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Choppy Trading May Persists Amid Uncertainty About Trade Deal

The major U.S. index futures are pointing to a roughly flat open on Wednesday, with stocks likely to extend the lackluster performance seen in the previous session.

Uncertainty about the impact of the U.S.-China phase one trade deal may keep traders on the sidelines as they await the official signing of the deal set for later in the day.

The news of the phase one deal contributed to recent upward momentum on Wall Street, helping propel the markets to new record highs.

However, traders now seem less enthusiastic following news that tariffs on billions of dollars worth of Chinese goods will remain in place until a phase two deal is completed.

Under the phase one deal, the U.S. will scrap a new round of tariffs and cut the tariffs on $120 billion worth of Chinese goods in half to 7.5 percent, but a 25 percent tariff on $250 billion worth of Chinese imports will remain in place.

The remaining tariffs could continue to hamper economic growth for the foreseeable future, with a phase two deal seen as potentially more difficult to complete.

Stocks showed a lack of direction throughout the trading session on Tuesday, with the major averages spending the day bouncing back and forth across the unchanged line before eventually closing mixed.

The Dow reached a record intraday high but pulled back off its best levels to end the day up just 32.62 points or 0.1 percent at 28,939.67.

Meanwhile, the Nasdaq and the S&P 500 pulled back off Monday's record closing highs. The Nasdaq slipped 22.60 points or 0.2 percent to 9,251.33 and the S&P 500 edged down 4.98 points or 0.2 percent to 3,283.15.

The choppy trading on Wall Street came as traders seemed reluctant to make significant moves as they digested quarterly results from several big-name financial companies.

Shares of JPMorgan Chase (JPM) saw notable strength on the day after the financial giant reported better than expected fourth quarter results.

Citigroup (C) also showed a strong move to the upside after reporting fourth quarter results that beat analyst estimates on both the top and bottom lines.

On the other hand, shares of Wells Fargo (WFC) moved sharply lower after the banking giant reported fourth quarter results that missed expectations.

Stocks saw some volatility in afternoon trading after a report from Bloomberg said tariffs on billions of dollars of Chinese goods are likely to remain in place until after the U.S. elections in November.

Citing people familiar with the matter, Bloomberg said any move to reduce the tariffs would hinge on China's compliance with the terms of a phase one trade deal.

In U.S. economic news, the Labor Department released a report showing consumer prices in the U.S. increased by slightly less than anticipated in the month of December.

The Labor Department said its consumer price index rose by 0.2 percent in December after climbing by 0.3 percent in November. Economists had been expecting another 0.3 percent increase.

Excluding food and energy prices, core consumer prices inched up by 0.1 percent in December after rising by 0.2 percent in November. Core prices had been expected to rise by another 0.2 percent.

Later this week, traders are likely to keep a close eye on reports on retail sales, housing starts, and industrial production.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

However, biotechnology stocks showed a significant rebound after bucking the uptrend seen in the previous session, with the NYSE Arca Biotechnology Index spiking by 2.7 percent after tumbling by 2 percent on Monday.

Gold, natural gas and transportation stocks also saw notable strength on the day, while some weakness was visible among software and tobacco stocks.

Commodity, Currency Markets

Crude oil futures are edging down $0.07 to $58.16 a barrel after inching up $0.15 to $58.23 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,552.50, up $7.90 compared to the previous session's close of $1,544.60. On Tuesday, gold fell $6.

On the currency front, the U.S. dollar is trading at 109.83 yen compared to the 109.99 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1148 compared to yesterday's $1.1128.

Asia

Asian stocks moved mostly lower on Wednesday as investors awaited the signing of a phase one trade deal between the U.S. and China.

Traders became less enthusiastic as they digested news that tariffs on billions of dollars worth of Chinese goods will remain in place until a phase two deal is completed.

Chinese shares fell amid concerns the remaining tariffs will continue to hamper growth, as a phase two deal could take even longer to complete.

The benchmark Shanghai Composite Index gave up 16.78 points, or 0.5 percent, to end at 3,090.04, while Hong Kong's Hang Seng Index slid 111.55 points, or 0.4 percent, to 28,773.59.

Japanese shares slipped into the red and the yen strengthened amid uncertainty about the timing of further tariff reductions.

The Nikkei 225 Index dropped 108.59 points, or 0.5 percent, to 23,916.58, snapping a three-day winning streak and retreating from a four-week high hit the previous day. The broader Topix closed 0.5 percent lower at 1,731.06.

