U.S. stocks advanced Monday as investors awaited signs of progress from a meeting in Beijing between U.S. and China trade negotiators.
U.S. equities posted a strong first week of trading in the new calendar year, with each of the three major indices advancing by more than 1.5% during the holiday-shortened week. A strong jobs report – with 312,000 non-farm payrolls added to the U.S. labor market in December versus 184,000 expected – and comments from Fed Chairman Jerome Powell communicating that the central bank was not on “autopilot” when it came to unwinding its balance sheet sent stocks soaring on Friday.
Equities are fighting to push higher following a steep sell-off in the fourth quarter of 2018. But this could leave room for upside throughout 2019, some analysts believe. David Kostin, chief U.S. equity strategist for Goldman Sachs, wrote in a note Friday that “the low starting level and valuation of the market suggests positive returns to U.S. equities in the coming year,” with positive headlines around dovish Fed commentary and trade discussions with China contributing to near-term relief to equity markets.
Now, investors are bracing for the outcome of a two-day meeting between trade delegations from the U.S. and China, which is expected to conclude Tuesday in Beijing. Both sides have said they want to work together reach a consensus that satisfies the demands of each of their presidents, a representative from China’s foreign ministry said on Monday. The working sessions represent the first face-to-face meetings between representatives of the two countries since President Donald Trump and China’s president Xi Jinping agreed to a temporary halt on additional tariffs in early December.
The ongoing trade war has continued to chip away at both of the world’s two largest economies. The latest sign of trade war fall-out came on Monday, when China’s central bank showed that annual foreign exchange reserves fell for the third time in four years in 2018. Foreign exchange reserves declined by $67.24 billion last year to $3.073 trillion, versus a $129.4 billion increase in 2017 to $3.14 trillion. This points to increased selling pressure for the yuan as the trade war and slowing growth in major sectors of China’s economy continue to dampen growth.
China also increased its gold reserves for the first time since October 2016, the People’s Bank of China website showed, as the country moves to diversify its reserve assets. The People’s Bank of China increased holdings – which had been unchanged for the past two years – to 59.56 million ounces at the end of December from 59.24 million ounces previously. Spot gold prices (XAUUSD=X) rose 0.31% to $1,289.80 per ounce as of 4:03 p.m. ET, extending an uptrend in prices for the precious metal.
Meanwhile, oil prices rose amid cuts from OPEC, which begin to take effect this month after members of the group announced in December that they would reduce overall production by 800,000 barrels per day from October levels. Russia and allied producers also agreed to contribute a 400,000 barrel per day cut. Oil in December tumbled to a 15-month low as concerns of a supply glut, global economic slowdown and decreased demand weighed on crude prices. Prices for Brent crude (BZ=F), the international benchmark, rose 0.5% to $57.33 per barrel, while West Texas intermediate crude oil prices (CL=F) rose 1.2% to $48.52 per barrel.
Some analysts are not so bullish on the commodity, however. Goldman Sachs analysts slashed their price target for Brent crude, citing higher inventory levels, consistent beats in shale production in 2018, weaker-than-expected demand growth expectations and increased low-cost production capacity. The firm’s three- and six-month Brent price forecasts are now $62.50 per barrel and $67.50 per barrel, from $70 per barrel previously, while its 2019 average forecasts are $62.50 per barrel for Brent and $55.50 per barrel.
U.S. services sector decelerates to slowest pace since July
The U.S. non-manufacturing index from the Institute for Supply Management slipped to a five-month low of 57.6 in December from 60.7 in November, falling short of consensus expectations of 58.5. Within the index, measures of employment, business activity and supplier deliveries tumbled, but each still held over a reading of 50, indicating expansion. Last week, ISM’s manufacturing index slid to 54.1 in December, the lowest level since November 2016, stoking concerns of a slowdown in key economic sectors.
Despite the worse-than-expected readings for December, ISM’s latest results do not point to “signs of an imminent collapse in the economy,” Paul Ashworth, chief U.S. economist for Capital Economics, wrote in a note Monday. Within the non-manufacturing survey, new orders rose to a six-month high even as other components within the index retreated, and the decline in the headline index was largely “driven by a sizable drop in the business activity index to 59.9 from 65.2,” Ashworth noted.
“Overall, this is another release consistent with our long-held view that a shifting policy mix (fiscal stimulus fading, monetary policy getting tighter) would lead to a gradual slowdown in economy growth,” Ashworth said.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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