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Uncertainty About Trade Talks May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower opening on Monday, with stocks likely to give back ground following the rally seen last Friday.

Lingering concerns about the ongoing U.S.-China trade war may weigh on the markets ahead of the next round of high-level trade talks in Washington later this week.

Ahead of the talks, scheduled to begin on Thursday, a report from Bloomberg News said Chinese officials are signaling they're increasingly reluctant to agree to the broad trade deal being pursued by President Donald Trump.

Citing people familiar with the discussions, Bloomberg said senior Chinese officials have indicated the range of topics they're willing to discuss has narrowed considerably.

An offer from Chinese Vice Premier Liu He would purportedly not include reforming Chinese industrial policy or government subsidies.

The upcoming negotiations come as the trade war continues to hang over the economy, with a survey by the National Association for Business Economics showing 53 percent of economists see trade policy as the key downside risk to the economy.

The NABE said four out of five panelists believe that risks to the economic outlook are weighted to the downside, an increase from the 60 percent who held this view in June.

"The panel turned decidedly more pessimistic about the outlook over the summer, with 80% of participants viewing risks to the outlook as tilted to the downside," said Survey Chair Gregory Daco, chief U.S. economist at Oxford Economics.

He added, "The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside risks to U.S. economic activity."

Following the significant rebound seen over the course of the trading day last Thursday, stocks showed another substantial move to the upside during trading last Friday. With the rally, the major averages further offset the steep losses posted last Tuesday and Wednesday.

The major averages finished the session just off their best levels of the day. The Dow soared 372.68 points or 1.4 percent to 26,573.72, the Nasdaq surged up 110.21 points or 1.4 percent to 7,982.47 and the S&P 500 spiked 41.38 points or 1.4 percent to 2,952.01.

For the week, the major averages turned in a mixed performance. While the Nasdaq rose by 0.5 percent, the S&P 500 fell by 0.3 percent and the Dow slid by 0.9 percent.

The rally on Wall Street came following the release of a closely watched Labor Department report showing weaker than expected job growth but an unexpected drop in the unemployment rate to a nearly 50-year low.

The mixed data seemed to serve the dual purpose of reinforcing expectations the Federal Reserve will continue cutting interest rates while at the same offsetting concerns about a potential recession.

The report said non-farm payroll employment rose by 136,000 jobs in September compared to economist estimates for an increase of about 145,000 jobs.

Meanwhile, the increases in employment in July and August were upwardly revised to 166,000 jobs and 168,000 jobs, respectively, reflecting the addition of 45,000 more jobs than previously reported.

The average monthly job growth has still slowed from 223,000 jobs per month in 2018 to 161,000 jobs per month so far in 2019.

The Labor Department also said the unemployment rate fell to 3.5 percent in September from 3.7 percent in August. Economists had expected to unemployment rate to remain unchanged.

With the unexpected decrease, the unemployment rate dropped to its lowest level since hitting a matching rate in December of 1969.

The unexpected drop in the unemployment rate came as a 391,000-person jump in the household survey measure of employment more than offset an 117,000-person increase in the size of the labor force.

Even with the unemployment rate hitting a nearly 50-year low, the report said average hourly employee earnings edged down by a penny to $28.09 in September after rising by 11 cents in August.

Compared to the same month a year ago, average hourly earnings were up by 2.9 percent in September, reflecting a notable slowdown from the 3.2 percent increase in August.

Citing headwinds from weaker global growth, trade uncertainty and the strong U.S. dollar, ING Chief International Economist James Knightley expects job growth to average closer to 120,000 for the rest of the year.

"This suggests pay growth is unlikely to accelerate markedly from here and with inflation picking up, the real wage growth story may not be as positive for spending power," Knightley said. "All in all, it looks as though the Fed will need to step in with more policy easing to support the economy."

Stocks saw further upside in afternoon trading after Fed Chairman Jerome Powell described the U.S. economy as "in a good place," and said it is the central bank's job to "keep it there as long as possible."

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.1 percent. The rally by gold stocks came despite a modest decrease by the price of the precious metal.

Significant strength also emerged among semiconductor stocks, with the Philadelphia Semiconductor Index surging up by 1.9 percent.

Financial, housing, software, and healthcare stocks also saw considerable strength amid broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are climbing $0.76 to $53.57 a barrel after rising $0.36 to $52.81 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,504.40, down $8.50 from the previous session's close of $1,512.90. On Friday, gold edged down $0.90.

On the currency front, the U.S. dollar is trading at 106.88 yen compared to the 106.94 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.0992 compared to last Friday's $1.0979.

