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Beyond the Numbers

Near-Term Uncertainty May Lead To Choppy Trading On Wall Street
2/16/2018 8:58 AM

The major U.S. index futures are pointing to a roughly flat opening on Friday following the strong upward move seen over the five previous sessions.

Traders may be reluctant to make significant moves amid uncertainty about the near-term outlook for the markets after the volatility seen in recent weeks.

The futures gave back some ground amid further indications of rising inflation, with a report from the Labor Department showing import prices jumped by more than expected in the month of January.

After seeing some early volatility, stocks moved significantly higher over the course of the trading session on Thursday. With the upward move on the day, the major averages extended their recent winning streak to five sessions.

The major averages ended the day just off their highs of the session. The Dow surged up 306.88 points or 1.2 percent to 25,200.37, the Nasdaq spiked 112.81 points or 1.6 percent to 7,256.43 and the S&P 500 jumped 32.57 points or 1.2 percent to 2,731.20.

The continued strength on Wall Street came as traders largely shrugged off further indications of rising inflation even though the data could lead to faster interest rate hikes by the Federal Reserve.

Before the start of trading, the Labor Department released a report showing producer prices rose in line with economist estimates in January.

The Labor Department said its producer price index for final demand climbed by 0.4 percent in January after coming in unchanged in December.

Excluding food and energy prices, core producer prices also increased by 0.4 percent in January. Core prices had been expected to edge up by 0.2 percent.

Compared to the same month a year ago, producer prices were up by 2.7 percent in January, reflecting an acceleration from 2.6 percent in December. Core producer prices were up 2.2 percent year-over-year.

Traders were also digesting a slew of other U.S. economic data, with a separate Labor Department report showing initial jobless claims increased in line with expectations in the week ended February 10th.

The report said initial jobless claims climbed to 230,000, an increase of 7,000 from the previous week's revised level of 223,000.

The National Association of Home Builders also released a report showing homebuilder confidence remained at a healthy level in the month of February.

The report said the NAHB/Wells Fargo Housing Market Index came in at 72 in February, unchanged from January and in line with economist estimates.

Meanwhile, a report from the Federal Reserve unexpectedly showed a modest decrease in industrial production in January.

The Fed said industrial production dipped by 0.1 percent after climbing by a downwardly revised 0.4 percent in December. Economists had expected production to rise by 0.2 percent.

Telecom stocks saw substantial strength on the day, resulting in a 2.8 percent jump by the NYSE Arca North American Telecom Index. The index closed higher for the fifth consecutive session.

CenturyLink (CTL) posted a standout gain after the communications company reported weaker than expected fourth quarter results but expressed confidence in the outlook for 2018.

Considerable strength was also visible among utilities stocks, as reflected by the 2 percent advanced by the Dow Jones Utilities Average.

Pharmaceutical, natural gas, retail and semiconductor stocks also saw significant strength, while oil service stocks moved to the downside despite an increase by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are inching up $0.04 to $61.38 a barrel after climbing $0.74 to $61.34 a barrel on Thursday. Meanwhile, after falling $2.70 to $1,355.30 an ounce in the previous session, gold futures are rising $2.90 to $1,358.20 an ounce.

On the currency front, the U.S. dollar is trading at 106.28 yen compared to the 106.13 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2457 compared to yesterday’s $1.2506.

Asia

Asian stocks rose on Friday after U.S. shares extended their winning streak to five sessions overnight, shrugging off concerns over inflation and higher interest rates.

Trading volumes remained light across Asia as markets in China, Hong Kong, Indonesia, Malaysia, Singapore and Taiwan remained closed for the Lunar New Year holiday. Chinese markets remain closed until February 21st.

Japanese shares saw a relief rally after the government nominated Haruhiko Kuroda to serve a second five-year term as the head of the Bank of Japan, a signal that easy monetary policy will continue.

The Nikkei 225 Index jumped 255.27 points or 1.2 percent to 21,720.25, taking the weekly gain to 1.6 percent. The broader Topix index closed 1.1 percent higher at 1,737.37, led by food and utility stocks.

Ajinomoto climbed 2 percent and Tokyo Electric Power advanced 4.4 percent. Exporters Toyota, Honda Motor, Sony and Panasonic rose 1-2 percent despite a stronger yen.

Inpex gained 0.8 percent and Japan Petroleum Exploration added 0.7 percent after crude oil prices rose more than 1 percent overnight.

