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Beyond the Numbers

Upbeat Earnings News May Extend Rally On Wall Street
4/18/2018 8:41 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with stocks likely to extend the strong upward move seen over the two previous sessions.

The markets are likely to benefit from another batch of upbeat earnings news, with financial giant Morgan Stanley (MS) moving sharply higher in pre-market trading after reporting record first quarter results.

Transportation stocks United Continental (UAL) and CSX Corp. (CSX) are also likely to see early strength after reporting better than expected earnings.

Early trading activity may be somewhat subdued, however, as traders look ahead to the release of the Federal Reserve’s Beige Book this afternoon.

Stocks moved significantly higher over the course of the trading day on Tuesday, adding to the gains posted on Monday. With the continued upward move on the day, the Dow reached its best closing level in a month.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Dow climbed 213.59 points or 0.9 percent to 24,786.63, the Nasdaq surged up 124.81 points or 1.7 percent to 7,281.10 and the S&P 500 jumped 28.55 points or 1.1 percent to 2,706.39.

A batch of positive earnings news contributed to the strength on Wall Street, with big name companies such as Johnson & Johnson (JNJ) and Goldman Sachs (GS) reporting better than expected quarterly results.

Shares of Netflix (NFLX) moved sharply higher after the video streaming service reported strong subscriber growth in the first quarter and provided upbeat guidance for the current quarter.

Health insurer UnitedHealth (UNH) also saw considerable strength after reporting first quarter results that exceeded analyst estimates and raising its full-year earnings guidance.

Traders also reacted positively to a report from the Commerce Department showing a rebound in housing starts in the month of March.

The report said housing starts jumped by 1.9 percent to an annual rate of 1.319 million in March after tumbling by 3.3 percent to a revised 1.295 million in February.

Economists had expected housing starts to increase by 2.1 percent to a rate of 1.262 million from the 1.236 million originally reported for the previous month.

The Commerce Department said building permits also surged up by 2.5 percent to an annual rate of 1.354 million in March after slumping by 4.1 percent to a revised 1.321 million in February.

Building permits, an indicator of future housing demand, had been expected to climb by 1.9 percent to a rate of 1.323 million from the 1.298 million originally reported for the previous month.

A separate report from the Federal Reserve showed industrial production rose by slightly more than expected in the month of March amid a substantial rebound in utilities output.

The Fed said industrial production climbed by 0.5 percent in March after surging up by a revised 1.0 percent in February. Economists had expected production to increase by 0.4 percent.

Retail stocks turned in some of the market's best performances on the day, driving the Dow Jones Retail Index up by 2.5 percent.

Within the retail sector, Dollar General (DG) posted a notable gain after JPMorgan upgraded its rating on the discount retailer's stock to Overweight from Neutral.

Significant strength was also visible among computer hardware stocks as reflected by the 1.9 percent gain posted by the NYSE Arca Computer Hardware Index. The index reached its best closing level in almost a month.

Semiconductor, steel, biotechnology and housing stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are spiking $1.21 to $67.73 a barrel after rising $0.30 to $66.52 a barrel on Tuesday. Meanwhile, after slipping $1.20 to $1,349.50 an ounce in the previous session, gold futures are climbing $7 to $1,356.50 an ounce.

On the currency front, the U.S. dollar is trading at 107.22 yen compared to the 107.00 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2389 compared to yesterday’s $1.2370.

Asia

Asian stocks ended Wednesday’s session on an upbeat note as American firms posted strong quarterly earnings and tensions eased on the Korean Peninsula.

President Donald Trump said the U.S. is engaged in direct talks at “extremely high levels” with North Korea to try to set up a summit in the next two months.

China's Shanghai Composite Index advanced 24.51 points or 0.8 percent at 3,091.31 after the People's Bank of China lowered the reserve requirement ratio for most commercial banks in a bid to free up funds for lending and improve liquidity. Hong Kong's Hang Seng Index climbed 221.50 points or 0.7 percent to 30,284.25.

In another development, China said it would allow full foreign ownership of automakers in five years, ending restrictions that helped to fuel its dispute with Washington.

Japanese shares rallied as the yen weakened on hopes for improved relations between the U.S. and North Korea. Investors also digested trade data and kept an eye on the U.S.-Japan summit talks.

The Nikkei 225 Index jumped 310.61 points or 1.4 percent to 22,158.20, while the broader Topix index closed up 1.1 percent at 1 749.67. Toyota Motor rose 0.7 percent, Sony rallied 1.6 percent and Panasonic added 1.5 percent on a weaker yen.

