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Beyond the Numbers

Traders May Stick To The Sidelines After Last Week’s Sell-Off
12/10/2018 8:55 AM

The major U.S. index futures are pointing to a roughly flat open on Monday following the sell-off seen on Wall Street last week.

Traders may look to pick up stocks at reduced levels, although concerns about the global economic outlook and skepticism about the potential for a long-term trade deal between the U.S. and China is likely to sap investors risk appetite.

Overall trading activity may be somewhat subdued, with a lack of major U.S. economic data likely to keep some traders on the sidelines.

The economic calendar remains relatively light throughout the week, although reports on producer and consumer price inflation, retail sales, and industrial production are likely to attract attention.

Traders may nonetheless remain reluctant to make significant moves ahead of the Federal Reserve’s monetary policy meeting next week.

With the Fed widely expected to raise interest rates by another quarter point, traders will closely scrutinize the accompanying statement for clues about future rate hikes.

Traders may look to pick up stocks at reduced levels on the heels of last week’s sell-off, which came amid skepticism about the potential for a long-term trade deal between the U.S. and China.

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

The economic calendar remains relatively light throughout the week, although reports on producer and consumer price inflation, retail sales, and industrial production are likely to attract attention.

Traders may nonetheless be reluctant to make significant moves ahead of the Federal Reserve’s monetary policy meeting next week.

With the Fed widely expected to raise interest rates by another quarter point, traders will closely scrutinize the accompanying statement for clues about future rate hikes.

After fluctuating early in the session, stocks moved sharply lower over the course of the trading day on Friday. The major averages showed a substantial move back to the downside following the rebound from early weakness seen on Thursday.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow tumbled 558.72 points or 2.2 percent to 24,388.95, the Nasdaq plunged 219.01 points or 3.1 percent to 6,969.25 and the S&P 500 slumped 62.87 points or 2.3 percent to 2,633.08.

With the steep drop on the day, the major averages moved significantly lower for the week. The Nasdaq nosedived by 4.9 percent, while the Dow and the S&P 500 plummeted by 4.5 percent and 4.6 percent, respectively.

The sell-off on Wall Street came after the Labor Department's closely watched monthly jobs report showed U.S. employment increased by much less than expected in the month of November.

The Labor Department said non-farm payroll employment rose by 155,000 jobs in November after surging up by a downwardly revised 237,000 jobs in October.

Economists had expected employment to climb by about 200,000 jobs compared to the jump of 250,000 jobs originally reported for the previous month.

Meanwhile, the report said the unemployment rate in November remained unchanged for the second straight month at 3.7 percent, holding at its lowest level since hitting 3.5 percent in December of 1969.

Average hourly employee earnings rose by $0.06 to $27.35 in November, reflecting a 3.1 percent increase compared to the same month a year ago. The annual rate of growth was unchanged from October.

"The slightly more modest 155,000 gain in payroll employment in November may not go down well in markets given the heightened nervousness in recent months," said Paul Ashworth, Chief U.S. Economist at Capital Economics.

"But this is still a solid gain that suggests economic growth is gradually slowing back towards its potential pace," he added. "There is nothing here to suggest the economy is suffering a more sudden downturn."

Lingering skepticism about a U.S.-China trade agreement also weighed on the markets even though President Donald Trump tweeted, "China talks are going very well!"

Most of the major sectors showed notable moves to the downside over the course of the session, reflecting a broad based sell-off on Wall Street.

Computer hardware stocks showed a particularly steep drop on the day, dragging the NYSE Arca Computer Hardware Index down by 4.1 percent to a nearly two-year closing low.

Tech giant IBM Corp. (IBM) posted a significant loss after agreeing to sell some of its software products to India-based HCL Technologies for $1.8 billion.

Substantial weakness was also visible among transportation stocks, as reflected by the 3.9 percent nosedive by the Dow Jones Transpiration Average. The average tumbled to its lowest closing level in well over a month.

Semiconductor, software, biotechnology, and retail stocks also saw considerable weakness, while gold stocks were among the few groups to buck the downtrend amid an increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are sliding $0.98 to $51.63 a barrel after surging up $1.12 to $52.61 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,250, down $2.60 from the previous session’s close of $1,252.60. On Friday, gold climbed $9

On the currency front, the U.S. dollar is trading at 112.88 yen compared to the 112.69 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1409 compared to last Friday’s $1.1379.

Asia

Asian stocks tumbled on Monday as weaker than expected U.S. jobs data for November as well as disappointing data from China and Japan raised fresh concerns over global growth.

Brexit-related uncertainty and rising tensions between the U.S. and China over the detention of tech company Huawei's CFO Meng Wanzhou also dented investor sentiment.

Chinese shares fell as data on trade pointed to slower global demand. The benchmark Shanghai Composite Index dropped 21.31 points or 0.8 percent to 2,584.58, while Hong Kong's Hang Seng Index ended down 311.38 points or 1.2 percent at 25,752.38.

China's exports rose 5.4 percent in November from a year earlier, customs data showed on Saturday, marking the weakest performance since a 3 percent contraction in March. Import growth stood at 3 percent, the slowest since October 2016.

