Market Analysis

Beyond the Numbers

Choppy Trading Likely To Persist On Wall Street
12/7/2017 9:00 AM

The major U.S. index futures are pointing to a mixed opening on Thursday, with stocks poised to extend the lackluster performance seen in the previous session.

Traders may remain reluctant to make significant news amid lingering uncertainty about the final Republican tax reform bill.

The Senate voted 51 to 47 on Wednesday in favor of a motion to go to a conference committee with the House. The vote came down strictly along party lines.

Senate and House lawmakers will need to reach an agreement addressing significant differences between their two bills.

Traders are likely to pay close attention to how the final bill deals with the corporate alternative minimum tax, which the House bill eliminates but the Senate bill maintains.

Following the weakness seen on Tuesday, stocks turned in a lackluster performance during trading on Wednesday. The major averages spent the day bouncing back and forth across the unchanged line.

The major averages ended the day on opposite sides of the unchanged line. While the Nasdaq rose 14.16 points or 0.2 percent to 6,776.38, the Dow dipped 39.73 points or 0.2 percent to 24,140.91 and the S&P 500 edged down 0.30 point or less than a tenth of a percent to 2,629.27.

The choppy trading on Wall Street came as traders expressed uncertainty about the economic impact of the Republican tax reform plan.

Concerns about the possibility of violence in the Middle East also weighed on the markets as President Donald Trump announced he is officially recognizing Jerusalem as the capital of Israel.

Trump said in remarks from the White House's Diplomatic Reception Room that the U.S. would also begin preparations to move its embassy from Tel Aviv to Jerusalem.

"I have determined that it is time to officially recognize Jerusalem as the capital of Israel," Trump said. "While previous presidents have made this a major campaign promise, they failed to deliver. Today, I am delivering."

Trump said he has determined that the move is in the best interests of the U.S. and the pursuit of peace between Israel and the Palestinians.

Traders largely shrugged off a report from payroll processor ADP showing a slightly bigger than expected increase in private sector employment generating some positive sentiment.

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.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Energy stocks saw considerable weakness, however, with a decrease by the price of crude oil weighing on the sector.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index slumped by 2.8 percent and the NYSE Arca Natural Gas Index plunged by 3.3 percent.

Gold stocks also moved to the downside despite a modest increase by the price of the precious metal, while some strength was visible among tobacco, software, and trucking stocks.

Commodity, Currency Markets

Crude oil futures are rising $0.18 to $56.14 a barrel after tumbling $1.66 to $55.96 a barrel on Wednesday. An ounce of gold is trading at $1,257.30, down $8.80 compared to the previous session’s close of $1,266.10. On Wednesday, gold inched up $1.20.

On the currency front, the U.S. dollar is trading at 112.71 yen compared to the 112.29 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1789 compared to yesterday’s $1.1796.


Asian stocks recovered from early weakness to finish mostly higher on Thursday as the dollar inched up against the yen and oil eked out small gains after falling as much as 3 percent overnight on data showing a larger-than-expected increase in U.S. gasoline stocks.

Japanese shares rallied on bargain hunting as Moody's Investors Service retained the sovereign ratings of the country with a stable outlook and the yen weakened against the dollar, bolstered by reports that the U.S. Congress is on track to approve legislation that would avert a partial government shutdown over the weekend.

The Nikkei 225 Index surged up 320.99 points or 1.5 percent to 22,498.03 after suffering its biggest drop since March the previous day. The broader Topix Index closed 1.2 percent higher at 1,786.25.

Advantest Corp jumped 1.8 percent after the chip company said it would strengthen its semiconductor parts business. Fanuc rose 1.3 percent while Tokyo Electron soared as much as 4.9 percent. Market heavyweight Fast Retailing advanced 2.4 percent.

Australian shares rose to snap a three-session losing streak, with banking and oil stocks leading the surge. The day's economic releases proved to be a mixed bag, as Australian construction activity expanded at the fastest pace in four months in November but the October trade surplus came in well below forecasts.

The benchmark S&P/ASX 200 Index gained 32.02 points or 0.5 percent to finish at 5,977.72, while the broader All Ordinaries Index ended up 30.90 points or 0.5 percent at 6,060.80.

The big four banks rose between half a percent and 1.3 percent. Energy majors Santos and Origin Energy climbed around 1 percent each as oil rebounded in Asian trading after steep overnight losses.

Miners closed on a mixed note, with Rio Tinto rising 0.9 percent, while BHP Billion and Fortescue Metals Group ended in the red. Yowie Group soared 14.7 percent after the chocolate maker said it would further expand into the U.S.

Meanwhile, Chinese stocks ended lower due to year-end profit taking by investors. The benchmark Shanghai Composite Index dropped 21.91 points or 0.7 percent to 3,272.05, while Hong Kong's Hang Seng Index rose 78.39 points or 0.3 percent to 28,303.19.

In a report released Wednesday, the International Monetary Fund said that more capital is justified for the largest banks in China because of their systemic importance and interconnectedness.

Increasing capital would enhance the resilience and credibility of the financial system, as well as reassure markets, the IMF said.


European stocks are turning in a mixed performance on Thursday as investors digest merger and acquisition news and awaited further details on progress towards U.S. tax reform.

While the German DAX Index is just above the unchanged line, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both down by 0.1 percent.

French telecommunications firm Orange has rallied on news the company targets adjusted EBITDA growth of around 2 percent in 2017, followed by an acceleration of the growth rate in 2018 and continued growth in 2019 and 2020.

Shares of RM Plc have also jumped in London after the educational ICT and resources group said it expects results for the financial year ended November 30, 2017 to be ahead of expectations.

Ladbrokes Coral shares have surged higher after bookmaker GVC Holdings offered to buy the gambling giant for £3.9 billion or $5.2 billion.

Meanwhile, German energy firm Uniper has moved to the downside despite confirming its earnings outlook for the current year and promising higher dividend next year.

Furniture retailer Steinhoff has also slumped to extend Wednesday's decline, hit by news of the launch of an investigation into accounting irregularities.

In economic news, the French trade deficit widened to 5.0 billion euros in October from 4.6 billion euros in September, the customs office reported. The French current account deficit narrowed to 2.2 billion euros in October from 3.3 billion euros in September.

German industrial production fell 1.4 percent month-on-month in October following a revised 0.9 percent drop in September, data from Destatis showed. Production was forecast to rebound 0.9 percent.

U.S. Economic Reports

A day ahead of the release of the closely watched monthly jobs report, the Labor Department released a report unexpectedly showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended December 2nd.

The report said initial jobless claims edged down to 236,000, a decrease of 2,000 from the previous week's unrevised level of 238,000. The drop surprised economists, who had expected jobless claims to inch up to 240,000.

At 11 am ET, the Treasury Department is scheduled to announce the details of next week’s auctions of three-year and ten-year notes and thirty-year bonds.

The Federal Reserve is due to release its report on consumer credit in the month of October at 3 pm ET. Consumer credit is expected to increase by $17.5 billion.

Stocks In Focus

Shares of lululemon athletica (LULU) are moving sharply higher in pre-market trading after the yogawear maker reported better than expected third quarter results and provided upbeat guidance.

Specialty apparel retailer Tailored Brands (TLRD) is also likely to see early strength after reporting third quarter earnings that came in well above analyst estimates.

On the other hand, shares of Vail Resorts (MTN) may move to the downside after the ski resort operator reported a wider than expected fiscal first quarter loss.
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