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Beyond the Numbers

Early Buying Interest May Be Limited By Disappointing GDP Data
1/26/2018 9:01 AM

The major U.S. index futures are pointing to a higher opening on Friday after closing mixed for two consecutive sessions. Early buying interest may be generated in reaction to the latest earnings news.

However, any early upside may be limited following the release of a Commerce Department report showing weaker than expected U.S. economic growth in the fourth quarter of 2017.

Traders are also digesting President Donald Trump’s highly anticipated speech at the World Economic Forum in Davos, Switzerland.

Trump touted the progress made by the economy and the stocks markets since his election and reiterated his pledge to put “America first.”

“But America first does not mean America alone,” Trump said. “When the United States grows, so does the world.”

After ending the previous session on opposite sides of the unchanged line, the major averages turned in another mixed performance during trading on Thursday. While the Dow and the S&P 500 climbed to new record closing highs, the tech-heavy Nasdaq ended the day in the red.

The Nasdaq closed lower for the second straight day, edging down 3.89 points or 0.1 percent to 7,411.16. Meanwhile, the Dow rose 140.67 points or 0.5 percent to 26,392.79 and the S&P 500 inched up 1.71 points or 0.1 percent to 2,839.25.

Stocks moved to the upside early in the session amid a positive reaction to the latest batch of earnings news, with results from most big-name companies topping estimates.

The advance by the Dow was partly due to a strong gain by 3M (MMM), with the diversified manufacturer rising by 1.9 percent after reporting better than expected fourth quarter results and providing upbeat guidance.

Construction and mining equipment manufacturer Caterpillar (CAT) also moved higher after reporting first quarter earnings that beat analyst estimates.

Meanwhile, traders were also digesting a mixed batch of economic data, including a report from the Commerce Department showing a steep drop in new home sales in the month of December.

The report said new home sales plunged by 9.3 percent to an annual rate of 625,000 in December after surging up by 15 percent to a revised rate of 689,000 in November.

Economists had expected new home sales to slump to a rate of 679,000 from the 733,000 originally reported for the previous month.

A separate report from the Labor Department showed initial jobless claims bounced off their lowest level in nearly 45 years in the week ended January 20th.

The report said initial jobless claims rose to 233,000, an increase of 17,000 from the previous week's revised level of 216,000. Economists had expected jobless claims to climb to 240,000.

On the other hand, the Conference Board released a report showing a slightly bigger than expected increase by its index of leading economic indicators.

The Conference Board said its leading economic index climbed by 0.6 percent in December after rising by an upwardly revised 0.5 percent in November. The index has been expected to rise by 0.5 percent.

Railroad stocks saw substantial weakness throughout the session, resulting in a 3.3 percent slump by the Dow Jones Railroads Index. With the drop, the index ended the session at its lowest closing level in almost a month.

Union Pacific (UNP) led the sector lower after the railroad operator reported weaker than expected fourth quarter earnings.

Extending the sell-off seen in the previous session, airline stocks also saw considerable weakness on the day. After plunging by 3 percent on Wednesday, the NYSE Arca Airline Index tumbled by 2.4 percent.

JetBlue (JBLU), Alaska Air (ALK), Southwest Airlines (LUV) and American Airlines (AAL) all moved notably lower after reporting their quarterly results.

Gold, natural gas and semiconductor stocks also came under pressure on the day, while utilities, pharmaceutical and chemical stocks showed strong moves to the upside.

Commodity, Currency Markets

Crude oil futures are rising $0.18 to $65.69 a barrel after slipping $0.10 to $65.51 a barrel on Thursday. Meanwhile, after climbing $6.60 to $1,362.90 an ounce in the previous session, gold futures are slumping $11.20 to $1,351.70 an ounce.

On the currency front, the U.S. dollar is trading at 109.33 yen compared to the 109.41 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2430 compared to yesterday’s $1.2396.

Asia

Asian shares turned in a mixed performance on Friday as investors awaited President Donald Trump's comments to the World Economic Forum in Davos, Switzerland, along with preliminary data on U.S. fourth-quarter GDP.

China's Shanghai Composite Index rose 10.78 points or 0.3 percent to 3,559.09, while Hong Kong's Hang Seng Index jumped 499.67 points or 1.5 percent to 33,154.12 after Morgan Stanley boosted its stock targets on a number of Chinese lenders.

