Market Analysis

Beyond the Number

Trade Talks, Walmart Earnings May Lead To Strength On Wall Street
8/16/2018 8:58 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks likely to regain ground following the notable weakness seen in the previous session.

Early buying interest may be generated following news China has accepted an invitation from the U.S. for a new round of trade talks to be held in late August.

China’s Ministry of Commerce said that a Chinese delegation led by Vice Commerce Minister Wang Shouwen will travel to the U.S. for trade talks to be held with U.S. Under Secretary of Treasury for International Affairs David Malpass.

A positive reaction to earnings news from Walmart (WMT) may also contribute to strength on Wall Street, with the retail giant jumping by 10.9 percent in pre-market trading.

The advance by Walmart comes after the company reported better than expected second quarter results and raised its full-year guidance.

After falling sharply early in the session, stocks regained some ground over the course of the trading day on Wednesday but remained firmly in negative territory. With the pullback on the day, the major averages offset the gains posted in the previous session.

The major averages all ended the day in the red, although the tech-heavy Nasdaq underperformed its counterparts. While the Nasdaq tumbled 96.78 points or 1.2 percent to 7,774.12, the Dow fell 137.51 points or 0.5 percent to 25,162.41 and the S&P 500 slid 21.59 points or 0.8 percent to 2,818.37.

Renewed concerns about Turkey contributed to the early sell-off on Wall Street after the Turkish government announced an increase in tariffs on American cars, alcohol and cigarettes.

The move is likely to intensify the dispute between the U.S. and Turkey, which recently dragged the Turkish lira down to a record low.

Meanwhile, in an effort to deter short-selling in the nation's currency, Turkey's banking regulator said it would limit banks' currency swap transactions.

The clash between the U.S. and Turkey also comes amid the ongoing trade dispute between the U.S. and China, which has raised concerns about the global economy.

Traders were also digesting a slew of U.S. economic data, including a report from the Federal Reserve showing a smaller than expected increase in industrial production in the month of July.

The Fed said industrial production inched up by 0.1 percent in July after jumping by an upwardly revised 1.0 percent in June. Economists had expected production to rise by 0.3 percent.

A separate report from the Commerce Department showed retail sales climbed by more than expected in July, although the report also showed a significant downward revision to the sale growth in June.

The Commerce Department said retail sales rose by 0.5 percent in July compared to economist estimates for a 0.1 percent uptick.

However, the report also showed the increase in retail sales in June was downwardly revised to 0.2 percent from the 0.5 percent previously reported.

Partly reflecting growing affordability concerns, the National Association of Home Builders also released a report showing a modest deterioration in homebuilder confidence in the month of August.

The report said the NAHB/Wells Fargo Housing Market Index edged down to 67 in August from 68 in June, matching economist estimates.

Gold stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 6.1 percent to its lowest closing level in well over two years. The sell-off by gold stocks came amid a significant decrease by the price of the precious metal.

A sharp drop by the price of crude oil also weighed on energy stocks. Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Oil Index both plummeted by 4.1 percent, while the NYSE Arca Natural Gas Index slumped by 3.4 percent.

Steel, biotechnology, retail and semiconductor stocks also saw considerable weakness on the day, while some strength was visible among utilities and real estate stocks.

Commodity, Currency Markets

Crude oil futures are rising $0.32 to $65.33 a barrel after plunging $2.03 to $65.01 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,183.40, down $1.60 compared to the previous session’s close of $1,185. On Wednesday, gold slumped $15.70.

On the currency front, the U.S. dollar is trading at 110.62 yen compared to the 110.74 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1376 compared to yesterday’s $1.1345.


Asian stocks ended mostly lower on Thursday, although the markets closed well off their day’s lows after China said it has accepted an invitation from the U.S. for a new round of trade talks to be held in late August.

China’s Ministry of Commerce said that a Chinese delegation led by Vice Commerce Minister Wang Shouwen will travel to the U.S. in late August for trade talks to be held with U.S. Under Secretary of Treasury for International Affairs David Malpass.

Meanwhile, the U.S. ruled out removing steel tariffs that have contributed to a currency crisis in Turkey even if Ankara frees a U.S. pastor.

Chinese shares fell for a fourth straight session on concerns about slowing growth. The benchmark Shanghai Composite Index hit a nearly two-and-half-year low in early trading before finishing down 18.07 points or 0.7 percent at 2,705.19.

Hong Kong's Hang Seng Index dropped 223.53 points or 0.8 percent to 27,100.06. Tencent Holdings tumbled 3 percent after the social media giant reported poor quarterly results.

Japanese shares cut initial losses to end marginally lower. The Nikkei 225 Index edged down 12.18 points or 0.1 percent to 22,192.04, while the broader Topix index closed 0.6 percent lower at 1,687.15.

Exporters Canon, Sony, Panasonic dropped 1-2 percent despite the dollar rising to 110.82 yen from 110.72 yen. Index heavyweight Fast Retailing surged 2.1 percent and Fanuc added 1 percent.

On the economic front, a government report showed that Japan posted a merchandise trade deficit of 231.2 billion yen in July.

That was shy of expectations for a shortfall of 41.2 billion yen following the downwardly revised 720.8 billion yen surplus in June. Exports were up 3.9 percent from a year earlier, while imports surged an annual 14.6 percent.

