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Stocks Surge, Bond Yields Slip as Markets Digest Trump, Draghi Comments

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06/18/2019 | 02:05pm EDT

By Alexander Osipovich and Nathan Allen

U.S. stocks rallied on Tuesday after President Donald Trump signaled that trade talks with China had taken a turn for the better.

The Dow Jones Industrial Average gained 334 points, or 1.3%, in midday trading while the S&P 500 added 1% and the Nasdaq Composite rose 1.4%.

Stocks opened moderately higher but jumped after Mr. Trump tweeted that he and his Chinese counterpart Xi Jinping had a "very good telephone conversation" and would meet later this month in Japan. The threat of a mounting trade conflict with China has weighed on U.S. economic data and prompted uncertainty among investors.

"It looks like the markets are getting excited about the potential for some sort of agreement between Trump and China," said Charlie Ripley, a strategist at Allianz Investment Management.

Technology stocks with significant Chinese exposure were among the biggest gainers. Apple climbed 2.6%, while chip makers Intel and NVIDIA were up 3.5% and 6%, respectively.

Facebook's shares rose 0.9% after the company formally announced a plan to launch its own cryptocurrency.

Oil futures surged 4.1% to $54.04 a barrel with the easing trade tensions, lifting energy stocks. Chevron was up 1.1% and Exxon Mobil rose 1%.

Investors are also awaiting signals from the Federal Reserve on whether it was leaning toward cutting interest rates at the end of its two-day meeting on Wednesday.

Federal-funds futures indicated on Tuesday that investors saw a nearly 90% chance of a rate cut in July, according to CME Group. But strategists at Goldman Sachs, JPMorgan Chase & Co. and other banks warned that expectations of a summer rate cut were overblown.

Earlier, European stocks posted strong gains after European Central Bank President Mario Draghi signaled the bank could roll out fresh stimulus as soon as its next policy meeting in July.

Germany's DAX rose 2.2%, while the FTSE 100 climbed 1.2%. The yield on 10-year German bunds declined to minus 0.324%--near record lows -- after Mr. Draghi said additional monetary stimulus would be required if eurozone inflation doesn't improve. Yields move in the opposite direction to prices.

Mr. Draghi's dovishness may help set the stage for a Fed rate cut, said Jason Pride, chief investment officer of private wealth at Glenmede. "It could give cover to the Fed for cutting rates 0.25% or 0.50% over the next six months," he said.

U.S. bond yields fell, pulled down by Mr. Draghi's comments and expectations of a Fed rate cut. The yield on the benchmark 10-year Treasury was recently at 2.061%.

The euro fell 0.25% against the dollar in response to the European Central Bank chief's speech. Mr. Trump tweeted to say Mr. Draghi's speech had weakened the euro, "making it unfairly easier for them to compete against USA."

Most Asian markets posted modest gains, with Hong Kong's Hang Seng Index rising 1%. Korea's Kospi rose 0.4%, but Japan's Nikkei 225 fell 0.7%.

The WSJ dollar index, which measures the currency against a basket of its peers, was little changed. Gold futures rose 0.6% to 1351.50 a troy ounce.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

Stocks mentioned in the article
ChangeLast1st jan.
DAX -0.72% 12341.03 Delayed Quote.17.73%
DJ INDUSTRIAL -0.42% 27219.85 Delayed Quote.17.18%
FTSE 100 INDEX 0.28% 7234.11 End-of-day quote.0.00%
GOLD 1.49% 1425.98 Delayed Quote.10.39%
HANG SENG -0.11% 28557.59 Real-time Quote.10.61%
KOSPI COMPOSITE INDEX -0.89% 2072.33 Real-time Quote.2.42%
NASDAQ 100 -0.48% 7888.761951 Delayed Quote.25.86%
NASDAQ COMP. -0.46% 8185.205615 Delayed Quote.24.25%
NIKKEI 225 -0.31% 21469.18 Real-time Quote.8.35%
S&P 500 -0.65% 2984.42 Delayed Quote.20.24%
US DOLLAR INDEX -0.21% 97.2 End-of-day quote.0.53%
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