Entertainment Toho slumped 5.7 percent after its quarterly earnings came in short of expectations. Ryohin Keikaku lost 3 percent to extend losses after the Muji operator cut its profit forecast. Square Enix Holdings declined 4.4 percent after announcing a delay in the launch of a new game.

Meanwhile, Australian markets reached fresh record highs ahead of the signing of the preliminary U.S.-China trade deal. The benchmark S&P/ASX 200 Index rose 32.60 points, or 0.5 percent, to 6,994.80, while the broader All Ordinaries Index ended up 35.50 points, or 0.5 percent, at 7,113.50.

Mining heavyweights BHP and Rio Tinto ended on a mixed note. Resolute Mining gained 0.9 percent after it signed definitive agreements for the sale of the Ravenswood Gold Mine in Queensland to a consortium. Evolution Mining soared 5.8 percent, Newcrest rallied 3.1 percent and St Barbara jumped 8.1 percent.

Energy stocks such as Santos, Origin Energy and Oil Search climbed around 1 percent, while Beach Energy advanced 2.6 percent.

Seoul stocks ended lower to snap a four-session winning streak as optimism surrounding the U.S.-China phase one trade deal waned.

The benchmark Kospi dropped 7.90 points, or 0.4 percent, to 2,230.98. Market heavyweight Samsung Electronics shed 1.7 percent and No. 2 chipmaker SK Hynix lost 2.3 percent.

South Korea's jobless rate rose to a seasonally adjusted 3.8 percent in December from 3.6 percent in November, figures from Statistics Korea showed. The rate was forecast to remain unchanged.

Europe

European stocks are broadly lower on Wednesday after it emerged that the United States will keep billions of dollars of tariffs on Chinese goods in place until after the 2020 election.

A preliminary deal is expected to be signed between the U.S. and China later today, but any move to further reduce tariffs will hinge on Beijing's compliance with the terms of a phase-one trade accord.

The German DAX Index and the French CAC 40 Index are both down by 0.3 percent, although the U.K.'s FTSE 100 Index is just above the unchanged line.

The British pound held its losses after Bank of England policymaker Michael Saunders said it would be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further to reduce the risks of a sustained undershoot of the inflation target.

UBS was moving lower on a Bloomberg report that it has cut as much as 20 percent of the workforce in some European teams and is reducing management layers in Asia.

Fraport AG shares have also fallen after the owner and operator of Germany's Frankfurt Airport reported that the FRA's passenger traffic in the month of December 2019 declined 1.2 percent year-on-year to 4.9 million passengers.

On the other hand, Tullow Oil has soared. The company announced that its fiscal 2019 group working interest oil production averaged 86,700 bopd, in line with expectations.

Hochschild Mining has also rallied after delivering a solid quarter of attributable production principally due to a better than expected performance from the Inmaculada mine.

Provident Financial shares have also jumped. The sub-prime lender said it has continued to perform well in the final quarter and expect to report full-year results in line with market expectations.

U.S. Economic Reports

A report released by the Labor Department on Wednesday showed a modest increase in U.S. producer prices in the month of December.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in December after coming in unchanged in November. Economists had expected prices to rise by 0.2 percent.

Excluding food and energy prices, core producer prices still crept up by 0.1 percent in December after dipping by 0.2 percent in November. Core prices were also expected to increase by 0.2 percent.

A separate report from the New York Federal Reserve showed a modest acceleration in the pace of growth in regional manufacturing activity in the month of January.

The New York Fed said its general business conditions index edged up to 4.8 in January from a revised 3.3 in December, with a positive reading indicating growth in regional manufacturing activity.

Economists had expected the general business conditions index to come in unchanged compared to the 3.5 originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended January 10th.

Crude oil inventories are expected to edged down by 0.8 million barrels after rising by 1.2 million barrels in the previous week.

Philadelphia Federal Reserve President Patrick Harker is due to speak on monetary policy normalization at the Official Monetary and Financial Institutions Forum in New York at 11 am ET.

At 12 pm ET, Dallas Fed President Robert Kaplan is scheduled to give a speech at the University Club of New York.

The Federal Reserve is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, at 2 pm ET.

Stocks In Focus

Shares of Target (TGT) are moving significantly lower in pre-market trading after the retail giant said its holiday sales were below expectations.

Biopharmaceutical company Nektar Therapeutics (NKTR) is also likely to come under pressure after withdrawing its application for oxycodegol after FDA committees did not recommend approval of the painkiller.

On the other hand, shares of BlackRock (BLK) may see initial strength after the asset management firm reported better than expected fourth quarter results.

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