSet data. Meanwhile, the S&P 500 index added 8 points, or 0.3%, at 3,009, while The Nasdaq Composite index advanced 40 points, or 0.5%, at 8,209.
On Wednesday, the Dow DJIA, +0.02% rose 227.61 points, or 0.9%, to 27,137.04, closing above 27,000 for the first time since July. The S&P 500 index SPX, +0.13% advanced 21.54 points, or 0.7%, to 3,000.93. The Nasdaq Composite Index COMP, +0.33% gained 85.52 points, or 1.1%, to 8,169.67.
Wednesday’s action left the Dow and S&P just 0.8% from their record closes, while the Nasdaq remains 1.9% from its all-time closing high.
What’s driving the market?
The European Central Bank cut its deposit rate from -0.4% to -0.5%, while announcing it would begin open ended purchasing of long-term government bonds at a pace of €20 billion a month in an effort to further reduce long-term interest rates. The bank said rates would remain at “present or lower levels” until the inflation outlook “robustly” converges with its target of just below 2%.
U.S. stock-index futures added modestly to their gains following the announcement.
In an effort to mitigate the effects of negative rates on bank profitability, the central bank introduced a system of tiered rates that will exempt some bank reserves held at the bank. ECB President Mario Draghi elaborated on the moves at a news conference which began at 8:30 a.m. Eastern Time.
On the international trade front, Trump said tariff hikes—from 25% to 30%—that were scheduled to take effect Oct. 1 will now go into effect Oct. 15. The president attributed the “gesture of goodwill”, as he described it via Twitter, to the People’s Republic’s 70th anniversary commencing on Oct. 1. and came at the request of China’s chief trade negotiator Vice Premier Liu He.
Reports also suggested that China could start buying U.S. soybeans and pork again.
The moves come as American and Chinese representatives are slated to meet in early October to restart stalled trade negotiations and avert any further escalation of animosities between the economic superpowers.
No date has been set to begin the high-level trade discussions, but the latest olive branch does help to reflect a momentary softening of tensions between Beijing and Washington, which had rattled global economies, because an outright trade war could further weaken an already slowing global economy.
“The S&P 500 has now fully retraced the August pullback, and in doing so has priced in a lasting U.S.-China trade truce and aggressive [global] central bank easing … and no more geopolitical surprises,” wrote Tom Essaye, president of the Sevens Report in a Thursday note to clients.
“Proof of that is evident in the lack of a rally despite the short tariff delay announcement,” he added. “At these levels, a trade “truce” (so no more tariffs) is mostly priced into stocks, just a delay won’t be a positive catalyst—the market already expects more.”
Investors were also watching new economic data which showed the number of Americans applying for new unemployment benefits fell by 15,000 to 204,000 during the week ended Sept. 7, below economists expectations of 213,000, according to a MarketWatch poll.
The U.S. consumer price index rose 0.1% in August, in line with expectations, while core inflation rose 0.3%, above forecasts of a 0.2% gain. The year-over-year rise in underlying inflation advanced to 2.4%, matching a 13-month high.
Which stocks are in focus?
Shares of Oracle Corp. ORCL, -5.67% are in focus after the technology company late Wednesday said co-CEO Mark Hurd was taking a leave of absence for health reasons, while announcing that fiscal first quarter revenue grew short of Wall Street estimates. Co-CEO Safra Catz and Chairman Larry Ellison will cover Hurd’s duties, the company said. Oracle shares fell Thursday morning.
Shares of AT&T Inc. T, -2.04% fell, after the telecom giant flagged low upgrade rates as a potential threat to revenue in the third quarter, while projecting WarnerMedia revenues to fall roughly $400 million, as “a number of second-half 2018 hit movies” poses challenges to year-over-year growth.
How are other markets trading?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -1.43% fell 4 basis points to 1.70% Thursday after the ECB decision.
In commodity markets, the price of crude oil CLV19, -2.58% was off 2.9% to about $54 a barrel on the New York Mercantile Exchange after falling more than 2% on Wednesday after an IEA report forecasting increased supplies and the failure of the OPEC+ meeting in Abu Dhabi to address production cuts.
Gold prices GCZ19, +1.40% headed 1.4% higher to roughly $1,524 an ounce. The U.S. dollar DXY, -0.16%, meanwhile, edged 0.3% higher relative to a basket of leading rivals, led by the Euro, which fell 0.3% to $1.103.
In Asia overnight Thursday, the China CSI 300 l 000300, +1.08% gained 1.1%, while Hong Kong’s Hang Seng Index HSI, -0.26% shed 0.3% and Japan’s Nikkei 225 NIK, +0.75% rose 0.8%. European shares edged higher Thursday following the ECB move, with the Stoxx Europe 600 SXXP, -0.21% up 0.3%.
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