US banks buoy Wall Street as trade fears ease

Bank stocks rise on higher interest rates while investors' US-China trade war fears subside. Meanwhile Nafta talks continue and Syria outlines its plans.
EU trade chief Cecilia Malmström wants to fix the WTO but no response from the US yet.

Stocks rose as bank shares got a lift from higher interest rates and investors bet a trade war between the US and China will not be as bad as previously feared.

The Dow Jones Industrial Average gained 160 points, with J.P. Morgan Chase the best-performing stock in the index. The S&P 500 advanced 0.18% as financials jumped nearly 2%. The Nasdaq Composite slipped 0.06%, however, as Amazon, Netflix and Apple all fell.

Bank shares rose as the 10-year Treasury note yield rose to 3.09%, its highest level since May. Goldman Sachs and Bank of America both rose more than 3%, while Morgan Stanley gained 2.5%. Shares of J.P. Morgan Chase and Citigroup, meanwhile, advanced 3.1% and 3.7%, respectively.

Reuters reports Goldman Sachs is in advanced talks with several financial companies to spin off its app, which sells complex financial products to retail investors.

The benchmark 10-year US treasury yield moved back above the symbolic 3% mark and hit its highest in four months, while two-year rates reached 2.8%, the highest in over a decade. Rises in market interest rates tend to boost banks.

Also helping lift yields was data showing US homebuilding increased more than expected in August. When yields are high, investors tend to favour bonds over defensive sectors such as utilities, consumer staples and real estate, which promise high dividends.

The technology sector dropped 0.50%, led by a 1.9% decline in Microsoft and a 0.2% decline in shares of Apple. Microsoft also raised its quarterly dividend by about 10% but Morgan Stanley says the increase was below the company’s 12-month trailing operating income growth.

Five of the 11 major S&P sectors were higher. The Dow Industrials was boosted by a 2.5% gain in Caterpillar and 1.7% rise in Boeing. Both companies are seen as bellwethers for global trade given their large exposure to overseas markets.

At market close, the Dow Jones Industrial Average was up 191.94 points, or 0.73%, at 26,438.90, the S&P 500 was up 2.79 points, or 0.10%, at 2,907.10 and the Nasdaq Composite was down 31.21 points, or 0.39%, at 7,924.90.

Asian stocks rose overnight, led by gains in Chinese and Japanese shares. Both the Shanghai Composite and Nikkei 225 rose 1.1%. The Japanese yen fell 0.09% versus the greenback at 112.25 per dollar. The euro also rose 0.06% to $US1.1672.

US oil futures rose on a fifth weekly crude inventory drawdown and strong domestic gasoline demand amid continuing supply concerns over US sanctions on Iran. Brent crude oil held near its highest this year on concerns producers may fail to cover a supply shortfall once the US sanctions take effect in November.

Brent crude futures rose 37USc to settle at $US79.40 a barrel while US crude prices settled at $71.12.

EU wants WTO fix
EU trade chief Cecilia Malmström suggested most members of the WTO – including the US, China and India – are willing to engage in talks to unlock and improve the global trading body.

"Some 98% of the [WTO] membership realises this," Ms Malmström said at the presentation of an EU paper introducing reform ideas. She added it was also in China's interest to engage in reforms: "China violates some of the WTO rules but it is a country that is engaged ... and wants to strengthen the multilateral system because it has served the country well."

She says the EU has "seen a strong engagement by the US on this. So, I think they want to work with us to update the rules and reform the WTO."

The EU's proposals target three key challenges, including shortcomings in rulemaking, which has made it difficult to sufficiently address Chinese trade practices, such as subsidies. To push China to reveal those subsidies, the commission proposes new "incentives for improving notification compliance" and the imposition of subsidies against members that breach WTO's rulebook.

Brussels would "actively support and pursue plurilateral negotiations" with countries that are willing to move forward and leave them open for all members to join.

"So far, we have not seen an opening from the US ... but we will continue to push them," Ms Malmström said, adding, "we are not reforming the WTO just to please the US."

Nafta talks grind on
Canadian Foreign Minister Chrystia Freeland returns to Washington today to resume high-level Nafta talks as pressure intensifies for the US and Canada to strike a deal before the end of the month.

For weeks, negotiators have tried to agree in a way that would allow Canada to be added to the deal the US and Mexico announced last month. But US House Majority Whip Steve Scalise indicated a willingness among Republicans to consider a US-Mexico trade deal without Canada.

"There is a growing frustration with many in Congress over Canada's negotiating tactics. Members are concerned that Canada does not seem to be ready or willing to make the concessions that are necessary for a fair and high-standard agreement." Mr Scalise says in a statement.

Canadian Prime Minister Justin Trudeau reiterated that he's not influenced by Mexican and American timelines to finish a deal, saying "if it's not the right deal for Canada, we won't sign it."

Ms Freeland defended her government's position.

"Any negotiator who goes into a negotiation believing he or she must get a deal at any price – that is a negotiator who will be forced to pay the maximum price for that deal," she says, noting Canada has a "talent for compromise."

But US Chamber of Commerce president Thomas Donohue said it would be extremely complicated, if not impossible, for the administration to pull off a Mexico-only agreement.

“If Canada doesn’t come into the deal, there is no deal,” he told a media breakfast in Washington.

The chamber, the most influential US business lobby, wants Nafta to be renegotiated as a trilateral agreement, citing how highly integrated the three member nations’ economies have become since the pact came into force in 1994.

“The single biggest threat facing the economy right now is the potential for a real trade war. I don’t think we’re there right now.”

Progress in Syria
The deal struck between Turkey and Russia to create a demilitarised buffer zone protecting civilians in northern Idlib province has been welcomed by UN Secretary-General António Guterres, who has called on the warring parties and their international backers to ensure the agreement.

“The Secretary-General stresses the need for swift action to address the root causes of the conflict and forge, at long last, a durable political solution in line with Security Council resolution 2254,” Guterres’ spokesperson claimed in a statement.

Turkey’s Foreign Minister Mevlut Cavusoglu claims no civilians will be removed from Idlib under the agreement brokered with Moscow, adding that “the borders of Idlib will be protected under the memorandum of understanding signed in Sochi … there would be no change in the status of Idlib.”

Moscow and Ankara intelligence and security officials will hold further discussions about the status of “radical” groups in Idlib, Mr Cavusoglu says. The administration of Syrian President Bashir al-Assad has vowed to keep up its campaign against “terrorism.”

Syria’s armed opposition commented that the deal represents a victory for the resistance and will place it on better footing following heavy defeats at the hands of the government earlier this year throughout the country.

Iran’s ambassador to the UN, Gholamali Khoshroo, described the Russia-Turkey agreement as the “right step” toward combating terrorism and restoring peace to Syria. Mr Khoshroo told the UN Security Council the agreement “is in line with the determination expressed by the presidents of Iran, Russia and Turkey in Tehran to continue cooperation to eliminate all terrorists while taking into consideration its humanitarian aspects.”

The success of the Russian-Turkish agreement depends on the response of jihadist fighters in the region and could unravel rapidly if Moscow and Ankara are unable to jointly impose their plan on groups such as Tahrir al-Sham.