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Stocks Climb Off Worst Levels But Remain Sharply Lower - U.S. Commentary

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After falling sharply at the open, stocks have seen some further downside during the trading session on Thursday. With the sell-off on the day, the major averages are extending the sharp pullback seen during trading on Tuesday.

In recent trading, the major averages have climbed off their worst levels of the day but remain firmly negative. The Dow is down 584.66 points or 2.3 percent at 24,442.41, the Nasdaq is down 98.51 points or 1.4 percent at 7,059.92 and the S&P 500 is down 56.86 points or 2.1 percent at 2,643.20.

The continued sell-off on Wall Street reflects skepticism about the potential for a long-term trade agreement between the U.S. and China after the arrest of a top executive at Chinese tech giant Huawei.

Huawei CFO Meng Wanzhou was arrested in Canada on suspicion of violating U.S. trade sanctions against Iran and faces possible extradition to the U.S.

The development has added to uncertainty about whether the 90-day trade truce negotiated by President Donald Trump and Chinese President Xi Jinping will give the two sides enough time to reach a long-term deal.

Traders are also be reacting to a slew of U.S. economic data, as several reports originally due to be released on Wednesday were postponed due to former President George H.W. Bush's funeral.

Payroll processor ADP released a report before the start of trading showing private sector employment increased by less than expected in the month of November.

ADP said private sector employment climbed by 179,000 jobs in November after jumping by a downwardly revised 225,000 jobs in October.

Economists had expected an increase of about 195,000 jobs compared to the addition of 227,000 jobs originally reported for the previous month.

"Job growth is strong, but has likely peaked," said Mark Zandi, chief economist of Moody's Analytics. "This month's report is free of significant weather effects and suggests slowing underlying job creation."

He added, "With very tight labor markets, and record unfilled positions, businesses will have an increasingly tough time adding to payrolls."

A separate report from the Labor Department showed first-time claims for U.S. unemployment benefits edged down by less than expected in the week ended December 1st.

The report said initial jobless claims slipped to 231,000, a decrease of 4,000 from the previous week's revised level of 235,000. Economists had expected jobless claims to dip to 225,000.

The Commerce Department also released a report showing the U.S. trade deficit widened to its highest level in ten years in the month of October.

The report said the trade deficit widened to $55.5 billion in October from a revised $54.6 billion in September. Economists had expected the trade deficit to widen to $55.0 billion.

Meanwhile, a report from the Institute for Supply Management unexpectedly showed an acceleration in the pace of growth in service sector activity in the month of November.

The ISM said its non-manufacturing index crept up to 60.7 in November after pulling back to 60.3 in October, with a reading above 50 indicating service sector growth. Economists had expected the index to dip to 59.2.

"The non-manufacturing sector continued to reflect strong growth in November," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee. "However, concerns persist about employment resources and the impact of tariffs."

Sector News

Energy stocks continue to turn in some of the market's worst performances in mid-day trading, with a steep drop by the price of crude oil weighing on the sector.

Crude for February delivery is plunging $2.05 to $50.84 a barrel amid indications OPEC may reduce output by less than previously anticipated.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index has plummeted by 5.1 percent, the NYSE Arca Natural Gas Index is down by 4.5 percent and the NYSE Arca Oil Index is down by 3.2 percent.

Substantial weakness also remains visible among banking stocks, as reflected by the 3.5 percent slump by the KBW Bank Index. The index has tumbled to its lowest intraday level in over a year.

Chemical stocks have also shown a significant move to the downside, dragging the S&P Chemical Sector Index down by 3.4 percent.

Steel, healthcare, pharmaceutical, and semiconductor stocks are also seeing considerable weakness amid another broad based sell-off on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved sharply lower during trading on Thursday. Japan's Nikkei 225 Index plummeted by 1.9 percent, while Hong Kong's Hang Seng Index nosedived by 2.5 percent.

The major European markets also showed substantial moves to the downside on the day. While the U.K.'s FTSE 100 Index plunged by 3.6 percent, the German DAX Index tumbled by 3.5 percent and the French CAC 40 Index slumped by 3.3 percent.

In the bond market, treasuries have pulled back off their highs of the session but continue to see notable strength. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 6.8 basis points at 2.856 percent.

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