Separately, Chinese consumer inflation and producer price inflation eased in November, giving policymakers more room to loosen fiscal and monetary policies.

Japanese shares hit a six-week low on worries over fresh U.S.-China trade tensions after White House trade adviser Peter Navarro said the Trump administration would raise tariff rates on China if the two countries fail to resolve their issues during the 90-day truce period.

Data showing that the Japanese economy contracted the most in over four years in the third quarter also added to investor worries over slowing global growth. GDP shrank at an annualized rate of 2.5 percent in July-September, worse than an initial estimate of a 1.2 percent contraction, revised data showed.

The Nikkei 225 Index tumbled 459.18 points or 2.1 percent to close at 21,219.50, the lowest level since October 29th. The broader Topix index closed 1.9 percent lower at 1,589.81.

Machinery firms fell on concerns over Chinese demand. Fanuc dropped 1.9 percent, Hitachi Construction Machinery declined 4.1 percent and Komatsu slumped 5.2 percent.

Nissan Motor lost 2.9 percent after Tokyo prosecutors indicted the automaker along with its ousted Chairman Carlos Ghosn. Market heavyweight Fast Retailing shed 2.4 percent.

Japan Display plummeted 10.6 percent on a Nikkei report that it is cutting production of liquid crystal display panels for the iPhone XR.

Pioneer Corp plummeted 27.3 percent on news that private equity firm Baring Private Equity will buy the cash-strapped electronics firm for $900 million.

Australian markets hit two-year lows amid renewed worries about slowing global growth and U.S.-China trade tensions.

The benchmark S&P/ASX 200 Index plunged 129.00 points or 2.3 percent to 5,552.50, while the broader All Ordinaries Index slumped 130.40 points or 2.3 percent to 5,627.50.

The big four banks lost 3-4 percent, while mining heavyweights BHP and Rio Tinto ended mixed. Engineering service provider WorleyParsons plummeted 4.7 percent.

Meanwhile, Oil Search gained 0.6 percent and Santos advanced 1.4 percent as oil extended gains from Friday.

Gold miner Evolution rallied 2.5 percent and Newcrest Mining advanced 1.6 percent after gold prices rose to a nearly five-month high on Friday.

Europe

European stocks have moved mostly lower on Monday as a slew of factors such as weak data from China and Japan, Italy's budget dispute with the European Union and heightened trade worries has sapped investors' appetite for risk.

French President Emmanuel Macron is set to hold talks with trade unions and employers' organizations today in a bid to defuse weeks of unrest in Paris and other cities over rising gas prices and taxes.

Elsewhere, the European Court of Justice ruled the British government could reverse its decision to leave the bloc without the permission of the other EU members.

A vote on Brexit is scheduled in Parliament for Tuesday. After the vote, U.K. Prime Minister Theresa May goes to Brussels on Thursday for a summit of national leaders.

The pan-European Stoxx Europe 600 Index has fallen by 0.6 percent after rising 0.6 percent on Friday. The German DAX Index and the French CAC 40 Index are also down by 0.4 percent and 0.4 percent, respectively, although the U.K.’s FTSE 100 Index is bucking the downtrend.

Automakers BMW, Daimler, Renault and Peugeot have shown notable moves to the downside on worries over potential U.S. tariffs. Tech stocks are also under selling pressure.

Outsourcing company Interserve has also plunged after the company confirmed it is in talks with its lenders on a debt reduction plan.

In economic news, German exports increased a calendar and seasonally adjusted 0.7 percent in October after falling 0.4 percent in September, official data showed. Economists had forecast a 0.4 percent increase.

Imports rose 1.3 percent monthly after stagnation in the previous month. Economists were looking for a 0.5 percent gain.

Research house Sentix said its investor sentiment index for the euro zone slumped to a four-year low of -0.3 in December from 8.8 in November.

France's economy is set to expand at a slower rate in the fourth quarter than estimated earlier, survey data from Bank of France showed. The bank downwardly revised its growth forecast for the fourth quarter by 0.2 percentage points to 0.2 percent.

U.K GDP growth slowed to 0.4 percent in the three months to October from 0.6 percent in the third quarter of 2018, official data showed.

U.S. Economic Reports

At 10 am ET, the Labor Department is scheduled to release its report on job openings and labor turnover in the month of October.

Stocks In Focus

Shares of Nutrisystem (NTRI) after moving sharply higher in pre-market trading after the weight loss company agreed to be acquired by Tivity Health (TVTY) for $1.3 billion in cash and stock.

Social media giant Facebook (FB) may also move to the upside after the company said its board has approved a $9 billion in increase in its share repurchase program.

Shares of Gilead Sciences (GILD) may also see initial strength after the biopharmaceutical company named Roche executive Daniel O’Day as Chairman and Chief Executive Officer.

On the other hand, shares of FedEx (FDX) may open lower after Bank of America Merrill Lynch downgraded its rating on the delivery giant’s stock to Neutral from Buy.

Auto parts maker Visteon (VC) may also come under pressure after Goldman Sachs lowered its rating on the company’s stock to Sell from Neutral.
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