Stocks on Wall Street rebounded after Wednesday's trade fear-driven selloff as investors gave priority to earnings fundamentals and corporate activity.
Technology stocks on the S&P 500 rose more than 1% and the Nasdaq Composite hit a new all-time high on a major software deal.
Traders shrugged off the Trump administration’s threatened tariffs on a further $US200 billion worth of Chinese products and focused on the benefits of protecting US technology.
Meanwhile, China appears to have pulled back on its tit-for-tat tariffs, as any new tariffs would exceed the value of goods it buys from the US.
The new tariffs would be placed on mainly consumer items such as bicycles and refrigerators, meaning these would contribute to US inflation if there are no other choices for customers.
“We don't know how it’s going to pan out,” Globalt Investments senior portfolio manager Tom Martin says. “But the market is understanding more and more that President Trump isn’t bluffing.”
Broadcom in $US18.9b deal
The administration’s policies to stop Chinese theft of technology has been linked to the big software deal – a $US18.9 billion cash deal from former Singapore-based chipmaker Broadcom for software company CA, whose shares surged 19%.
Broadcom has strong Chinese connections after being renamed by its original acquirer, Avago Technologies. It has now moved back to Silicon Valley after the government vetoed an earlier $US110b bid for Qualcomm on national security grounds.
Observers say Broadcom could be possibly turning itself into a private-equity player while others say such a deal highlights the fact that it would not get approval for buying another semiconductor company. Instead, it has gone for a legacy computer company. Hence, this is a big win for Mr Trump in protecting American technology.
Meanwhile, Qualcomm is in the process of buying Dutch semiconductor company NXP Semiconductors. All regulators in the world except China have approved the buyout of NXP, making it a political football in the US-China trade war.
In another tech deal, Dow compenent Intel announced it had acquired privately held eASIC, a chip maker focused on ASIC and FPGA chips, for an undisclosed sum. Intel shares rose 2.3%.
If Mr Trump is winning the trade war on points, investors chased the market to its fifth rise in six sessions.
The Dow Jones Industrial Average rose 224.44 points, or 0.9%, to 24,924.89. The S&P 500 also gained 0.9% to 2798.29, while the tech-heavy Nasdaq rose 1.4%, to an all-time high of 7823.92. The previous record high was on June 20,
All but one of the S&P 500’s 11 sectors rose. Other tech stock gains in the Dow were Microsoft up 2.2%, hitting a record; Cisco Systems up 2.4% and Apple up 1.7%. Trade-sensitive Dow blue chips Boeing and Caterpillar rose 1.6% and 2.0% respectively.
Prices rise less than expected
In economic news, US consumer-price index increased 0.1% in June, half the rate economists expected. Core CPI, minus volatile food and energy, rose 0.2% on the month. Moreover, the 12-month gain for CPI rose to a six-year high of 2.9%, reflecting an economy that is running hotter than at any time since the 2007-09 recession.
A reading of weekly initial jobless claims showed a fall of 18,000 to 214,000 in the first week of July, back toward the lowest levels in almost 50 years.
“Equity markets have bounced back today, as dealers are over the shock that the US is planning to impose tariffs on $US200 billion worth of Chinese goods in August,” CMC Markets UK market analyst David Madden says.
“Now the dust has settled, traders have swooped in to take advantage of relatively cheap stocks. The [CPI] reports point to an increase in demand, which is positive for the US economy.
“There is speculation the Federal Reserve will hike interest rates twice more this year, and a firm inflation rate will make monetary tightening more likely.”
Bond yields rise
Bond prices fell as yields rose a day after fears sparked by a fresh round of tariffs had fuelled buying. The yield on the benchmark 10-year Treasury note rose 0.9 basis point to 2.853% and the 30-year Treasury bond added 0.8 basis point to 2.952%.
Oil settled on a mixed note, with US benchmark prices posting a slight decline but global benchmark prices rebounding from the three-week low they hit a day earlier.
A monthly report from the International Energy Agency hinted at a coming slowdown in crude demand and revealed an uptick in global supplies. Traders also looked to the resumption of Libyan oil exports.
US crude edged down by less than 0.1% to settle at $US70.33 a barrel – the lowest since June 25. Prices also briefly hit lows under $US70 a barrel for the first time in over two weeks. They dropped 5% on Wednesday.
Brent crude, the global benchmark, rose 1.4% to $US74.45. It recouped some of Wednesday’s nearly 7% drop to $US73.40, which was the lowest settlement since June 21.
European stock markets finished solidly higher, recovering most of the losses from Wednesday’s one-day trade-fuelled selloff.
The Stoxx Europe 600 rose 0.8%, after falling 1.3% on Wednesday, its biggest one-day percentage drop since June 25. The UK’s FTSE 100 index rose 0.8% and France’s CAC 40 jumped 1%, its largest one-day gain since June 22. Germany’s DAX rose 0.6%, recovering half its previous day's losses.
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