Stocks surged on Thursday, the Dow Jones jumped 400 points after ADP employment data reported the highest gains in four months, and the possibility of progress in the trade war between U.S. and China improved after both countries agreed to hold another round of talks in October.
The ADP jobs report, which represents data of about 411,000 companies, showed that small business hiring reached a four-month high, and jobless claims continue to remain at low levels despite global economic weakness. The report provides ground for expectations that the Friday jobs report will be positive. However, a separate report also showed that job cuts rose 39% YoY in August.
China’s Minisitry of Commerce confirmed that “ministerial-level” talks are to be held in Washington early next month, which will be preceded by deputy-level talks this month. This news came out after Donald Trump stated that the trade war was damaging effect to the economy, marking a shift of tone for the American president on Wednesday. However, he is now promoting the long-term benefits of the trade war and seems ready to shoulder the political risks of taking this stance up to the 2020 elections.
The September data on the Fed’s interest rate decision appears to be the next short-term headwind for bulls while the policymakers are split as to the need for further cuts. Boston Fed President Eric Rosengren would likely vote against further rate cuts saying it is unnecessary given the current strength of the U.S. economy. According to the CME Fedwatch, traders estimate a 95% probability that the Fed would cut the rate by 25 bp in September. Any lower data could disappoint investors.