Stocks edge higher ahead of US-China trade talks

Both countries are set to impose billions of dollars in tariffs on each other’s goods

Another steep decline in the Turkish lira on Friday pushed emerging market equities lower and kept other world markets cautious, overshadowing hopes that an upcoming USChina meeting would resolve concerns over trade tariffs.

The Wall Street Journal reported that Chinese and US negotiators are drawing up a road map for their trade talks next week. Both countries aim to resolve an escalating tariff war. The world’s two largest economies are due to impose tariffs on billions of dollars of each other’s goods on August 23, in addition to levies that took effect on July 6. “There is still a great deal of difference between agreeing to talk and coming to an agreement,” said CMC Markets analyst Michael Hewson.

“For now, an escalation has become less likely, hence [Thursday’s] rebound in equity markets.” The Dow Jones Industrial Average rose 110.59 points, or 0.43 per cent, to 25,669.32, the S&P 500 gained 9.44 points, or 0.33 per cent, to 2,850.13 and the Nasdaq Composite added 9.81 points, or 0.13 per cent, to 7,816.33.

The dollar fell against a basket of peers on Friday, retreating from a 13-month high hit earlier this week, on lower demand for the safe-haven greenback and some profit-taking, as worries about trade tensions between Washington and Beijing eased.

The dollar index, which measures the greenback against a basket of six other currencies, was down 0.56 per cent at 96.107, on pace for its worst daily decline in nearly a month.

“You had the dollar bought aggressively over the past few months when investors were risk-averse and were seeking safety in the greenback,” said Kathy Lien, managing director of FX strategy at BK Asset Management in New York. “Investors are covering shorts into the last two weeks of summer and unwinding positions,” she said.

Escalating trade tensions between the United States and some of its largest trading partners had driven traders to sell emerging market currencies and take to the safety of the US currency.

US stocks extended gains on Friday and risk sentiment improved following a Wall Street Journal report on potential progress in easing trade tensions between the United States and China.

Risk aversion

Ebbing concerns over the fallout from the Turkish lira’s recent slide also helped strengthen the euro against the dollar.

“There was considerable risk aversion through the early part of the week with fears of Turkish contagion weighing on risk assets and that seems to have reversed somewhat here,” said Karl Schamotta, a strategist at Cambridge Global Payments in Toronto.

On Friday, the Turkish lira snapped a three-day rebound, sliding more than 5 per cent against the dollar on worries about the threat of more American sanctions unless Turkey hands over detained US pastor Andrew Brunson.