U.S. stocks rose following a report that some members of the Trump administration were weighing an interim trade deal with China, and after the European Central Bank cut rates to help stimulate the eurozone economy.
The temporary trade deal would see the U.S. delay and reverse some tariffs, in exchange for China committing to certain intellectual property changes and agricultural purchases, Bloomberg reported, citing several unnamed people familiar with the matter. The proposal, which has reportedly not yet been signed by President Donald Trump, would represent an only temporary pause to the ongoing trade war, rather than a lasting resolution.
Here’s where markets settled at the end of regular equity trading Thursday:
S&P 500 (^GSPC): +0.29%, or 8.64 points
Dow (^DJI): +0.17%, or 45.41 points
Nasdaq (^IXIC): +0.30%, or 24.79 points
10-year Treasury yield (^TNX): +5.2 bps to 1.785%
Gold (GC=F): +0.23% to $1,506.60 per ounce
Prior to Bloomberg’s report, a series of gestures by the U.S. and China to at least temporarily de-escalate the trade war had boosted risk assets. President Donald Trump on Wednesday said he would put off imposing additional tariffs on $250 billion worth of Chinese goods by two weeks to October 15. In late August, Trump had said he planned to increase the tariff rate on these goods to 30% from 25% starting October 1.
Trump wrote on Twitter that this “gesture of good will” was “at the request of Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary on October 1st.”
This came a day after China’s Ministry of Finance announced 16 U.S. product categories would be exempted from new tariffs, and ahead of another round of trade talks scheduled for October between negotiators from both sides.
Trump’s move “should be seen as a goodwill gesture the US side made for creating good vibes for the trade talks scheduled in early October,” Hu Xijin, editor in chief of Chinese Communist Party-run publication the Global Times wrote in a Twitter post late Wednesday.
But these seemingly reciprocal moves at de-escalating the trade war still leave a bevy of levies on the table for consumers and producers to grapple with in the coming months. On December 15, the U.S. is set to hit a batch of about $160 billion worth of Chinese imports with a 15% rate of tariff, which had originally been pushed back to mitigate some of the impact on holiday shoppers. As a retaliatory move, China has vowed to hit back with a batch of tariffs that same day on about $75 billion in U.S. imports.
Overseas, the wave of monetary policy easing that has swept global central banks continued Thursday with the European Central Bank’s latest policy decision.
The ECB slashed one of its key interest rates further below zero, representing the first such reduction since 2016. It also said it would restart its quantitative easing program with a plan to purchase 20 billion euros of bonds every month starting in November for “as long as necessary,” in a move to help stimulate the flagging eurozone economy.
The ECB reduced the deposit rate to an all-time low of negative 0.5%, from negative 0.4% previously. The move, which applies to commercial bank deposits at the ECB, was widely expected by economists and is aimed at incentivizing banks to lend out to consumers and businesses.
However, some exceptions apply to the negative deposit rate. The ECB announced that “a two-tier system for reserve renumeration will be introduced, in which part of bank’s holdings of excess liquidity will be exempt from the negative deposit facility rate.” This helps reduce some of the impact to bank profitability that negative interest rates would have on commercial lenders.
At the same time, the ECB also said it would leave its benchmark interest rate at 0.000%, which avoids negative interest rates for savers.
The euro plummeted to less than $1.10 against the U.S. dollar immediately following the ECB decision. U.S. Treasury yields followed U.K. and German government bond yields lower after the ECB cut rates before reversing later Thursday morning, and gold rallied further above $1,500 per ounce.
The ECB decision comes a week before the U.S. Federal Reserve is set to unveil its own latest monetary policy decision. Market participants widely expect the Fed will cut benchmark interest rates for a second time in 2019, with markets pricing in an 88.8% probability of such an outcome, as of Thursday morning.
Core consumer prices hit highest level in a year
A measure of core consumer price changes rose to a one-year high in August, as increases medical-care and health-insurance prices pushed the reading higher.
The Labor Department’s core consumer price index (CPI), which excludes food and energy prices, increased 0.3% over the prior month in August. Over last year, core CPI rose 2.4%, marking the fastest yearly gain since July 2018, when the same pace was recorded.
These results were greater than the 0.2% and 2.3% increases expected on a monthly and yearly basis in August, respectively, according to Bloomberg-compiled estimates.
Meanwhile, the broader headline CPI rose an expected 0.1% month-over-month and 1.7% year-over-year, or slightly below the 1.8% increase expected.
The increase in core consumer prices reflected in the CPI reading on its face suggests the Fed may need to re-evaluate whether to cut rates further as inflation picks up. However, some economists noted the CPI results will not likely be mirrored in the core personal consumption expenditures (PCE) reading, which serves as the Fed’s preferred gauge of underlying inflation.
“Healthcare is important; medical care services surged 0.9% in CPI but that won't happen in PCE,” Neil Dutta of Renaissance Macroeconomics wrote in a note. “CPI covers out of pocket expenses only while PCE covers payments made on behalf of you. The PPI healthcare input, which is what PCE goes off of, was flat in August.”
Dutta also noted that other phenomena contributing to August’s higher CPI reading – like rising used car prices – will not likely be duplicated in the coming months.
Other economists shared these sentiments. Capital Economics economist Andrew Hunter noted that the rise in core CPI in August “won’t stop the Fed from cutting interest rates again next week, but does provide further reason to believe that market expectations of significant further easing will ultimately be disappointed.”
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: