U.S. stock benchmarks traded near the session’s best levels late Thursday — helping the main indexes to erase or substantial pare steep weekly losses — as jitters over a potential trade and currency clash between Beijing and Washington gave way to greed for beaten-down shares.
Setting the stage for the market’s bullish gain was China’s onshore currency, with the government setting the yuan at the weakest level since 2008 but slightly higher than feared, helping to stabilize a market that has been on edge over global economic growth fears.
How did benchmarks perform?
The Dow Jones Industrial Average DJIA, +1.41% rose 352 points, or 1.4% to 26,361, the S&P 500 index SPX, +1.86% climbed 53 points, or 1.8%, to reach 2,937, while the Nasdaq Composite Index COMP, +2.22% climbed 171 points to reach 8,035, a rise of 2.2%.
For the week, the Nasdaq is on track for a weekly gain of 0.4% and the S&P 500 is set to end the week 0.2% higher. The Dow is down 0.5% so far this week. All three benchmarks tumbled by around 3% on Monday.
What’s driving the market?
Markets are still focusing on the currency fix in China as a Sino-American tariff dispute has shifted into a potential currency clash between the world’s largest economies. However fears of the worst outcome were at least temporarily quelled on Thursday after the People’s Bank of China set the onshore yuan’s USDCNY, -0.2125% reference rate at 7.0039 against one U.S. dollar.
Although that is the weakest point for the currency against the dollar since April 21, 2008, it is higher than the market had feared. The PBOC allows the yuan to fluctuate up to 2% higher or lower than that level.
A weakening of the yuan below 7 on Monday, widely viewed as a line in the sand for the market and Beijing, sent global markets tumbling amid fears it was the first step in a currency war. Yuan weakness has been viewed by some as a tactic by China to combat the yearlong clash over trade between the U.S. and China.
Despite Wednesday’s bounce back for equities many investors are still uneasy over the possibility of a test of that session’s lows. “Yesterday’s roller coaster provides further evidence that volatility is very much back in markets, and while the near-term trends in both equities and Treasury yields have begun to stabilize slightly, trends remain sharply lower and it wouldn’t take much to turn both trends back to the downside for a retest of recent lows,” wrote Mark Newton, technical analyst at Newton Advisors in a Thursday research note.
On Monday, the U.S. Treasury Department labeled China a currency manipulator for the first time since 1994. Chinese officials have said they want to avoid a repeat of th 2015-2016 episode, which saw significant capital outflows after yuan depreciation.
Meanwhile, Chinese exports climbed 3.3% in July from a year earlier, better than expectations of a 1.0% decline, according to FactSet, and comes after a 1.0% drop a month ago.
Volatility in currencies in the past few days also spurred a sharp decline in yields on government debt but the 10-year Treasury note TMUBMUSD10Y, +2.13% was holding at 1.763%, compared with a 3 p.m. Eastern Time level at 1.675% on Wednesday, marking its lowest yield since Oct. 3, 2016, according to Dow Jones Market Data.
Separately, a report on the number of people who applied for U.S. unemployment benefits in early August fell back near post 2008 recession lows, signaling the labor market remains strong. Initial jobless claims, a rough way to measure layoffs, dropped by 8,000 to a seasonally adjusted 209,000 in the seven days Aug. 3, the government said Thursday.
Meanwhile, a report on wholesale inventories in the U.S. were unchanged in June, the government said Thursday. Sales slipped 0.3% in the month. The ratio of inventories to sales was also unchanged at 1.36, representing the number of months it would take to sell all the inventory on hand. One year ago, the inventory-to-sales ratio was much lower at 1.26.
Which stocks are in focus?
Shares of Caterpillar Inc. CAT, +1.08% gained 0.8%, even after Goldman Sachs analysts lowered a price target for the industrial equipment maker to $130 from $156.
IAC/InterActiveCorp. IAC, -0.53% is considering the distribution of its stakes in both Match Group Inc. MTCH, -5.11% and ANGI Homeservices ANGI, -25.40% to shareholders, the company disclosed Wednesday. It also reported better-than-expected quarterly earnings. IAC owns about 80% of Match, a collection of dating sites like Tinder and OkCupid, and about 84% of ANGI.
Shares of ANGI were down 27%, those for Match were 5.8% lower, while IAC’s stock fell 3.3%.
Shares of Lumentum Holdings Inc. LITE, +10.32% rose 7.3% Thursday, after the optical equipment and Apple Inc. AAPL, +2.21% supplier reported fiscal fourth-quarter profit and revenue that beat expectations, and provided an upbeat full-year earnings outlook.
Shares of Kraft Heinz Co. KHC, -8.68% retreated 13.4% early Thursday after the snack company said it expects an impairment charge of $474 million for the second quarter.
What other assets are in focus?
Gold for December delivery GCZ19, -0.30% pulled back on Thursday to settle slightly lower after the precious metal firmly breached a psychological level above $1,500 per ounce.
Oil futures rebounded, amid reports that Saudi Arabia is discussing options to stop the price fall by possibly capping production. U.S. oil prices CLU19, +3.33% were up 1.9% to reach $52.04 a barrel after tumbling 4.7% on Wednesday on the New York Mercantile Exchange, pushing the commodity into bear-market territory, commonly defined as a drop of at least 20% from a recent peak.
The pan-European Stoxx 600 SXXP, +1.66%, meanwhile, headed 0.9% higher.
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