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Beyond the Numbers

Bargain Hunting May Contribute To Rebound On Wall Street
10/12/2018 9:00 AM

The major U.S. index futures are pointing to a higher opening on Friday, with stocks likely to regain ground after moving sharply lower over the two previous sessions.

Bargain hunting may contribute to early strength on Wall Street after the major averages tumbled to multi-month closing lows on Thursday.

A positive reaction to earnings news from financial giants JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) may also generate buying interest.

The upward momentum on Wall Street also comes on the heels of a rebound by the overseas markets, which moved higher as strong Chinese trade data helped eased concerns over slowing global growth.

Figures from China’s customs administration showed Chinese exports logged double-digit annual growth in September despite escalating trade tensions with the U.S.

Additionally, top White House economic adviser Larry Kudlow told reporters a meeting between President Donald Trump and Chinese President Xi Jinping at a multilateral summit in November is “under discussion.”

Stocks saw substantial volatility over the course of the trading session on Thursday before ending the day sharply lower. The major averages finished the day firmly in the red, adding to the steep losses posted in the previous session.

The major averages closed firmly in negative territory but off their lows of the session. The Dow plunged 545.91 points or 2.1 percent to 25,052.83, the Nasdaq slumped 92.99 points or 1.3 percent to 7,329.06 and the S&P 500 plummeted 57.31 points or 2.1 percent to 2,728.37.

With the continued weakness, the Nasdaq fell to its lowest closing level in five months, while the S&P 500 and the Dow hit three-month and two-month closing lows, respectively.

The substantially lower close by the major averages came even though strength in the bond market contributed to a significant drop by treasury yields.

Even with the decrease by yields, traders remained concerned about the outlook for the interest rates as well as the escalating trade war between the U.S. and China.

Treasuries benefited from the release of a report from the Labor Department showing consumer prices rose by less than expected in the month of September.

The Labor Department said its consumer price index inched up by 0.1 percent in September after rising by 0.2 percent in August. Economists had expected prices to increase by another 0.2 percent.

Excluding food and energy prices, core consumer prices also crept up by 0.1 percent in September, matching the uptick seen in the previous month. Core prices had been expected to rise by 0.2 percent.

The report also said the annual rate of consumer price growth slowed to 2.3 percent in September from 2.7 percent in August, while the annual rate of core consumer price growth was unchanged at 2.2 percent.

"Overall, the September figures confirm that core inflation has lost a little momentum in recent months, and the stronger dollar will put downward pressure on goods prices over the coming year or so," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "But with activity growth still strong and underlying inflation in the services sector still trending higher, we suspect the Fed will continue to raise interest rates over the coming quarters."

A separate report released by the Labor Department unexpectedly showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended October 6th.

The report said initial jobless claims rose to 214,000, an increase of 7,000 from the previous week's unrevised level of 207,000. Economists had expected jobless claims to edge down to 206,000.

Energy stocks turned in some of the market's worst performances on the day, extending the sell-off seen in the previous session. The continued weakness among energy stocks came amid a steep drop by the price of crude oil.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index plummeted by 3.3 percent, the NYSE Arca Oil Index tumbled by 2.9 percent and the Philadelphia Oil Service Index slumped by 2.4 percent.

Significant weakness also emerged among banking stocks, as reflected by the 2.8 percent drop by the KBW Bank Index. The index fell to its lowest closing level in over ten months.

Telecom, commercial real estate, housing, and healthcare stocks also saw considerable weakness, while gold stocks moved sharply higher along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.88 to $71.85 a barrel after plunging $2.20 to $70.97 a barrel on Thursday. Meanwhile, after soaring $34.20 to $1,227.60 an ounce in the previous session, gold futures are falling $4.30 to $1,223.30 an ounce.

On the currency front, the U.S. dollar is trading at 112.27 yen compared to the 112.16 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1553 compared to yesterday’s $1.1593.

Asia

Asian stocks rebounded on Friday after recent heavy losses, as investors cheered media reports suggesting that the U.S. Treasury Department has not labeled China as a currency manipulator in an internal report.

Sentiment was also bolstered after data showed Chinese exports have held up well so far despite escalating trade tensions with the U.S.

Chinese exports logged double-digit growth in September, figures from customs administration revealed.

Exports grew 14.5 percent year-on-year in September, faster than the 9.8 percent increase seen in August. Imports advanced an annual 14.3 percent, resulting in higher trade surplus around $32 billion in September.

China's Shanghai Composite Index climbed 23.45 points or 0.9 percent to 2,606.91, while Hong Kong's Hang Seng Index jumped 535.12 points or 2.1 percent to 25,801.49.

Japanese shares finished modestly higher as the yen held broadly lower and data showed Chinese exports unexpectedly strengthened in September.

The Nikkei 225 Index fell over 1 percent earlier in the day before reversing direction to end the session up 103.80 points or 0.5 percent at 22,694.66.

However, for the week, the index lost 4.6 percent, marking its biggest weekly drop since March. The broader Topix Index ended the day marginally higher at 1,702.45.

