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By Geoffrey Smith — The U.S. and China held trade talks by phone and were unusually polite about it afterwards. Exxon Mobil (NYSE:XOM) got ejected from the Dow Jones Industrial Average along with Pfizer (NYSE:PFE) and Raytheon (NYSE:RTN) as the index publisher adjusted to give tech a higher weighting. Stocks are set to open higher ahead of house price and consumer confidence data. Germany’s economic recovery continues, and the Gulf of Mexico braces for Hurricane Laura. Here’s what you need to know in financial markets on Tuesday, August 25th.

1. End of an era as DJIA rebalances

Exxon Mobil was dropped from the Dow Jones Industrial Average in a landmark rebalancing of the world’s most famous stock index.

The company, a descendant of John D. Rockefeller’s Standard Oil, has been the embodiment of the private oil and gas industry and its importance to an industrialized economy since its foundation, and its omission is a powerful statement about the long-term decline in influence and value of natural resource extraction.

Other companies losing their place in the DJIA were defense group Raytheon and pharma giant Pfizer. They’ll be replaced by software group Salesforce (NYSE:CRM), biotech group Amgen (NASDAQ:AMGN) (which, oddly, is smaller than Pfizer) and Honeywell (NYSE:HON). The changes are aimed at restoring the weight of technology in the price-weighted index, which was set to drop as a result of Apple’s looming stock split.

2. U.S.-China polite after rescheduled trade talks

The U.S. and China got around to holding trade talks by telephone, less than two weeks after President Donald Trump cancelled a scheduled review of their January deal.

“Both sides see progress” was the official line that followed the call between USTR Robert Lighthizer and Chinese trade representative Liu He. That glossed over the reality that China has bought less than half of what it promised to buy from the U.S. in January, partly as a result of the pandemic that crushed demand for oil and gas imports in the first half of the year.

According to various reports, China has booked ships to import record amounts of U.S. oil next month. The bookings are, however, subject to change.

3. Stocks set to open higher; Software, retail earnings eyed

U.S. stock markets are set to open higher on Wednesday, still supported by signs that the coronavirus pandemic is receding across the U.S., and also supported by the temporary easing of antagonism between the U.S. and China.

By 6:30 AM ET (1030 GMT), the Dow Jones Futures contract was up 176 points, or 0.6%, while futures on the S&P 500 index, which closed above 3,400 for the first time on Monday, were up 0.4%. The NASDAQ Futures contract was up 0.2%.

Salesforce gets a chance to show off its DJIA props later with its quarterly report after the closing bell. It will be joined by Intuit, and by struggling retailers Nordstrom and Urban Outfitters. Medtronic (NYSE:MDT), Best Buy and Hormel Foods all report before the start of trade.

4. German recovery gains strength

The data calendar is a little heavier today, with house price data due at 7 AM ET (1100 GMT), and new home sales and the Conference Board’s consumer confidence index due at 8 AM. Redbook’s latest research update is also out at 6:55 AM.

Overseas, Germany’s second-quarter gross domestic product figures were revised up to show a decline of ‘only’ 9.7% instead of the 10.1% initially estimated. Private consumption and net exports were responsible for most of the decline.

The recovery of Europe’s largest economy continues, however, albeit with signs of it flattening out. The closely-watched Ifo business confidence index rose by slightly more than expected to 92.6, with the surprise coming from a more positive estimate of current conditions. Expectations dimmed slightly.

5. Tell Laura I fear her

Crude oil prices remained well supported both by the trade talks and the German data, but eyes remained chiefly on the two tropical storms rampaging through the Gulf of Mexico.

The National Hurricane Center downgraded the first of the two weather fronts, Marco, to a tropical depression from a tropical storm overnight. That suggests its ability to cause any further trouble will be limited. However, the NHC upgraded Tropical Storm Laura to Hurricane, with landfall on the continental U.S. expected by Wednesday evening.

Over 1 million barrels a day of oil production has been shut in due to the storms, but the greatest sign of tightness has been seen in {{954867|Gasoline RBOB Futures}}, which are at their highest since the March panic at $1.3865 a gallon. U.S. crude was up 0.2% at $42.69 a barrel, while Brent was up 0.6% at $45.91.

The American Petroleum Institute’s weekly assessment of U.S. oil supplies is due as usual at 4:30 PM ET.

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