New Zealand's benchmark NZX-50 Index climbed 61.98 points or 0.8 percent to 8,125.31 after the latest survey from Business NZ showed the country's manufacturing sector expanded at an accelerated rate in January.

Auckland International Airport rallied 2.8 percent after its first-half profit rose 17 percent from last year. Tourism Holdings soared 6.5 percent to a record high after forming a joint venture with Thor Industries to buy a U.S.-based travel planning platform.

Meanwhile, Australian shares closed marginally lower but ended the week with notable gains. The benchmark S&P/ASX 200 Index dipped 5 points or 0.1 percent to 5,904 but the ended the week higher by more than 1 percent. The broader All Ordinaries Index edged down 3.90 points to 6,004.80.

Miner South32 tumbled 5.1 percent amid brokerage downgrades due to a softening outlook. Gold miner Newcrest lost 3.2 percent, a day after it reported a 58 percent slide in first-half underlying profit.

Whitehaven Coal slumped 4.5 percent after the coal miner reaffirmed its lower full-year production guidance.

On the other hand, healthcare stocks were in demand, with CSL rising 1.3 percent, Medibank Private climbing 3.6 percent and Primary Health Care rallying 3.4 percent.

Europe

European stocks are extending a recovery on Friday as investors have shrugged off the possibility of more interest rate hikes from the Federal Reserve and turned their focus to encouraging earnings news.

While the French CAC 40 Index has advanced by 0.9 percent, the U.K.’s FTSE 100 Index is up by 0.7 percent and the German DAX Index is up by 0.5 percent.

French automaker Renault has rallied after it posted record sales and earnings for 2017. Utility EDF has also soared after its net income for fiscal year 2017 increased 11.3 percent, reflecting the positive effect of the capital gain recorded for the sale of 49.9 percent of CTE.

German insurer Allianz has edged higher. The company raised its dividend for 2017 despite reporting a 22 percent decline in fourth quarter net profit, hit by a weak U.S. dollar and one-off costs.

Infrastructure construction firm Balfour Beatty has also advanced after its joint venture was awarded a $1.95 billion design, build, finance, operate and maintain contract for the 'Automated People Mover' at Los Angeles International Airport.

Industrial profit company Segro has jumped after reporting an increase in full year profits and raising its final dividend.

Meanwhile, Air France-KLM has plunged as it posted net loss of 977 million euros for the fourth quarter, hit by a non-current expense linked to the de-recognition of pension assets in the group's balance sheet.

U.S. Economic Reports

Import prices in the U.S. jumped by more than expected in the month of January, according to a report released by the Labor Department, while export price growth also exceeded estimates.

The Labor Department said import prices surged up by 1.0 percent in January after edging up by a revised 0.2 percent in December.

Economists had expected import prices to climb by 0.6 percent compared to the 0.1 percent uptick originally reported for the previous month.

The report also said export prices increased by 0.8 percent in January after inching up by a revised 0.1 percent in December.

Export prices had been expected to rise by 0.3 percent compared to the 0.1 percent drop originally reported for the previous month.

A separate report from the Commerce Department showed a much bigger than expected rebound in new residential construction in January.

The Commerce Department said housing starts soared by 9.7 percent to an annual rate of 1.326 million in January after tumbling by 6.9 percent to a revised 1.209 million in December.

Economists had expected housing starts to climb by 3.5 percent to an annual rate of 1.234 million from the 1.192 million originally reported for the previous month.

Building permits, an indicator of future housing demand, also surged up by 7.4 percent to an annual rate of 1.396 million in January from the revised December rate of 1.300 million.

At 10 am ET, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of February. The consumer sentiment index is expected to dip to 95.5 in February after edging down to 95.7 in January.

Stocks In Focus

Shares of Coca-Cola (KO) are moving notably higher in pre-market trading after the beverage giant reported fourth quarter results that beat analyst estimates on both the top and bottom lines.

Heavy equipment maker Deere (DE) may also see early strength after reporting better than expected fiscal first quarter results and raising its full-year guidance.

On the other hand, shares of Campbell Soup (CPB) may come under pressure after CEO Denise Morrison called the soup maker’s second quarter results “disappointing.”

Food giant Kraft Heinz (KHC) may also see initial weakness after reporting fourth quarter results that came in below expectations.
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