Market Analysis

Beyond the Numbers

Waning Risk Appetite May Weigh On Wall Street
12/6/2017 8:51 AM

The major U.S. index futures are pointing to a lower opening on Wednesday, with stocks poised to see further downside following the weakness seen in the previous session.

Middle East concerns as well as worries over a possible government shutdown may lead traders to move their money into safer havens.

Selling pressure may be somewhat subdued, however, with a report from payroll processor ADP showing a slightly bigger than expected increase in private sector employment generating some positive sentiment.

After seeing strength for much of the session on Tuesday, stocks pulled back late in the day to close moderately lower. The Dow pulled back off the record closing high set in the previous session.

The Dow fell by 109.41 points or 0.5 percent to 24,180.64, the Nasdaq edged down 13.15 points or 0.2 percent to 6,762.21 and the S&P 500 dipped 9.87 points or 0.3 percent to 2,629.57.

The lower close on Wall Street may have reflected concerns about the outlook for the Republican tax reform bill amid reports about disagreements over a corporate alternative minimum tax.

On the U.S. economic front, the Commerce Department released a report showing the trade deficit widened more than expected in the month of October.

The report said the trade deficit widened to $48.7 billion in October from a revised $44.9 billion in September. Economists had expected the deficit to widen to $47.5 billion.

A separate report from the Institute for Supply Management showed a bigger than expected slowdown in the pace of service sector growth in November.

The ISM said its non-manufacturing index dropped to 57.4 in November from 60.1 in October, although a reading above 50 still indicates growth in the service sector. Economists had expected the index to dip to 59.0.

"The rate of growth has lessened in the non-manufacturing sector after two very strong months of growth," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

He added, "Comments from the survey respondents indicate that the economy and sector will continue to grow for the remainder of the year."

Steel stocks showed a significant move to the downside on the day, dragging the NYSE Arca Steel Index down by 2 percent.

Gold, utilities, railroad and housing stocks also saw notable weakness, while strength was visible among electronic storage and tobacco stocks.

Commodity, Currency Markets

Crude oil futures are sliding $0.81 to $56.81 a barrel after inching up $0.15 to $57.62 a barrel on Tuesday. Gold futures, which slumped $12.80 to $1,264.90 an ounce in the previous session, are rising $3.60 to $1,268.50 an ounce.

On the currency front, the U.S. dollar is trading at 112.07 yen compared to the 112.60 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1818 compared to yesterday’s $1.1826.


Most Asian stocks fell on Wednesday as bond yields tumbled, metals prices plunged sharply, oil eased on supply worries and the Japanese yen gained ground on Middle East concerns as well as worries over a possible U.S. government shutdown.

Chinese stocks fell after a senior researcher at the People's Bank of China urged central banks to tighten monetary policies. The benchmark Shanghai Composite Index dropped 9.55 points or 0.3 percent to 3,293.13, while Hong Kong's Hang Seng Index plunged 618.00 points or 2.1 percent to 28,224.80.

Japanese shares fell sharply as geopolitical worries and concerns over a potential government shutdown in the U.S. fueled demand for safe-haven assets.

The Nikkei 225 Index tumbled 445.34 points or 2 percent to 22,177.04, marking its biggest fall in 8 1/2 months. The broader Topix index closed 1.4 percent lower at 1,765.42. Nisshin Steel, Fujikura, Fast Retailing and Toho Zinc fell around 5 percent each.

Australian shares retreated, with a pullback in commodity prices and weaker-than-expected GDP data weighing on the markets. GDP growth for the third quarter came in at 0.6 percent, slightly below forecasts for 0.7 percent growth and down from the 0.9 percent seen in the previous quarter.

The benchmark S&P/ASX 200 Index finished down 26.11 points or 0.4 percent at 5,945.71 to extend losses for a third straight session. The broader All Ordinaries Index dropped 0.5 percent to 6,029.90.

Falling copper, iron ore and gold prices pulled down miners, with Newcrest, BHP Billiton, Rio Tinto and South32 falling 2-4 percent. Banks ANZ, NAB and Westpac finished modestly higher, a day after the Reserve Bank of Australia left interest rates on hold at a record low.

Incitec Pivot lost 1.8 percent after the fertilizer and explosives maker warned that its 2020 and 2021 full-year profits will be hit by the end of a contract to supply ammonium nitrate prill to mining giant BHP Billiton.

Meanwhile, TPG Telecom advanced 1.3 percent after its chairman said the company's mobile and fixed-line projects will benefit shareholders over the long term.


European stocks have moved notably lower on Wednesday as weak commodity prices, worries over a possible U.S. government shutdown and U.S. President Donald Trump's comments that he plans to move his country's embassy to Jerusalem dented risk appetite and fueled demand for safe-haven assets.

The French CAC 40 Index is sliding by 0.6 percent and the German DAX Index is tumbling by 1.1 percent. However, the U.K.’s FTSE 100 Index has bucked the downtrend and inched up by 0.1 percent.

British insurance and travel specialist Saga has plunged after a profit warning. Furniture retailer Steinhoff has also moved sharply lower after its CEO Markus Jooste resigned amid allegations of irregularities in the company's accounts that require further investigation.

The recent correction in copper prices on worries over rising inventories and doubts about Chinese demand pulled down mining stocks, with Anglo American, Antofagasta, BHP Billiton and Rio Tinto falling between 0.7 percent and 1.1 percent.

Meanwhile, Swiss nutrition, health and wellness giant Nestle SA has edged up marginally after agreeing to buy privately-held Atrium Innovations from a group of investors led by Permira Funds for $2.3 billion in cash.

Novo Nordisk has rallied after receiving FDA approval for a diabetes drug. Airline EasyJet has also moved higher after reporting 8 percent growth in passenger traffic for November.

U.S. Economic Reports

Employment in the U.S. private sector increased by slightly more than expected in the month of November, payroll processor ADP revealed in a report.

ADP said private sector employment climbed by 190,000 jobs in November after surging up by 235,000 jobs in October. Economists had expected an increase of about 185,000 jobs.

A separate report from the Labor Department showed a significant increase in labor productivity in the third quarter.

The report said labor productivity jumped by 3.0 percent in the third quarter, unchanged from the preliminary estimate. Economists had expected the increase in productivity to be upwardly revised to 3.3 percent.

Meanwhile, the Labor Department said unit labor costs fell by a revised 0.2 percent in the third quarter compared to the previously reported 0.5 percent increase. Costs had been expected to rise by a revised 0.2 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended December 1st.

Crude oil inventories are expected to drop by 3.4 million barrels, matching the decrease seen in the previous week.
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