Market Analysis

Beyond the Numbers

Easing Geopolitical Concerns May Lead To Strength On Wall Street
3/6/2018 8:24 AM

The major U.S. index futures are pointing to a sharply higher opening on Tuesday, with stocks likely to see further upside after turning positive over the course of the previous session.

The upward momentum on Wall Street comes amid easing geopolitical concerns following reports that North Korea is willing to talk about denuclearization.

South Korea's national security director Chung Eui-yong told reporters North Korea would be willing to denuclearize if its security was guaranteed.

“North Korea made clear its willingness to denuclearize the Korean peninsula and the fact there is no reason for it to have a nuclear program if military threats against the North are resolved and its regime is secure,” Chung said.

Easing concerns about a global trade war may also lead to strength on Wall Street after President Donald Trump indicated proposed tariffs on steel and aluminum imports would be removed if the U.S. negotiates a "new & fair" NAFTA agreement.

Stocks showed a significant turnaround over the course of the trading session on Monday after an initial move to the downside.

The Dow jumped 336.70 points or 1.4 percent to 24,874.76, the Nasdaq surged up 72.84 points or 1 percent to 7,330.70 and the S&P 500 spiked 29.69 points or 1.1 percent to 2,720.94.

The rebound on Wall Street reflected recent volatility in the markets amid uncertainty about a potential global trade war and an increase in interest rates.

Lingering concerns about a trade war contributed to the initial weakness, as President Donald Trump plans to implement tariffs on steel and aluminum imports.

In a post on Twitter, Trump indicated that the tariffs on steel and aluminum would only be removed if the U.S. negotiates a "new & fair" NAFTA agreement.

"We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed," Trump tweeted.

He added, "Also, Canada must treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying."

Trading activity was somewhat subdued, however, as traders looked ahead to the Labor Department's monthly employment report due to be released on Friday.

On the U.S. economic front, the Institute for Supply Management released a report showing a slight slowdown in the pace of growth in the service sector in the month of February.

The ISM said its non-manufacturing index edged down to 59.5 in February from 59.9 in January, although a reading above 50 still indicates growth in the service sector. Economists had expected the index to dip to 59.0.

The modest decrease by the index was partly due to a slowdown in the pace of job growth in the service sector, as the employment index dropped to 55.0 in February from 61.6 I January.

Brokerage stocks showed a significant move to the upside on the day, driving the NYSE Arca Broker/Dealer Index up by 2.2 percent.

Utilities, energy and chemical stocks also moved notably higher on the day, moving to the upside along with the other major sectors.

Commodity, Currency Markets

Crude oil futures are rising $0.62 to $63.19 a barrel after jumping $1.32 to $62.57 a barrel on Monday. Meanwhile, after falling $3.50 to $1,319.90 an ounce in the previous session, gold futures are surging up $11.40 to $1,331.30 an ounce.

On the currency front, the U.S. dollar is trading at 106.23 yen compared to the 106.20 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2409 compared to yesterday’s $1.2336.


Asian stocks rebounded on Tuesday amid receding worries about a trade war as President Donald Trump faced mounting pressure from political allies to reconsider his decision to impose tariffs on steel and aluminum imports.

House Speaker Paul Ryan, R-Wis., urged Trump to rethink the planned tariffs on steel and aluminum as confusion persisted about the timing and extent of the planned tariffs.

Trump indicated that the tariffs would be removed if the U.S. negotiates a "new & fair" NAFTA agreement.

Chinese stocks posted strong gains after reports that China's securities regulator is considering giving Chinese investors access to offshore-listed tech companies via depositary receipts.

The benchmark Shanghai Composite Index jumped 33.25 points or 1.0 percent to 3,290.17, while Hong Kong's Hang Seng Index surged up 624.34 points or 2.1 percent to 30,510.73.

Japanese shares snapped a four-day losing streak as the yen weakened on improved risk appetite amid easing concerns about a global trade war.

The Nikkei 225 Index spiked 375.67 points or 1.8 percent to 21,417.76 after hitting a nearly five-month low on Monday. The broader Topix Index closed 1.3 percent higher at 1,716.30.

The dollar's bounce lifted exporters, with Honda Motor, Sony, Panasonic, Toyota Motor and Suzuki Motor rising 1-3 percent.

Among steel makers, Japan Steel Works surged as much as 9 percent, Nippon Steel rose 1 percent and JFE Holdings advanced 1.2 percent. Oil firms Inpex Corp and Japan Petroleum rallied 2-3 percent.

Australian shares rebounded from four days of declines, with material and energy stocks leading the gainers.

The benchmark S&P/ASX 200 Index climbed 67.40 points or 1.1 percent to 5,962.40 as Australia's central bank left its key interest rate unchanged at a record low, as widely expected, saying the low level of interest rates is continuing to support the Australian economy. The broader All Ordinaries Index ended up 65.10 points or 1.1 percent at 6,061.50.

Woodside Petroleum, Origin Energy, Santos and Beach Energy jumped 2-4 percent after crude oil prices rose more than 2 percent overnight amid reports that Libya is suffering supply interruptions.

Mining heavyweight BHP Billiton rallied 2.1 percent, Rio Tinto rose half a percent and smaller rival Fortescue Metals Group advanced 1.3 percent. Gold miners Evolution Mining and Newcrest Mining ended up more than 1 percent.

News Corp and Telstra rose over 2 percent as they signed definitive agreements to combine Foxtel and Fox Sports Australia into a single company by the end of June.

In economic news, current account data for the fourth quarter of 2017 and retail sales figures for January both missed expectations, while a gauge of Australia's consumer confidence improved for the second straight time during the week ended March 4, separate reports showed.


European stocks are trading higher on Tuesday as worries about an imminent trade war eased and British Prime Minister Theresa May said she was confident of reaching a good Brexit deal. Deal making activity has also helped boost investor sentiment.

While the French CAC 40 Index has climbed by 0.7 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both up by 0.8 percent.

Telecom Italia has jumped on a Bloomberg report that activist investor Elliott Management is considering nominating directors to its board and pushing for other changes at the company.

Smurfit Kappa shares have also moved sharply higher after the packaging company rejected an "unsolicited and highly opportunistic" takeover offer from International Paper Co.

Tullow Oil and Total SA have advanced after crude oil prices rose more than 2 percent overnight amid reports that Libya is suffering supply interruptions.

French technology firm Thales has also soared after saying it expects to exceed medium-term targets.

U.S. Economic Reports

At 10 am ET, the Commerce Department is scheduled to release its report on orders for manufactured goods in the month of January. Factory orders are expected to slump by 1.3 percent.

Federal Reserve Governor Lael Brainard is due to speak about the economic and monetary policy outlook at the "Money Marketeers Forum" in New York City at 7 pm ET.

At 8 pm ET, Dallas Fed President Robert Kaplan is scheduled to participate in a moderated Q&A at CERA Week in Houston.
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