Japan posted a merchandise trade surplus of 797.3 billion yen in March, the Ministry of Finance said, up 32.1 percent year-over-year. The surplus exceeded expectations for 499.2 billion yen and was up sharply from 3.4 billion yen in February.

Australian shares eked out modest gains, led by miners as Chinese steel prices climbed following the central bank’s move to cut reserve requirements for banks.

The benchmark S&P/ASX 200 Index rose 19.90 points or 0.3 percent to 5,861.40, while the broader All Ordinaries Index closed up 22 points or 0.4 percent at 5,956.30.

Rio Tinto rose 1.1 percent after reporting an increase in first-quarter iron ore shipments, and rival BHP Billiton gained half a percent ahead of its quarterly production report due out Thursday. South32 rallied 2.5 percent and BlueScope Steel shares jumped 4.1 percent.

Woodside Petroleum gained 1.1 percent after its first-quarter revenue rose 30 percent from a year earlier. Santos, Oil Search, Origin Energy and Beach Energy climbed 1-2 percent.

Meanwhile, AMP lost 2.2 percent to extend losses from the previous session after the wealth manager admitted in the banking royal commission that it lied or misled the corporate regulator twenty times about its business practices.

Seoul stocks closed higher after Trump said his administration has been in direct contact with North Korea and South Korea said it is seeking a peace deal with the country, helping ease political tensions.

The benchmark Kospi surged up 26.21 points or 1.1 percent to 2,479.98, led by technology stocks. Market heavyweight Samsung Electronics jumped 2.8 percent and chipmaker SK Hynix advanced 2.2 percent.

Europe

European stocks have turned mixed on Wednesday after figures released by Eurostat showed the region's consumer price inflation rose more slowly than first estimated in the 12 months through March.

Consumer prices in the Eurozone rose 1.3 percent in March from a year earlier, a tad lower than then initial estimate of 1.4 percent.

Additionally, U.K. inflation hit a one-year low of 2.5 percent in March compared to 2.7 percent in February, according to the latest figures from the Office for National Statistics.

While the German DAX Index has edged down by 0.1 percent, the French CAC 40 Index is up by 0.3 percent and the U.K.’s FTSE 100 Index is up by 0.9 percent.

Dutch semiconductor equipment maker ASML Holding has moved lower, erasing initial gains. The company confirmed its 2018 outlook after reporting an increase in first quarter net income to 539.7 million euros from last year's 452.1 million euros.

Brewer Heineken N.V. has tumbled after its first quarter profit declined to 260 million euros from 293 million euros in the previous year on a reported basis.

Auto stocks are also broadly lower after industry data showed European passenger car sales decreased 5.3 percent year-on-year to 1.79 million units in March.

CYBG shares have plunged after the owner of Clydesdale Bank said it expects to set aside another 350 million pounds toward costs related to payment protection insurance.

Meanwhile, Danone shares have rallied after the French food group confirmed its 2018 guidance after reporting a 5 percent increase in first quarter like-for-like sales.

Property development and investment company Hammerson has also jumped on news the company's board has withdrawn its backing for the takeover of smaller U.K. mall owner Intu.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended April 13th at 10:30 am ET.

Crude oil inventories are expected to decrease by 1.9 million barrels after climbing by 3.3 million barrels in the previous week.

At 2 pm ET, the Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts that may shed some additional light on the outlook for interest rates.

New York Fed President William Dudley is scheduled to speak about the U.S. economic outlook and the implications for monetary policy at an event at Lehman College in New York at 3:15 pm ET.

At 4:15 pm ET, Fed Vice Chairman for Supervision Randal Quarles is due to speak on “Navigating New Opportunities: Transatlantic Regulatory Reform” at the Bretton Woods Committee 2018 Annual Meeting in Washington.

Stocks In Focus

Shares of eBay (EBAY) are moving sharply higher in pre-market trading after Morgan Stanley upgraded its rating on the e-commerce giant’s stock to Overweight from Underweight.

Medical device maker Intuitive Surgical (ISRG) is also likely to see early strength after reporting first quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of CSX Corp. (CSX) are also seeing significant pre-market strength after the rail operator reported better than expected first quarter results.

On the other hand, shares of IBM Corp. (IBM) may come under pressure after the tech giant reported first quarter results that exceeded analyst estimates but provided disappointing full-year earnings guidance.

Healthcare Services Group (HCSG) could also move to the downside after the company reported weaker than expected first quarter results.

Shares of Lam Research (LRCX) are also seeing pre-market weakness even though the semiconductor equipment maker reported fiscal third quarter earnings that beat estimates and provided upbeat guidance.
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