Chinese industrial profits continued to increase in December, although at a weaker pace than in the previous month, figures from the National Bureau of Statistics showed. Industrial profits grew 10.8 percent year-over-year in December, slower than the 14.9 percent spike in November.

Meanwhile, Japanese shares ended a choppy session lower, dragged down by oil firms and financials. The Nikkei 225 Index dipped 37.61 points or 0.2 percent to 23,631.88 after fluctuating earlier in the day as investors digested consumer inflation data and the Bank of Japan's December monetary policy meeting minutes. The broader Topix index closed 0.3 percent lower at 1,879.39.

Nationwide consumer prices in Japan climbed 1.0 percent year-on-year in December, the Ministry of Internal Affairs and Communications said. That was unchanged from the November reading.

Minutes from the Bank of Japan's December meeting revealed that the monetary policy board is seeking to make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target.

Inpex Corp and Japan Petroleum Exploration fell around 2 percent, while Mitsubishi UFJ Financial Group declined 1.5 percent and Dai-ichi Life Holdings shed 1.6 percent.

On the other hand, Fujitsu shares advanced 1.2 percent after the company said it was in talks about selling its mobile phone unit to investment fund Polaris Capital Group.

Markets in Australia and India were closed for Australia Day and Republic Day holidays, respectively.

Europe

European stocks are mostly higher on Friday even as the dollar has resumed its slide despite President Donald Trump backing a strong currency.

While the French CAC 40 Index has jumped by 1 percent, the U.K.’s FTSE 100 Index is up by 0.4 percent and the German DAX Index is up by 0.2 percent.

In economic news, U.K. GDP grew 0.5 percent sequentially in the fourth quarter of 2017, faster than the 0.4 percent growth logged in the third quarter, official data showed. Economists had forecast growth of 0.4 percent.

French consumer confidence unexpectedly declined at the start of the year, while manufacturing confidence unexpectedly strengthened in January, separate reports showed.

French luxury products maker LVMH has rallied after it posted better-than-expected sales growth in the fourth quarter, benefiting from a steady recovery in Asian demand. Swedish telecom company Telia has also jumped after its fourth quarter earnings matched forecasts.

Meanwhile, Swiss specialty baker Aryzta has slumped on analysts' downgrades after a profit warning. Givaudan shares have also fallen despite the perfume maker posting strong full-year results.

British online gambling operator GVC Holdings has dropped after it announced a provision of about 200 million euros in its 2017 accounts.

U.S. Economic Reports

A report released by the Commerce Department on Friday showed weaker than expected U.S. economic growth in the fourth quarter of 2017.

The report said real gross domestic product increased by 2.6 percent in the fourth quarter compared to the 3.2 percent growth seen in the third quarter. Economists had expected GDP to climb by 3.0 percent.

Meanwhile, the Commerce Department also released a separate report showing a much bigger than expected increase in durable goods orders in the month of December.

The Commerce Department said durable goods orders spiked by 2.9 percent in December after surging up by an upwardly revised 1.7 percent in November.

Economists had expected durable goods orders to climb by 0.8 percent compared to the 1.3 percent jump that had been reported for the previous month.

Excluding an increase in orders for transportation equipment, durable goods orders rose by 0.6 percent in December after edging up by 0.3 percent in November.

Ex-transportation orders had been expected to climb by 0.5 percent compared to the 0.1 percent drop originally reported for the previous month.

Stocks In Focus

Shares of Intel (INTC) are moving sharply higher in pre-market trading after the semiconductor giant reported fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Industrial conglomerate Honeywell (HON) may also see early strength after reporting better than expected fourth quarter results and raising its full-year earnings guidance.

Shares of MicroStrategy (MSTR) may also move to the upside after the business software company reported fourth quarter earnings that beat expectations.

On the other hand, shares of Starbucks (SBUX) may come under pressure after the coffee chain reported fiscal first quarter earnings that beat estimates but on weaker than expected sales.

Robotic surgical systems maker Intuitive Surgical (ISRG) could also move to the downside after forecasting narrower profit margins in 2018.

Shares of E*Trade (ETFC) are also seeing pre-market weakness even though the financial services provider reported better than expected fourth quarter results.
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