Market Analysis

Beyond the Numbers

Washington In Focus On Wall Street As Shutdown Deadline Looms
1/19/2018 1:30 PM

The major U.S. index futures are pointing to a modestly higher opening on Friday, with stocks poised to regain ground following the moderate weakness seen in the previous session.

Upbeat earnings news may generate some positive sentiment, although lingering concerns about a government shutdown may keep buying interest subdued.

The House voted 230 to 197 in favor of a short-term government spending bill Thursday night, with the vote largely coming down along party lines.

The bill would fund the government through February 16th, reauthorize the popular Children's Health Insurance program for six years and delay some Obamacare taxes.

However, the future of the spending bill in the Senate is uncertain, with Democrats saying they have the votes to block the legislation.

Democrats have demanded that any government spending bill include a deal to provide protections for young illegal immigrants brought to the country as children.

In a post to Twitter earlier this morning, President Donald Trump accused Democrats of wanting illegal immigration and weak borders.

Traders are likely to keep a close eye on developments on Capitol Hill, as there is a midnight deadline to pass a spending bill and avoid a government shutdown.

Following the strong upward move seen on Wednesday, stocks gave back some ground during trading on Thursday. The major averages moved to the downside after ending the previous session at record closing highs.

While the major averages all closed in negative territory, the tech-heavy Nasdaq edged down just 2.23 points or less than a tenth of a percent to 7,296.05. The Dow fell 97.84 points or 0.4 percent to 26,017.81 and the S&P 500 dipped 4.53 points or 0.2 percent to 2,798.03.

The weakness on Wall Street was partly attributed to concerns about a potential government shutdown, with a deadline to pass a spending bill looming on Friday.

Profit taking may also have contributed to the pullback by stocks, with some traders cashing on the recent run to record highs.

Traders were also digesting the latest batch of economic news, including a report from the Commerce Department showing a steep drop in new residential construction in the month of December.

The report said housing starts tumbled by 8.2 percent to an annual rate of 1.192 million in December from the revised November estimate of 1.299 million.

Economists had expected housing starts to drop to a rate of 1.275 million from the 1.297 million originally reported for the previous month.

Building permits, an indicator of future housing demand, edged down by 0.1 percent to a rate of 1.302 million in December from a revised 1.303 million in November.

The Federal Reserve Bank of Philadelphia also released a report showing growth in activity in the Philadelphia-area manufacturing sector slowed by more than anticipated in the month of January.

The Philly Fed said its index for current manufacturing activity in the region slid to 22.2 in January from a revised 27.9 in December, although a positive reading still indicates growth.

Economists had expected the Philly Fed index to dip to 25.0 from the 26.2 originally reported for the previous month.

Meanwhile, a separate report from the Labor Department showed first-time claims for unemployment benefits pulled back to lowest level in nearly 45 years in the week ended January 13th.

The report said initial jobless claims fell to 220,000, a decrease of 41,000 from the previous week's unrevised level of 261,000. Economists had expected jobless claims to dip to 250,000.

With the bigger than expected decrease, jobless claims dropped to their lowest level since hitting 218,000 in February of 1973.

Gold stocks showed a significant move to the downside over the course of the session, resulting in a 1.8 percent drop by the NYSE Arca Gold Bugs Index. The index pulled back further off the three-month closing high set on Tuesday. The weakness among gold stocks came amid a decrease by the price of the precious metal.

Considerable weakness also emerged among energy stocks even though the price of crude oil showed only a modest decline.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index slumped by 1.8 percent and the NYSE Arca Natural Gas Index fell by 1.3 percent.

Commercial real estate, networking, and steel stocks also saw notable weakness on the day, while some strength was visible among trucking stocks.

Commodity, Currency Markets

Crude oil futures are falling $0.79 to $63.10 a barrel after edging down $0.03 to $63.89 a barrel on Thursday. Meanwhile, after sliding $12 to $1,327.20 an ounce in the previous session, gold futures are climbing $8.80 to $1,336 an ounce.

On the currency front, the U.S. dollar is trading at 110.56 yen compared to the 111.11 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2255 compared to yesterday’s $1.2238.


Most Asian stocks rose on Friday as stronger than expected Chinese GDP data and expectations for strong corporate earnings helped investors shrug off concerns about a potential U.S. government shutdown.

The U.S. House of Representatives passed a stopgap funding measure late Thursday, but prospects appear gloomy in the Senate, where Democrats say they have the votes to block the spending bill in a bid to negotiate on budget and immigration deals.

China's Shanghai Composite Index rose 14.35 points or 0.4 percent to 3,489.11 after fourth-quarter GDP growth figures beat expectations. Hong Kong's Hang Seng Index climbed 132.95 points or 0.4 percent to 32,254.89.

Japanese shares eked out modest gains despite a weak overnight lead from Wall Street. The Nikkei 225 Index inched up 44.69 points or 0.2 percent to 23,808.06, while the broader Topix Index closed 0.7 percent higher at 1,889.74.

Toyota, Honda, Canon, Panasonic and Sony rose between half a percent and 1.2 percent, shrugging off the yen's strength. Lender Sumitomo Mitsui Financial advanced 1.4 percent and Mitsubishi UFJ added 0.9 percent, while gaming giant Nintendo surged up as much as 4.2 percent.

Meanwhile, Australian shares fell modestly, dragged down by material stocks. The benchmark S&P/ASX 200 Index dipped 8.80 points or 0.2 percent to 6,005.80, and the broader All Ordinaries Index ended down 11.10 points or 0.2 percent at 6,119.30.

Gold miners Regis Resources, Northern Star, Newcrest and Saracen Mineral Holdings declined 1-3 percent as the precious metal headed for its first weekly loss in six weeks, pressured by higher U.S. Treasury yields.

Rio Tinto lost over 1 percent after reportedly halting shipments from a Mongolian mine. BHP Billiton and Fortescue Metals Group ended down about half a percent after iron ore prices dipped overnight.


European stocks have moved higher as optimism about economic growth and corporate earnings have helped investors shrug off concerns about a potential U.S. government shutdown.

While the German DAX Index has jumped by 1 percent, the French CAC 40 Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.1 percent.

German chemicals giant BASF has rallied after its preliminary sales for 2017 rose by 12 percent.

Software AG shares have also jumped after the tech firm said U.S. tax reforms will have a positive impact on the future business results of the group.

Meanwhile, crematorium operator Dignity has slumped and floor coverings retailer Carpetright has plummeted in London after warning on profits.

Retail stocks have also struggled after data showed U.K. retail sales fell by 1.5 percent in December compared to analysts' expectations for a 0.6 percent drop.

U.S. Economic Reports

At 10 am, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of January. The consumer sentiment index is expected to rise to 97.0 in January from 95.9 in December.

Federal Reserve Vice Chair for Supervision Randal Quarles is due to speak on bank regulation at the “American Bar Association - Banking Law Committee Annual Meeting” in Washington at 1 pm ET.

Stocks In Focus

Shares of Acorda Therapeutics (ACOR) are moving sharply higher in pre-market trading after a report from Bloomberg said the biotechnology company has received takeover interest from Biogen (BIIB).

Israeli chipmaker Mellanox Technologies (MLNX) may also move to the upside after reporting better than expected fourth quarter results and providing upbeat guidance.

On the other hand, shares of IBM Corp. (IBM) are seeing pre-market weakness after reporting fourth quarter earnings that beat estimates but warning a higher tax rate would impact its profits for 2018.

Financial services giant American Express (AXP) may also come under pressure after reporting better than expected fourth quarter results but suspending its buyback program for the first half of the year.
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