Market Analysis

Beyond the Numbers

Reaction To ECB Likely To Drive Trading On Wall Street
7/20/2017 9:02 AM

The major U.S. index futures are pointing to a modestly higher opening on Thursday, with stocks poised to see further upside after the major averages climbed to new record closing highs in the previous session.

Trading is likely to be impacted by reaction to the European Central Bank’s monetary policy decision, with the bank leaving its key interest rates unchanged.

The ECB also reiterated its plan to purchase 60 billion euros worth of government bonds and other assets a month through December, or beyond, if necessary.

Additionally, the ECB noted it stands ready to increase the program in terms of size or duration if the outlook becomes less favorable.

ECB President Mario Draghi indicated in his subsequent press conference that the asset purchase program would continue until there is a sustained adjustment in the path of inflation consistent with the bank’s target.

Following the mixed performance seen on Tuesday, stocks moved mostly higher during trading on Wednesday. With the upward move on the day, all three major averages reached new record closing highs.

The major averages finished the day firmly in positive territory. The Dow rose 66.02 points or 0.3 percent to 21,640.75, the Nasdaq advanced 40.74 points or 0.6 percent to 6,385.04 and the S&P 500 climbed 13.22 points or 0.5 percent to 2,473.83.

Buying interest was generated in reaction to a report from the Commerce Department showing a bigger than expected rebound in housing starts in the month of June.

The report said housing starts surged up by 8.3 percent to an annual rate of 1.215 million in June from the revised May estimate of 1.122 million.

Economists had expected housing starts to rise to a rate of 1.155 million from the 1.092 million originally reported for the previous month.

The Commerce Department said building permits also jumped by 7.4 percent to a rate of 1.254 million from 1.168 million in May.

Building permits, an indicator of future housing demand, had been expected to climb to a rate of 1.200 million.

Upbeat earnings news also contributed to the strength on Wall Street, with financial giant Morgan Stanley (MS) posting a strong gain after reporting better than expected second quarter results.

Meanwhile, a notable drop by IBM (IBM) limited the upside for the Dow after the tech giant reported better than expected second quarter earnings but weaker than expected revenues.

Energy stocks saw substantial strength on the day, benefiting from an increase by the price of crude oil. Crude for August delivery climbed following the release of a report showing a bigger than expected weekly drop in crude oil inventories.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index surged up by 4.3 percent, the NYSE Arca Natural Gas Index jumped by 2.9 percent and the NYSE Arca Oil & Gas Index advanced by 1.5 percent.

Significant strength was also visible among networking stocks, as reflected by the 2.1 percent gain posted by the NYSE Arca Networking Index. Adtran (ADTN) led the sector higher after reporting second quarter results that beat estimates.

Tobacco, steel, and biotechnology stocks also saw considerable strength on the day, while railroad stocks showed a notable move to the downside.

Commodity, Currency Markets

Crude oil futures are rising $0.33 to $47.45 a barrel after climbing $0.72 to $47.12 a barrel on Wednesday. An ounce of gold is trading at$1,238.40, down $3.60 compared to the previous session’s close of $1,242. On Wednesday, gold inched up $0.10.

On the currency front, the U.S. dollar is trading at 112.24 yen compared to the 111.97 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1562 compared to yesterday’s $1.1515.


Asian stocks finished mostly higher on Thursday after oil prices hit a six-week high and the Bank of Japan kept its monetary stimulus intact, as widely expected.

The yen weakened and oil prices held steady after climbing nearly 2 percent overnight on data showing another big weekly decline in U.S. crude oil and gasoline stockpiles.

Chinese shares rose for a third straight session on expectations of solid earnings from cyclical sectors such as mining and steel. The benchmark Shanghai Composite Index climbed 14.36 points or 0.4 percent to finish at 3,245.33, while Hong Kong's Hang Seng Index rose 68.05 points or 0.3 percent to 26,740.21.

Japanese shares rose as the yen weakened following the Bank of Japan's decision to maintain its monetary policy. Investor sentiment was also buoyed by upbeat trade data pointing to sustained economic recovery. Japan's trade balance returned to a surplus in June, though the net balance came in below expectations.

