ZTE deal, oil price rise push Dow higher ahead of G-7 summit

Wall Street’s stocks rally continued at their highest level in three months.

Shares of oil and gas companies helped offset selling across the technology sector.

Stocks have attempted to break higher in recent days as investors bet threats of tighter trade policies won’t be a significant drag on global growth.

In latest developments, the US and China reached a deal that would allow Chinese telecommunications company ZTE to do business again.

The agreement requires ZTE to pay a $US1 billion fine, replace most of its board and allow US enforcement officers to monitor its actions, Commerce Secretary Wilbur Ross said.

In return, ZTE can resume buying components from US suppliers to make its smartphones and build telecoms networks.

Wunderlich Securities chief market strategist Art Hogan says this is positive for markets.

“If we can get some good news on trade we will be able to start focusing on fundamentals,” he says. “That’s going to shift us back into more of a positive and less of a volatile market.”

Trade tensions at G-7
Meanwhile, President Donald Trump has signalled his intention to continue pursuing an aggressive trade agenda at this weekend’s G-7 meeting in Canada.

The “world trade system is a mess,” Mr Trump’s top economic adviser, Lawrence Kudlow, said on Wednesday. “President Trump is trying to fix this broken system.”

The immediate focus of the talks, which comprise Canada, France, Germany, Italy, Japan, the UK and the US, will be the Trump administration’s tariffs on steel and aluminium imports from fellow G-7 countries.

The US agenda may win some short-term trade concessions but it will come at the expense of America’s standing with its allies.

“If the US loses its support, then it’s a different ball game at the global leadership level,” Peterson Institute for International Economics founding director Fred Bergsten says.

Broader market falls
On Wall Street, the Dow Jones Industrial Average rose 95.02 points, or 0.4%, to 25,241.41. But the broader market fell, pressured by a slide in technology shares. The S&P 500 eased less than 0.1% to 2770.37 while the Nasdaq Composite shed 0.7% to 7635.07 after hitting three all-time highs earlier in the week.

Energy shares led the gains, supported by a rally in crude oil prices. Dow component Chevron jumped 3%, while Exxon Mobil added 1.2%.

US crude oil rose 1.9% to $US65.97 a barrel as investors weighed looming supply outages in Iran and Venezuela. Brent crude, the global oil benchmark, was up 2.5% to $US77.25 a barrel. 

The S&P 500 technology sector fell 1.6%, the biggest decline of the index’s 11 sectors. Facebook was down 2% while Alphabet slid 1.7%.

The Stoxx Europe 600 edged down 0.2% with all main markets falling with the exception of Spain.

France’s CAC 40 and Italy’s FTSE MIB both fell 0.2%, while Germany’s DA X and the UK’s FTSE 100 shed 0.15%. Spain’s IBEX 35 rose 0.4%.

ECB signals tightening
The euro rose 0.3% against the dollar after the European Central Bank chief economist Peter Praet indicated it could start winding down its €30 billion a month bond-buying programme as soon as next week.

The ECB was increasingly confident that inflation would soon rise toward the bank’s target of just below 2%, he said.

 “This was a clearly positive development for the euro: The single currency was able to shake off the last remnants of the Italy mini-crisis,” currency strategists at Commerzbank stated.

The Italian government’s coalition of the League and the 5 Star Movement has announced fiscal promises would cost upward of €100 billion that has sent its bond market reeling.

The explosion of bond yields last week – with the biggest one-day rise in short-dated yields since at least 1989 – shows investors’ real concern is that Italy might leave the euro. 

Spain’s change of government is going in the opposite direction. Prime Minister Pedro Sánchez has appointed a cabinet composed of pro-Europe and mostly female ministers.

The cabinet includes a former president of the European Parliament as foreign minister and the European Union’s budget director as finance minister, underscoring the Socialist Party’s commitment to the bloc and boosting Spain’s political clout in Brussels.

Meanwhile, Turkey’s central bank raised its main lending rate as part of an attempt to stabilise the lira. It jumped on the news, rising 0.7% against the US dollar.