Asia

Asian stocks ended mixed in cautious trading on Monday as investors digested fairly decent monthly jobs data from the U.S. and looked forward to the next round of high-level U.S.-China trade negotiations slated to happen in Washington on October 10-11. Markets in China and Hong Kong were closed for public holidays.

Japanese shares started the week modestly lower as exporters fell on a stronger yen amid concerns over the outlook for U.S.-China trade talks.

The Nikkei 225 Index slipped 34.95 points, or 0.2 percent, to 21,375.25 on low volume, while the broader Topix closed little changed at 1,572.75. Honda Motor, Canon, Panasonic and Tokyo Electron all fell around 1 percent.

Meanwhile, the Australian markets finished notably higher with almost all sectors closing in the green. Trading volumes were thin amid a public holiday in New South Wales, Canberra, Queensland, and South Australia.

The benchmark S&P/ASX 200 Index climbed 46.50 points, or 0.7 percent, to 6,563.60, while the broader All Ordinaries Index ended up 49.80 points, or 0.8 percent, at 6,686.70.

Mining heavyweights ended mixed, while smaller rival Fortescue Metals Group rallied 3.4 percent. Gold miners Evolution Mining and Newcrest surged around 1.5 percent as gold prices ticked up ahead of this week's U.S.-China trade talks.

Energy stocks Woodside Petroleum and Santos gained around 1 percent after crude oil prices snapped an eight-session losing streak on Friday.

In economic news, a survey from the Australian Industry Group revealed that the construction sector in Australia continued to contract in September, and at a faster rate, with a seasonally adjusted Performance of Construction Index score of 42.6, down from 44.6 in August.

Seoul stocks ended little changed after reports Chinese officials are reluctant to agree to a broad trade deal pursued by U.S. President Donald Trump. Specifically, Premier Liu He is said to be ruling out commitments to reform Chinese government subsidies or industrial reform.

Market heavyweight Samsung Electronics dropped half a percent ahead of the release of its preliminary third quarter results on Tuesday. Shares of companies exposed to North Korea also slumped after nuclear talks between the U.S. and North Korea broke down in Stockholm on Saturday.

Europe

European stocks have moved modestly higher on Monday as investors nervously awaited U.S.-China talks this week for signs of whether there will be breakthrough on trade. The U.K.'s FTSE 100 Index, the French CAC 40 Index and the German DAX Index have all risen by 0.2 percent.

The high-level trade negotiations are slated to take place in Washington on October 10-11, with a Bloomberg report saying that Chinese officials are reluctant to agree to a broad trade deal pursued by U.S. President Donald Trump.

Investors are also keeping an eye on Brexit negotiations after French President Macron said the U.K. has until the end of the week for final negotiations to demonstrate it has a workable Brexit plan.

In economic news, official data showed that German industrial orders fell more than expected in August on weaker domestic demand, underscoring concerns of a looming recession in the country.

Factory orders decreased 0.6 percent sequentially, with demand for capital goods down 1.6 percent, the Economy Ministry said.

Meanwhile, Sentix' eurozone investor confidence index dropped to -16.8 in October from -11.1 in September. That missed expectation of -13.0.

Bayer has advanced after the German chemical and pharma major said a pending U.S. lawsuit over claims related to glyphosate-based herbicide Roundup has been delayed until further notice.

Vodafone Group shares have also risen. The telecommunications conglomerate has announced the launch of 'Open Radio Access Networks', which has been in development for several years.

On the other hand, Osram Licht shares have slumped after Austrian chipmaker AMS said that its takeover bid for the German lighting group had failed.

SIG shares have also plunged after the building materials firm forecast significantly lower full-year profits for its specialist distribution and roofing merchanting businesses.

U.S. Economic Reports

At 10:20 am ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a fireside chat about Minneapolis Fed work in Indian Country in Prior Lake, Minnesota.

Federal Reserve Chairman Jerome Powell is due to give brief remarks before a public screening of KUED film "Marriner Eccles: Father of the Modern Federal Reserve" in Salt Lake City, Utah, at 1 pm ET.

At 3 pm ET, the Fed is scheduled to release its report on consumer credit in the month of August. Consumer credit is expected to climb by $15.5 billion in August after jumping by $23.3 billion in July.

Stocks In Focus

Shares of General Electric (GE) are moving notably higher in pre-market trading after the conglomerate announced plans to reduce its pension deficit by approximately $5-8 billion and net debt by approximately $4-6 billion, including freezing pensions for about 20,000 employees.

Uber Technologies (UBER) are also likely to move to the upside after Citi upgraded its rating on the ride-sharing company to Buy from Neutral.

On the other hand, shares of Carnival Corp. (CCL) may see initial weakness after HSBC downgraded its rating on the cruise line operator to Hold from Buy.

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