The Nikkei 225 Index closed 123.73 points or 0.6 percent higher at 20,144.59, while the broader Topix Index rose 0.7 percent to 1,633.01, its highest level since August of 2015. While exporters and energy stocks rose, banks ended on a mixed note. Toshiba shares fluctuated before closing 0.6 percent higher.

Australian shares extended gains from the previous session as banks continued to rally and data showed the country's jobless rate held at 5.6 percent in June amid a remarkable comeback in full-time jobs. The benchmark S&P/ASX 200 Index rose 29.40 points or 0.5 percent to 5,761.50, while the broader All Ordinaries Index ended up 26.30 points or 0.5 percent at 5,805.70.

The big four banks climbed 1-3 percent to extend Wednesday's gains after the bank regulator outlined its new "capital adequacy" targets, which weren't as tough as initially feared.

Oil and gas major Santos soared 8.3 percent after lifting its full year production and sales guidance. Diversified miner South32 dropped 1.8 percent after its fourth-quarter coking coal production slumped 32 percent from a year earlier.

Department store operator Myer Holdings plunged 9.8 percent after cutting its profit guidance. Embattled infant formula maker Bellamy's Australia lost 5 percent as shares resumed trading after being in a trading halt for nearly two weeks.


European stocks are mostly higher on Thursday as traders react to the ECB’s monetary policy decision and Draghi’s subsequent press conference.

While the U.K.’s FTSE 100 Index has jumped by 1 percent, the German DAX Index is up by 0.9 percent and the French CAC 40 Index is up by 0.6 percent.

In economic news, the euro area current account surplus increased to 30.1 billion euros in May from 23.5 billion euros in April, largely driven by a trade surplus and primary income, data from the European Central Bank showed.

Separately, official data showed U.K. retail sales recovered at a faster than expected pace in June. Retail sales grew 0.6 percent month-on-month in June following a 1.1 percent slump in May. Sales were forecast to rise 0.4 percent.

Finnish engine maker Wartsila has moved sharply higher after raising its outlook for its marine business. British retailer Sports Direct has also jumped as founder Mike Ashley named a new chief financial officer.

Publicis Groupe has rallied as the French advertising giant delivered better-than-expected results for the second quarter, driven by an uptick in its North American business.

Payments group Ingenico has also jumped after it agreed to buy Swedish rival Bambora from Nordic Capital for 1.5 billion euros.

Meanwhile, Swiss engineering firm ABB has tumbled as its second quarter net profit came in below the consensus estimate. Nordea Bank has also slumped after reporting a 26 percent drop in its second quarter net profit.

EasyJet shares have also moved lower after the budget carrier made some cautious comments on the outlook for summer pricing.

U.S. Economic Reports

A report released by the Labor Department showed a much bigger than expected decrease in first-time claims for U.S. unemployment benefits in the week ended July 15th.

The report said initial jobless claims fell to 233,000, a decrease of 15,000 from the previous week’s revised level of 248,000. Economists had expected jobless claims to edge down to 245,000.

The Federal Reserve Bank of Philadelphia also released a report showing that regional manufacturing activity grew at a notably slower rate in the month of July.

The Philly Fed said its index for current manufacturing activity in the region slumped to 19.5 in July from 27.6 in June.

While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 24.0.

At 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of June. The leading economic index is expected to rise by 0.4 percent.

The Treasury Department is due to announce the details of next week’s auctions of two-year, five-year, and seven-year notes at 11 am ET.

Stocks In Focus

Shares of Sarepta Therapeutics (SRPT) are moving sharply higher in pre-market trading after the biopharmaceutical company reported a narrower than expected second quarter loss.

Department store operator Sears Holdings (SHLD) may also see early strength after announcing the launch of Kenmore products on Amazon.com.

Shares of T-Mobile US (TMUS) could also move to the upside after the mobile service provider reported second quarter results that beat analyst estimates on both the top and bottom lines.

On the other hand, shares of Travelers (TRV) may come under pressure after the insurance company reported weaker than expected second quarter earnings.

Communications chipmaker Qualcomm (QCOM) could also see early weakness after reporting third quarter results that beat estimates but providing disappointing guidance.

Shares of American Express (AXP) are also seeing pre-market weakness even though the credit card giant reported second quarter earnings and revenues that came in above estimates.
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