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Tensions Between U.S./North Korea May Generate Continued Selling Pressure

The major U.S. index futures are pointing to a lower opening on Thursday, with stocks likely to extend the pullback seen over the two previous sessions. Geopolitical concerns may continue to weigh on Wall Street amid a continued escalation in tensions between the U.S. and North Korea.

A statement from the North Korean military called President Donald Trump's warning that the communist nation would face "fire and fury" if it continued its provocations a "load of nonsense."

North Korea claimed "only absolute force" can work on someone as "bereft of reason" as Trump and detailed plans to fire a salvo of missiles into waters around the U.S. Pacific territory of Guam.

The rhetoric between the U.S. and North Korea has continued to heat up, leading traders to look to safe havens such as gold and treasuries.

After ending Tuesday's trading modestly lower, stocks saw continued weakness during trading on Wednesday. Selling pressure was somewhat subdued, however, limiting the downside for the major averages.

The major averages climbed well off their worst levels of the day but still closed in the red. The Dow dipped 36.64 points or 0.2 percent to 22,048.70, the Nasdaq fell 18.13 points or 0.3 percent to 6,352.33 and the S&P 500 edged down 0.90 points or less than a tenth of a percent to 2,474.02.

The weakness on Wall Street reflected geopolitical concerns amid a continued increase in tensions between the U.S. and North Korea.

The lower close on Tuesday came on the heels of remarks by President Donald Trump warning North Korea against making further threats.

Trump told reporters further threats from North Korea would be "met with fire, fury and frankly power the likes of which this world has never seen before."

North Korea seemed unfazed by the president's bluster, however, as state media carried a statement indicating the communist nation is "carefully examining" a plan to strike the U.S. Pacific territory of Guam.

The back-and-forth came on the heels of reports the U.S. intelligence community has determined North Korea has successfully produced a miniaturized nuclear warhead that can fit inside its missiles.

A notable decline by Disney (DIS) weighed on the Dow, with the entertainment giant slumping by 3.9 percent on the day. The drop by Disney came after the company reported fiscal third quarter earnings that came in above estimates but on weaker than expected revenues.

On the U.S. economic front, the Labor Department released a report showing labor productivity increased by slightly more than expected in the second quarter.

The report said labor productivity climbed by 0.9 percent in the second quarter after inching up by a revised 0.1 percent in the first quarter. Economists had expected productivity to increase by 0.7 percent.

The Labor Department also said unit labor costs rose by 0.6 percent in the second quarter following an upwardly revised 5.4 percent spike in the first quarter.

Unit labor costs had been expected to climb by 1.2 percent compared to the 2.2 percent jump that had been reported for the previous quarter.

Extending a recent downtrend, oil service stocks moved significantly lower over the course of the session. The Philadelphia Oil Service Index fell by 1.2 percent to its lowest closing level in over eight years. The weakness among oil service stocks came despite an increase by the price of crude oil.

Considerable weakness was also visible among tobacco stocks, as reflected by the 1.2 percent drop by the NYSE Arca Tobacco Index. The index slid to its lowest closing level in almost eight months.

Steel and networking stocks also saw some weakness on the day, although selling pressure was somewhat subdued.

On the other hand, gold stocks showed a strong move to the upside on the day, driving the NYSE Arca Gold Bugs Index up by 1.7 percent. The rally by gold stocks came as the price of gold jumped due to its appeal as a safe haven.

Commodity, Currency Markets

Crude oil futures are climbing $0.58 to $50.14 a barrel after rising $0.39 to $49.56 a barrel on Wednesday. An ounce of gold is trading at $1,289.10, up $9.80 compared to the previous session's close of $1,279.30. On Wednesday, gold jumped $16.70.

On the currency front, the U.S. dollar is trading at 109.73 yen compared to the 110.07 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1734 compared to yesterday's $1.1759.

Asia

Asian shares reversed early gains to end broadly lower on Thursday as geopolitical tensions persisted, the yen stayed firm and oil struggled for direction after rising on Wednesday on EIA data showing a sharp decline in crude inventories.

Amid few positive triggers, investors looked ahead to U.S. producer and consumer inflation data due this week for additional clues on the interest rate outlook.

China's Shanghai Composite Index dropped 13.77 points or 0.4 percent to 3,261.80, as material stocks succumbed to profit taking after recent sharp gains. Hong Kong's Hang Seng Index tumbled 313.09 points or 1.1 percent to 27,444.00.

Japanese shares ended marginally lower as the yen remained stronger against the dollar and official data showed Japan's core machinery orders, an indicator of capital spending, unexpectedly fell for a third consecutive month in June, underscoring the fragile nature of the country's export-driven economic recovery.

The Nikkei 225 Index edged down 8.97 points or 0.1 percent to close at 19,729.74 ahead of a long holiday weekend. The broader Topix Index also closed marginally lower at 1,617.25.

Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Dai-ichi Life Holdings lost around 1 percent each after U.S. Treasury yields fell to a six-week low on Wednesday. Cosmetics maker Shiseido jumped 13.8 percent after upgrading its net profit forecast for 2017.

Australian shares erased early gains to end marginally lower, hit by geopolitical tensions, subdued inflation data and mixed earnings. The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index ended down about 0.1 percent each at 5,760.93 and 5,810.60, respectively.

The big four banks closed narrowly mixed, while Rio Tinto shares dropped 2.1 percent on going ex-dividend. Wealth manager AMP tumbled 2.6 percent as it reported a 15 percent drop in its first-half net profit. AGL Energy dropped 1.9 percent despite reporting turnaround results for the year to June 30th.

Gold miner Evolution Mining rose about 1 percent and Newcrest Mining rallied 3.8 percent as gold held steady near two-month highs on safe-haven demand. Virgin Australia Holdings soared 5.7 percent after the airline posted a smaller annual net loss.

Aristocrat Leisure shares jumped 2.2 percent. The gaming giant said it would buy Israeli social-gaming company Plarium for $500 million.

Australian inflation expectations declined in August, survey data from the Melbourne Institute showed. The expected inflation rate fell by 0.2 percentage points to 4.2 percent in August.

Europe

European stocks have fallen on Thursday as mounting tensions between the United States and North Korea sapped risk appetite and helped spur demand for safe-haven assets.

While the U.K.'s FTSE 100 Index has slumped by 1.2 percent, the German DAX Index is down by 0.9 percent and the French CAC 40 Index is down by 0.4 percent.

The euro dipped slightly against the dollar while the pound edged up after a government report showed U.K. industrial output grew more than expected in June, largely due to higher oil and gas output.

U.K. homebuilders have fallen sharply after a survey showed U.K. house prices in July rose at the slowest rate since early 2013 due to political uncertainty and the impact of tax changes. Mining and trading giant Glencore also declined in London after its first-half earnings trailed estimates.

Swiss staffing firm Adecco Group has plummeted as it posted muted growth in second-quarter net income. German re-insurer Hannover Re has fallen despite reporting an increase in first-half profits and affirming its full-year outlook.

Meanwhile, Belgian biotech firm Galapagos has surged higher after announcing positive top-line results with its autotaxin inhibitor GLPG1690 in patients with idiopathic pulmonary fibrosis in a mid-stage study.

Dutch insurer Aegon has also jumped after it agreed to sell its Irish business to Athene Holding for about 180 million euros.

Altice shares have climbed after Reuters reported that the telecom conglomerate and its U.S. cable unit are in the early stages of working on an offer to buy Charter Communications Inc.

Beverage bottler Coca Cola HBC has soared on posting solid first-half earnings. French wireless operator SFR has also jumped after Altice raised its stake in the company.

U.S. Economic Reports

Reflecting a drop in prices for services, the Labor Department released a report showing an unexpected decrease in U.S. producer prices in the month of July.

The Labor Department said its producer price index for final demand edged down by 0.1 percent in July after inching up by 0.1 percent in June. Economists had expected another 0.1 percent uptick.

Excluding food and energy prices, core producer prices still dipped by 0.1 percent in July after creeping up by 0.1 percent in June. Core prices had been expected to rise by 0.2 percent.

A separate report from the Labor Department showed an unexpected uptick in initial jobless claims in the week ended August 5th.

The report said initial jobless claims crept up to 244,000, an increase of 3,000 from the previous week's revised level of 241,000.

Economists had expected jobless claims to come in unchanged compared to the 240,000 originally reported for the previous week.

At 10 am ET, New York Federal Reserve President William Dudley is due to deliver openings remarks and answer questions with a panel of economists on wage inequality in the region in New York.

The Treasury Department is scheduled to release the results of its auction of $15 billion worth of thirty-year bonds at 1 am ET.

Stocks In Focus

Shares of Synacor (SYNC) are moving sharply lower in pre-market trading after the internet content provider reported better than expected second quarter results but provided disappointing guidance.

Meal kit company Blue Apron (APRN) may also come under pressure after reporting a wider than expected second quarter loss despite better than expected revenues.

Shares of 21st Century Fox (FOXA) could move to the downside after the media giant reported fiscal second quarter earnings that came in slightly above estimates but on revenues that came in below expectations.

On the other hand, shares of Perrigo (PRGO) are seeing significant pre-market strength after the maker of store-branded drugs reported better than expected second quarter results and provided upbeat guidance.

Fitness chain Planet Fitness (PLNT) also reported second quarter results that exceeded analyst estimates and raised its full-year outlook.

Shares of Macy's (M) and Kohl's (KSS) may also be in focus after the department store chains reported better than expected second quarter results.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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