Market Analysis

Beyond the Numbers

Stocks May Benefit From Continued Drop In Treasury Yields
2/23/2018 8:42 AM

The major U.S. index futures are pointing to a higher opening on Friday following the mixed performance seen in the previous session.

A continued drop by treasury yields may generate early buying interest on Wall Street, with the ten-year yield pulling back further off the four-year closing high set on Wednesday.

Trading activity may be somewhat subdued, however, as a lack of major U.S. economic data is likely to keep some traders on the sidelines.

Remarks by several Federal Reserve officials may impact trading amid lingering concerns about the outlook for interest rates.

After seeing strength for much of the session, stocks turned mixed in afternoon trading on Thursday. The Dow and the S&P 500 managed to end the day in positive territory, but the tech-heavy Nasdaq edged modestly lower.

While the Nasdaq dipped 8.14 points or 0.1 percent to 7,210.09, the Dow climbed 164.70 points or 0.7 percent to 24,962.48 and the S&P 500 inched up 2.63 points or 0.1 percent at 2,703.96.

The strength seen in morning trading came amid a rebound by treasuries, which came under pressure following the release of the minutes of the Federal Reserve's latest monetary policy meeting on Wednesday.

The yield on the benchmark ten-year note, which moves opposite of its price, is pulling back off the four-year closing high set in the previous session.

On the U.S. economic front, a report released by the Labor Department unexpectedly showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended February 17th.

The report said initial jobless claims dipped to 222,000, a decrease of 7,000 from the previous week's revised level of 229,000.

The drop surprised economists, who had expected jobless claims to come in unchanged compared to the 230,000 originally reported for the previous month.

A separate report from the Conference Board showed a bigger than expected increase by its index of leading economic indicators in the month of January.

The Conference Board said its leading economic index jumped by 1.0 percent in January after climbing by 0.6 percent in December. Economists had been expecting another 0.6 percent increase.

"While the recent stock market volatility will not be reflected in the U.S. LEI until next month, consumers' and business' outlook on the economy had been improving for several months and should not be greatly impacted," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at the Conference Board.

He added, "The leading indicators reflect an economy with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets."

Gold stocks showed a significant move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 1.6 percent. The weakness in the sector came despite a modest increase by the price of gold.

Considerable weakness also emerged among banking stocks, as reflected by the 1.4 percent drop by the KBW Bank Index.

Tobacco and telecom stocks also saw notable weakness, while energy stocks moved sharply higher amid an increase by the price of crude oil.

Crude oil for April delivery jumped $1.09 to $62.77 a barrel following the release of a report showing an unexpectedly weekly drop in crude oil inventories.

Commodity, Currency Markets

Crude oil futures are slipping $0.03 to $62.74 a barrel after jumping $1.09 to $62.77 a barrel on Thursday. Meanwhile, after inching up $0.60 to $1,332.70 an ounce in the previous session, gold futures are falling $1.20 to $1,331.50 an ounce.

On the currency front, the U.S. dollar is trading at 106.80 yen compared to the 106.75 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2296 compared to yesterday’s $1.2330.


Most Asian stocks rose on Friday after U.S. government debt yields fell from multi-year highs reached on Wednesday, helping ease worries about inflation and higher interest rates.

The dollar edged up against the yen on improved risk appetite and oil held onto overnight gains after an unexpected drawdown in U.S. crude inventories, while gold prices dipped on dollar strength and remained on track for their sharpest weekly drop in two-and-a-half months.

Japanese shares eked out modest gains as bond markets regained stability. The Nikkei 225 Index rose 156.34 points or 0.7 percent to 21,892.78, while the broader Topix Index closed 0.8 percent higher at 1,760.53.

Exporters Canon, Toyota Motor, Honda Motor and Panasonic rose between 0.6 percent and 1.4 percent as the dollar edged up against the yen and other currencies. Oil firm Inpex rallied 2.1 percent and Japan Petroleum rose 1.1 percent.

In economic news, the Ministry of Internal Affairs and Communications said that overall nationwide consumer prices in Japan climbed an annual 1.4 percent in January. That exceeded forecasts for 1.3 percent and was up from 1.0 percent in December.

Australian stocks extended gains for the third straight session, with mining and energy stocks leading the way higher after oil prices rose around 1.5 percent Thursday.

