Market Analysis

Beyond the Numbers

Yellen Testimony In Focus On Wall Street
11/29/2017 8:55 AM

The major U.S. index futures are pointing to a mixed opening on Wednesday, as the Dow futures are up by 69 points but the Nasdaq futures are down by 4.75 points.

Traders may be reluctant to make significant moves ahead of remarks by outgoing Federal Reserve Chair Janet Yellen.

Yellen is scheduled to testify on the economic outlook before the Congressional Joint Economic Committee beginning at about 10 am ET.

In prepared remarks released ahead of her appearance, Yellen said economic growth appears to have stepped up from its subdued pace early in the year.

Yellen noted inflation has continued to run below the Fed’s 2 percent target but said recent lower readings on inflation likely reflect transitory factors.

The Fed Chair also reiterated that she expects gradual increases in interest rates will be appropriate to sustain a healthy labor market and stabilize inflation around the central bank’s objective.

Stocks saw some volatility in afternoon trading on Tuesday but managed to end the session firmly in positive territory. With the strong upward move on the day, the major averages climbed to new record closing highs.

The major averages ended the session just off their best levels of the day. The Dow surged up 255.93 points or 1.1 percent to 23,836.71, the Nasdaq climbed 33.84 points or 0.5 percent to 6,912.36 and the S&P 500 jumped 25.62 points or 1 percent to 2,627.04.

The notably higher close on Wall Street was partly due to news the Republican tax reform bill took another key step forward, as the legislation was approved by the Senate Budget Committee.

Members of the Senate Budget Committee voted 12 to 11 to advance the bill, with the vote coming down strictly along party lines.

The vote to send the bill to the Senate floor came after Republican Senators Bob Corker, R-Tenn., and Ron Johnson, R-Wis., dropped their objections to the bill.

The full Senate could vote on the bill as early as Thursday, although the legislation still includes significant differences from the House version.

Traders also reacted positively to remarks by Federal Reserve Chair nominee Jerome Powell, who testified before the Senate Banking Committee.

Powell told the committee he favors "tailoring" banking regulations so the largest and most complex institutions face the most stringent regulations while the burden on smaller banks is reduced.

The Fed Chair nominee also said the case for a December interest rate hike is "coming together" and said the central bank will continue reducing its $4.5 trillion balance sheet in a process that will take three or four years.

Powell repeatedly refused to comment on the potential economic impact of the Republican tax reform legislation working its way through Congress.

On the economic front, the Conference Board released a report showing an unexpected improvement in consumer confidence in the month of November.

The Conference Board said its consumer confidence index climbed to 129.5 in November from an upwardly revised 126.2 in October. Economists had expected the index to drop to 124.5.

With the unexpected increase, the consumer confidence index rose to its highest level since reaching 132.6 in November of 2000.

In mid-afternoon trading, some selling pressure was generated by reports that North Korea fired a ballistic missile, although traders quickly shrugged off the news.

Banking stocks showed a substantial move to the upside over the course of the session, driving the Dow Jones Banks Index up by 3.3 percent. With the jump, the index reached its best closing level in three weeks.

The rally by banking stocks partly reflected a positive reaction to Powell's comments regarding financial regulations, which he called "tough enough."

Significant strength also emerged among airline stocks, as reflected by the 2 percent gain posted by the NYSE Arca Airline Index. The index reached its best closing level in over a month.

Trucking, railroad, brokerage, and housing stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slipping $0.25 to $57.74 a barrel after edging down $0.12 to $57.99 a barrel on Tuesday. Gold futures, which inched up $0.50 to $1,294.90 an ounce in the previous session, are sliding $8.30 to $1,286.60 an ounce.

On the currency front, the U.S. dollar is trading at 111.90 yen compared to the 111.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1833 compared to yesterday’s $1.1840.


Asian stocks finished broadly higher on Wednesday as record closing highs on Wall Street overnight on the back of upbeat economic data and a positive reaction to Fed Chair nominee Jerome Powell's comments regarding financial regulations helped investors shrug off news about North Korea's latest missile launch.

China's Shanghai Composite Index closed up 4.35 points or 0.1 percent at 3,338.00, led by property developers and resource firms. However, Hong Kong's Hang Seng Index edged down 57.02 points or 0.2 percent to 29,623.83.

A strong rally in financials helped the Japanese markets end higher for the day. The Nikkei 225 Index gained 110.96 points or 0.5 percent to finish at 22,597.20, while the broader Topix index closed 0.8 percent higher at 1,786.15.

