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U.S.-China trade optimism boosts stocks, bond yields

U.S.-China trade optimism boosts stocks, bond yields
A trader works at his post on the floor at the New York Stock Exchange (NYSE) in New York, U.S., September 12, 2019. REUTERS/Brendan McDermid -
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By Chuck Mikolajczak

NEWYORK (Reuters) – A gauge of global stocks was on track for an eighth straight day of gains and benchmark government bond yields advanced on Friday after signs of progress in U.S.-China trade talks, as well as a solid U.S. retail sales report, allayed recession worries.

Stocks on Wall Street were little changed, as initial gains fuelled by a string of positive signals on the trade war between the world’s two largest economies were curbed by weakness in tech companies Apple <AAPL.O> and Broadcom <AVGO.O>. Financials <.SPSY> were among the best performers, aided by the rise in bond yields.

The benchmark S&P 500 index stood about 0.5% from its record closing high set on July 26.

U.S. President Donald Trump said on Thursday he was potentially open to an interim trade deal with China, although he stressed an “easy” agreement would not be possible. That was followed up on Friday by China’s official Xinhua News Agency announcing the country would exempt some U.S. agricultural products, such as pork and soybeans, from additional tariffs.

Reports showing solid U.S. retail sales and a measure of U.S. consumer sentiment above expectations added to the optimism and eased concerns about economic growth, although the Federal Reserve was still widely expected to cut rates at its policy meeting on Wednesday. The Bank of Japan is to follow with its announcement on Thursday.

“We’ve been up eight straight days and typically you don’t go past nine. It’s rare that you do that, so I would think the market is set for a breather, and yet nothing is getting hurt except Apple and Broadcom,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Sarasota, Florida.

“We have had a softening of the language from both the U.S. and China in recent weeks and that is really what helped push the market out of this trading range we have been locked into since July and allowed the S&P to cross 3,000 again.”

The Dow Jones Industrial Average <.DJI> rose 46.58 points, or 0.17%, to 27,229.03, the S&P 500 <.SPX> lost 1.37 points, or 0.05%, to 3,008.2 and the Nasdaq Composite <.IXIC> dropped 20.98 points, or 0.26%, to 8,173.49.

European shares closed higher for a fourth straight session to notch their fourth straight week of gains, as the positive tone surrounding the U.S.-China trade talks pushed cyclical sectors such as banks and miners higher.

The pan-European STOXX 600 index <.STOXX> rose 0.34% and MSCI’s gauge of stocks across the globe <.MIWD00000PUS> gained 0.22%. MSCI’s index was on pace for an eighth straight day of gains, its longest winning streak in nearly two years.

The U.S. economic data and easing of trade tensions helped lift bond yields to multi-week highs, with yields on 10-year notes reaching a six-week high and those on 30-year bonds touching their highest in five weeks.

Benchmark 10-year notes <US10YT=RR> last fell 24/32 in price to yield 1.8747%, from 1.791% late on Thursday.

The euro gained against the dollar for a second day, although gains were pared after the release of the U.S. data, as the European Central Bank on Thursday exempted euro zone banks from a penalty charge, which analysts say will reduce the currency impact of new stimulus.

The dollar index <.DXY> fell 0.1%, with the euro <EUR=> up 0.13% to $1.1075.

Oil prices dipped, and both Brent and WTI were on track for a weekly decline.

U.S. crude <CLcv1> fell 0.29% to $54.93 per barrel and Brent <LCOcv1> was last at $60.28, down 0.17% on the day.

(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Paul Simao)

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