The benchmark S&P/ASX 200 Index climbed 48.90 points or 0.8 percent to 5,999.80, while the broader All Ordinaries Index advanced 47.50 points or 0.8 percent to 6,105.20.

Energy majors Beach Energy, Origin Energy, Oil Search and Woodside Petroleum rose between half a percent and 0.8 percent. Commonwealth Bank of Australia advanced 1.1 percent after it denied most of the claims against it alleging breaches of money laundering laws.

Mining giant BHP Billiton rallied 1.6 percent to extend gains for the second straight session as Chinese iron ore prices ticked higher. Rival Rio Tinto and Fortescue Metals Group gained 0.8 percent and 1.6 percent, respectively.

Gold miners Newcrest Mining and Evolution rose 1-2 percent after a modest increase in gold prices overnight. Shares of Accent Group, brand owner of The Athlete Foot, soared 18.5 percent after the company lifted its first-half profit by 19 percent.

Regis Healthcare climbed 8.4 percent despite the company posting lower half-year profits. Woolworths Group tumbled 2.6 percent despite the retail giant reporting a 38 percent jump in first-half profit.

China's Shanghai Composite Index closed up 20.68 points or 0.6 percent at 3,289.02, while Hong Kong's Hang Seng Index jumped 301.49 points or 1 percent to 31,267.17.


European stocks are turning in a lackluster performance on Friday as earnings proved to be a mixed bag and investors kept an eye on multiple speeches from Fed officials due later today for further insight on inflation and interest rates.

While the U.K.’s FTSE 100 Index is down by 0.2 percent, the French CAC 40 Index is just above the unchanged line and the German DAX Index is up by 0.3 percent.

Royal Bank of Scotland shares have tumbled despite the bank posting its first annual profit in a decade. Similarly, British Airways owner IAG has moved lower despite reporting an increase in 2017 profits and launching a 500 million euro share buyback.

French auto parts maker Valeo has plunged after its 2017 net profit fell from last year due to adverse exchange rate movements and higher raw material costs.

Meanwhile, reinsurer Swiss Re has jumped after saying it is carefully assessing the strategic and financial implications of an approach by Softbank about taking a minority stake.

Oil services firm Subsea 7 has also climbed after announcing it is in talks to form a joint venture with Schlumberger.

BT Group has rallied in London after the telecom regulator eased price controls on the company's network subsidiary Openreach.

Publishing and education company Pearson has also jumped as it returned to profit from a loss of 2.34 billion pounds last year.

In economic news, Germany's economy expanded as initially estimated in the fourth quarter largely on foreign demand, a report from Destatis showed.

GDP grew 0.6 percent sequentially, slower than the 0.7 percent expansion seen in the third quarter and in line with the estimate published on February 14th.

U.S. Economic Reports

At 10:15 am ET, New York Federal Reserve President William Dudley and Boston Fed President Eric Rosengren are due to participate in a discussion about the Fed's Balance Sheet at the 2018 U.S. Monetary Policy Forum Annual Conference in New York.

Cleveland Fed President Loretta Mester is scheduled to participate in “A Review of the Objectives for Monetary Policy” panel at the U.S. Monetary Policy Forum at 1:30 pm ET.

At 3:40 pm ET, San Francisco Fed President John Williams is due to speak on the “Outlook on the Economy and the Implications for Monetary Policy” in Los Angeles.

Stocks In Focus

Shares of Blue Buffalo (BUFF) are moving sharply higher in pre-market trading after the natural pet food maker agreed to be acquired by General Mills (GIS) for approximately $8 billion in cash.

Information technology company Hewlett Packard Enterprise (HPE) is also seeing significant pre-market strength after reporting better than expected fiscal first quarter results and providing upbeat guidance. HPE also announced a 50 percent dividend increase.

Shares of HP Inc, (HPQ) may also move to the upside after the computer and printer maker reported fiscal first quarter earnings that beat estimates and raised its full-year profit forecast.

On the other hand, shares of Wingstop (WING) may come under pressure after the chicken wing restaurant reported better than expected fourth quarter results but provided disappointing guidance.

Financial software developer Intuit (INTU) may also move to the downside after reporting fiscal second quarter earnings that beat estimates but providing a weak outlook for the current quarter.

Shares of UPS (UPS) are seeing modest weakness in pre-market trading after Deutsche Bank downgraded its rating on the delivery giant’s stock to Hold from Buy.
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