Banks Mizuho Financial and Mitsubishi UFJ Financial rallied 2-3 percent. Nomura Holdings rose over 1 percent after the brokerage and investment bank said it would cancel 4.7 percent of its outstanding shares.

Matsumotokiyoshi Holdings advanced 3.4 percent after a report that the drugstore chain operator will tie up with Dai-ichi Life Holdings to sell insurance products in December.

On the economic front, Japanese retail sales came in roughly flat on a seasonally adjusted basis in October, missing forecasts for an increase of 0.2 percent.

Australian shares eked out modest gains after a strong lead from Wall Street overnight. The benchmark S&P/ASX 200 Index rose by 26.86 points or 0.5 percent to finish at 6,011.12, while the broader All Ordinaries Index ended up 29.40 points or 0.5 percent at 6,096.10.

The big four banks rose between half a percent and 0.8 percent, tracking gains among their U.S. peers overnight in the wake of tax reform progress and strong consumer confidence data. Miners BHP Billiton and Fortescue Metals Group climbed around 1 percent despite weakening metals prices.

Origin Energy jumped 2.7 percent to extend gains for the second day after unveiling cost cuts at its flagship liquefied natural gas export operations.

Bingo Industries soared 8.2 percent after the waste disposal company raised A$106 million in an institutional offer to fund its recently announced acquisitions.


European stocks have moved mostly higher on Wednesday as signs of progress on U.S. tax reform and reports of a breakthrough in Brexit talks helped investors shrug off news about North Korea's latest missile launch.

However, U.K. shares have moved lower as the pound hit a two-month high amid reports that Britain has agreed to the EU's 50 billion-pound divorce bill.

While the U.K.’s FTSE 100 Index has fallen by 0.6 percent, the French CAC 40 Index is up by 0.7 percent and the German DAX Index is up by 0.9 percent.

Spanish banking group BBVA has rallied after reaching an agreement to sell an 80 percent stake in its real estate business to Cerberus for about 4 billion euros.

Banco Santander has also moved to the upside after approving changes to its executive board as well as a goodwill impairment of 600 million euros.

Air France-KLM shares have jumped after the airline signed a cooperation agreement with India's Jet Airways for the development of their operations between Europe and India.

Meanwhile, exporters have come under selling pressure in London, with Diageo, British American Tobacco and GlaxoSmithKline falling 1-2 percent.

London Stock Exchange Group has also moved lower after chief executive Xavier Rolet agreed to step down at the board's request amid a bruising boardroom row.

U.S. Economic Reports

A report released by the Commerce Department showed stronger than previously estimated U.S. economic growth in the third quarter.

The report said real gross domestic product surged up by an upwardly revised 3.3 percent in the third quarter compared to the originally reported 3.0 percent jump. Economists had expected the increase in GDP to be upwardly revised to 3.2 percent.

With the bigger than expected upward revision, the GDP growth in the third quarter is now stronger than the 3.1 percent increase seen in the second quarter.

At 10 am ET, Federal Reserve Chair Janet Yellen is scheduled to testify on the economic outlook before the Congressional Joint Economic Committee in Washington.

The National Association of Realtors is also due to release its report on pending home sales in the month of October at 10 am ET. Pending home sales are expected to jump by 1 percent in October after coming in unchanged in September.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 24th.

Crude oil inventories are expected to slump by 3.2 million barrels after falling by 1.9 million barrels in the previous week.

San Francisco Fed President John Williams is due to give the keynote address at the 54th Annual Economic Forecast Luncheon sponsored by Arizona State University in Phoenix at 1:50 pm ET.

At 2 pm ET, the Fed is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts

Stocks In Focus

Shares of Nuance Communications (NUAN) are moving sharply higher in pre-market trading after the speech and imaging solutions company reported better than expected fiscal fourth quarter adjusted earnings and revenues.

Chipmaker Marvell Technology (MRVL) is also likely to see early strength after reporting third quarter results that exceeded analyst estimates and providing upbeat guidance for the current quarter.

Shares of Regal Entertainment (RGC) are also seeing pre-market strength after the movie theater chain confirmed it is in talks with Cineworld Group about a possible all-cash acquisition of Regal at a price of $23 per share.

On the other hand, shares of Autodesk (ADSK) may come under pressure after the software developer reported a narrower than expected third quarter loss but provided mixed guidance. The company also announced plans to cut 1,150 jobs.

Data storage company Pure Storage (PSTG) is also moving lower in pre-market trading after reporting a narrower than expected third quarter loss but weaker than expected revenues.

Shares of Wingstop (WING) may also move to the downside after Guggenheim downgraded its rating on the restaurant chain to Neutral from Buy amid valuation concerns.
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