Australian shares recouped early losses to end roughly flat. Both the S&P/ASX 200 Index and the broader All Ordinaries Index finished marginally lower at 6,328.30 and 6,412.60, respectively.

Mining heavyweights BHP Billiton and Rio Tinto fell 2.6 percent and 1.1 percent, respectively, as Dalian iron ore prices hit a two-week low on concerns over global growth. Gold miners also tumbled after gold prices hit nineteen-month lows overnight. Evolution Mining and Newcrest Mining fell around 2 percent.

Oil & gas explorer Origin Energy slumped 6.4 percent after oil prices sank around 3 percent to their lowest levels in more than two months on Wednesday. Beach Energy lost nearly 5 percent, while Oil Search and Santos shed 1-2 percent.

On the other hand, Telstra jumped 5.9 percent after its annual profit topped forecasts. Insurer QBE soared 6.8 percent after reporting a rise in first-half net profit. Insurance Australia Group rallied 2.8 percent after posting a steep loss in the previous session.

In economic news, the jobless rate in Australia came in at a seasonally adjusted 5.3 percent in July, the Australian Bureau of Statistics said. That beat forecasts for 5.4 percent, which would have been unchanged from June.

The Australian economy shed 3,900 jobs last month, well shy of forecasts for an addition of 15,000 following a gain of 50,900 in the previous month.


European stocks have bounced back on Thursday as worries about Turkey eased and China said it would hold a fresh round of trade talks with the United States later this month.

The lira extended gains for a third day on news of financial support from Qatar and ahead of a presentation by Finance Minister Berat Albayrak to investors.

While the U.K.’s FTSE 100 Index has climbed by 0.7 percent, the French CAC 40 Index and the German DAX Index are up by 0.5 and 0.4 percent, respectively.

Aegon NV has moved notably higher on news the financial services firm has agreed to sell its businesses in the Czech Republic and Slovakia to NN Group for 155 million euros.

Global brewer Carlsberg has also moved to the upside. The company lifted its 2018 earnings view after reporting a rise in net profit for the first six months of 2018.

Dutch insurer NN Group has jumped after its second quarter profit rose 25 percent from last year. Out-of-home advertiser JC Decaux has also soared after a ratings upgrade by Berenberg bank.

On the other hand, British home improvement retailer Kingfisher has moved lower after quarterly underlying sales at its French business Castorama fell 3.8 percent.

Swedish retailer ICA and Dutch marine and engineering company Boskalis have also come under pressure on disappointing earnings results.

German consumer goods maker Henkel AG & Co. KGaA has dropped after lowering its earnings growth forecast for 2018.

In economic news, the euro area trade surplus decreased for a third straight month in June, albeit slightly, preliminary data from Eurostat showed.

The seasonally adjusted trade surplus fell to 16.7 billion euros from 16.9 billion euros in May. Economists had expected the figure to remain unchanged at May's level. Exports rose 1.6 percent month-on-month, while imports grew 1.8 percent.

Elsewhere, a government report showed U.K. retail sales increased more than expected in July. Retail sales including auto fuel rose 0.7 percent month-on-month in July, in contrast to a 0.5 percent drop in June. Sales were forecast to increase by 0.2 percent.

On a yearly basis, overall retail sales volume growth accelerated to 3.5 percent in July from 2.9 percent in June.

U.S. Economic Reports

New residential construction rebounded by much less than expected in the month of July, the Commerce Department revealed in a report.

The report said housing starts rose by 0.9 percent to an annual rate of 1.168 million in July after plunging by 12.9 percent to a revised rate of 1.158 million in June.

Economists had expected housing starts to soar by 7.4 percent to an annual rate of 1.260 million from the 1.173 million originally reported for the previous month.

The Commerce Department also said building permits climbed by 1.5 percent to an annual rate of 1.311 million in July after dipping by 0.7 percent to a revised rate of 1.292 million in June.

Building permits, an indicator of future housing demand, had been expected to jump by 2.9 percent to a rate of 1.310 million from the 1.273 million originally reported for the previous month.

A separate report released by the Labor Department showed first-time claims for U.S. unemployment benefits unexpectedly edged lower in the week ended August 11th.

The report said initial jobless claims dipped to 212,000, a decrease of 2,000 from the previous week’s revised level of 214,000.

Economists had expected jobless claims to inch up to 215,000 from the 213,000 originally reported for the previous week.

Growth in Philadelphia-area manufacturing activity slowed by much more than anticipated in the month of August, according to a report released by the Federal Reserve Bank of Philadelphia.

The Philly Fed said its index for current general activity tumbled to 11.9 in August from 25.7 in July. While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 22.0.

Stocks In Focus

Shares of Cisco Systems (CSCO) are moving significantly higher in pre-market trading after the networking giant reported better than expected fiscal fourth quarter results and provided upbeat guidance.

Cybersecurity software maker Symantec (SYMC) may also see early strength on news activist investor Starboard Value has taken a 5.8 percent stake in the company and nominated five directors to its board.

On the other hand, shares of J.C. Penney (JCP) are falling sharply in pre-market trading after the department store operator reported a wider than expected second quarter loss and cut its full-year earnings guidance.

China-based internet retailer JD.com (JD) may also see early weakness after reporting second quarter results that came in below analyst estimates.
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