Industrial machinery and construction equipment makers rallied as strong Chinese data helped ease worries about slowing Chinese demand. Yaskawa Electric soared 5.6 percent, Komatsu gained 2.3 percent and Hitachi Construction Machinery added 2.7 percent. Energy stocks fell, with Japan Petroleum tumbling 2.8 percent.

Australian stocks recovered from a weak start to finish modestly higher as soft U.S. inflation data helped ease fears over aggressive Federal Reserve interest rate hikes and Chinese export data for September came in well above expectations.

The benchmark S&P/ASX 200 Index inched up 11.90 points or 0.2 percent to 5,895.70, while the broader All Ordinaries Index ended up 13.10 points or 0.2 percent at 6,006.60.

Mining heavyweights BHP Billiton and Rio Tinto advanced 1.3 percent and 1.9 percent, respectively, after iron ore and copper prices edged up overnight. Smaller rival Fortescue Metals jumped 5.3 percent after launching a share buyback program of up to A$500 million.

Gold miners Evolution Mining, Newcrest and Northern Star climbed 3-5 percent after gold prices settled at a ten-week high overnight on safe-haven demand.

Banks ended on a subdued note as they faced intense questioning by a parliamentary committee over their governance failures.

Meanwhile, Woodside Petroleum, Santos, Oil Search, Origin Energy and Beach Energy dropped 1-3 percent after crude oil prices tumbled 3 percent overnight, adding to big losses in the previous session.

Fairfax Media slumped 13.6 percent and Nine Entertainment lost 12.4 percent after an announcement that they expect to complete their planned merger before December 31st.

Europe

European stocks have recovered some lost ground on Friday as trade tensions ease and strong Chinese trade data has helped eased concerns over slowing global growth.

Media reports suggested that the U.S. Treasury Department has not labeled China as a currency manipulator in an internal report.

A meeting between U.S. President Donald Trump and Chinese President Xi Jinping at a multilateral summit in November is "under discussion," top economic adviser Larry Kudlow told reporters at the White House.

Closer to home, Eurostat data revealed that Eurozone industrial production grew more than expected in August. Industrial production climbed 1 percent on a monthly basis, reversing the 0.7 percent drops in both June and July.

German consumer price inflation advanced 2.3 percent year-on-year year, the fastest since November 2011, when inflation was 2.4 percent, final data from Destatis revealed.

While the U.K.’s FTSE 100 Index has climbed by 0.7 percent, the German DAX Index and the French CAC 40 Index are both up by 0.8 percent.

Rio Tinto has rallied after the mining giant said it expects aluminum demand growth to be about 3.2 percent per annum over the next 5 years. Anglo American, Antofagasta and Glencore also jumped after the release of Chinese trade data.

Online retailer Zalando has also moved sharply higher after Credit Suisse Group set a €40.00 ($46.51) per share price target on the stock.

U.S. Economic Reports

Reflecting a substantial rebound in fuel prices, the Labor Department released a report showing a much bigger than expected increase in U.S. import prices in the month of September.

The Labor Department said import prices climbed by 0.5 percent in September after falling by a revised 0.4 percent in August.

Economists had expected import prices to rise by 0.2 percent compared to the 0.6 percent drop originally reported for the previous month.

The bigger than expected increase in import prices came as prices for fuel imports spiked by 3.8 percent in September after tumbling by 2.2 percent in August. The rebound came as a spike in petroleum prices more than offset lower natural gas prices.

Meanwhile, the report said export prices came in unchanged in September after slipping by a revised 0.2 percent in August.

Export prices had also been expected to increase by 0.2 percent compared to the 0.1 percent dip originally reported for the previous month.

At 9:30 am ET, Chicago Federal Reserve President Charles Evans is due to participate in a moderated discussion at the ENGAGE Undergraduate Investment Conference at the University of Michigan in Ann Arbor, Michigan.

The University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of October at 10 am ET. The consumer sentiment is expected to inch up to 100.4 in October from 100.1 in September.

At 12:30 pm ET, Atlanta Fed President Raphael Bostic is due to participate in an armchair chat on recruitment, economics, and the public policy profession at the Network of Schools of Public Policy, Affairs and Administration Conference in Atlanta, Georgia.

Fed Vice Chairman for Supervision Randal Quarles is scheduled to participate in a discussion with Tim Adams, President and CEO of the International Institute of Finance, at the 2018 IIF Annual Membership Meeting in Bali, Indonesia, at 10:30 pm ET.

Stocks In Focus

Shares of JPMorgan Chase (JPM) are moving notably higher in pre-market trading after the financial giant reported third quarter results that exceed analyst estimates on both the top and bottom lines.

Financial giant Citigroup (C) may also move to the upside after reporting better than expected third quarter earnings due in part to lower corporate taxes.

Shares of Netflix (NFLX) are also seeing pre-market strength after Citi upgraded its rating on the video streaming service’s stock to Buy from Neutral.

Software giant Microsoft (MSFT) is also likely to see early strength after Macquarie upgraded its rating on the company’s stock to Outperform from Neutral.

On the other hand, shares of Estée Lauder (EL) may see initial weakness after JPMorgan downgraded its rating on the cosmetics maker’s stock to Neutral from Overweight.
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