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Optimism About Stimulus Bill May Generate Early Buying Interest

The major U.S. index futures are pointing to a higher open on Wednesday, with stocks likely to see further upside after ending yesterday's choppy trading session mostly higher.

The markets may benefit from optimism that lawmakers will eventually reach an agreement on a new coronavirus relief bill.

Democratic leaders said they continue to make progress toward an agreement after meeting with Trump administration officials on Tuesday.

"We're making progress," said Senate Minority Leader Chuck Schumer, D-N.Y. "We really went down issue by issue by issue, slogging through them,"

"They made some concessions, which we appreciated. We made some concessions, which they appreciated," he added. "We're still far away on a lot of the important issues, but we're continuing to go at it."

The comments from Schumer come after Senate Majority Leader Mitch McConnell, R-Ken., indicated he would support any agreement between Democrats and the White House.

Positive sentiment may also be generated in reaction to upbeat earnings news from Disney (DIS), with the entertainment giant spiking by 6.5 percent in pre-market trading.

After the close of trading on Tuesday, Disney reported an unexpected adjusted fiscal third quarter profit despite weaker than expected revenues.

However, early buying interest may be partly offset by a report from payroll processor ADP showing a substantial slowdown in private sector job growth in the month of July.

Stocks showed a lack of direction for much of the trading session on Tuesday but managed to end the day mostly higher. The major averages benefited from a late move to the upside after spending the day bouncing back and forth across the unchanged line.

The Dow closed higher for the third straight session, climbing 164.07 points or 0.6 percent to 26,828.47. The Nasdaq rose 38.37 points or 0.4 percent to a new record closing high of 10,941.17 and the S&P 500 advanced 11.90 to 0.4 percent to 3,306.51, its best closing level in over five months.

The late-day strength on Wall Street may partly have reflected a positive reaction to McConnell's comments about the stimulus bill.

McConnell told reports he is "prepared to support" a coronavirus relief bill agreement between Democrats and the White House even is he has "some problems with certain parts of it."

Uncertainty about a new stimulus contributed to the choppy trading seen for much of the day, as negotiators have thus far struggled to reach an agreement.

Democrats and Trump administration officials said they made progress towards a deal during a meeting on Monday, but House Speaker Nancy Pelosi, D-Calif., noted the two sides "still have our differences."

The amount of the federal unemployment benefit remains a key sticking point, as Republicans want to slash the benefit to $200 per week and Democrats want to keep the benefit at $600 per week.

A disagreement over funding for state and local governments is also holding up a deal, with President Donald Trump accusing Democrats of seeking to bail out poorly run Democratic-run states and cities.

On the U.S. economic front, the Commerce Department released a report showing another substantial increase in new orders for manufactured goods in the month of June.

The Commerce Department said factory orders soared by 6.2 percent in June after skyrocketing by a revised 7.7 percent in May.

Economists had expected factory orders to jump by 5.0 percent compared to the 8.0 percent spike originally reported for the previous month.

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 4.4 percent to its best closing level in over seven years.

The rally by gold stocks came amid a spike by the price of the precious metal, which closed above $2,000 an ounce for the first time ever.

Substantial strength was also visible among energy stocks, which moved higher along with the prices of natural gas and crude oil.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index soared by 3.6 percent, the Philadelphia Oil Service Index jumped by 2.9 percent and the NYSE Arca Oil Index advanced by 1.9 percent.

Airline stocks also saw considerable strength on the day, with the NYSE Arca Airline Index surging up by 2.4 percent after ending the previous session at its lowest closing level in two months.

Commercial real estate, telecom and utilities stocks also moved to the upside on the day, while biotechnology and software stocks gave back ground after Monday's rally.

Commodity, Currency Markets

Crude oil futures are spiking $1.47 to $43.17 a barrel after climbing $0.69 to $41.70 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,050.40, up $29.40 compared to the previous session's recording closing high of $2,021. On Tuesday, gold skyrocketed $34.70.

On the currency front, the U.S. dollar is trading at 105.63 yen compared to the 105.54 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1872 compared to yesterday's $1.1803.

Asia

Asian stocks turned in a mixed performance on Wednesday as investors kept a watchful eye on the upcoming U.S. job report as well as negotiations on a U.S. Covid-19 relief bill.

Underlying sentiment turned cautious after reports suggested that the U.S. and China plan to review the implementation of their phase one trade deal in mid-August.

Chinese shares rose after a private survey showed the services sector in the country continued to expand in July, albeit at a slower pace. The Caixin/Markit services Purchasing Managers' Index fell to 54.1 from June's 58.4, which was the highest reading since April 2010. The benchmark Shanghai Composite Index edged up 5.88 points, or 0.2 percent, to 3,377.56.

Hong Kong's Hang Seng Index climbed 155.91 points, or 0.6 percent, to 25,102.54 even as a survey showed business activity in the country contracted further in July.

The Purchasing Managers' Index of Hong Kong compiled by consulting firm IHS Markit dropped to 44.5 last month from 49.6 in June as output and new orders fell at sharper rates and there was a renewed decline in purchasing activity.

Japanese shares fell following two days of gains. The Nikkei average slid 58.81 points, or 0.3 percent, to 22,514.85, with sentiment hit by a firmer yen, disappointing earnings reports and rising coronavirus cases both at home and abroad. The broader Topix finished marginally lower at 1,554.71.

Heavyweight SoftBank Group slumped 4.2 percent and East Japan Railway lost 2.4 percent. Lender Mitsubishi UFJ Financial Group edged down slightly after its first quarter net profit more than halved. Sony Corp. fell 1.6 percent despite its first quarter operating profit coming in above analyst estimates.

In economic news, the latest survey from Jibun Bank showed that the Japanese service sector continued to contract in July, albeit at a slower pace, with a PMI score of 45.4, up from 45.0 in June.

Australian markets fell notably as Virgin Australia announced 3,000 job cuts and Melbourne, already under night curfew, announced fresh restrictions to curb a spike in coronavirus cases.

Queensland State said it would seal off its border with New South Wales and capital Canberra to hold back a second wave of coronavirus cases.

The benchmark S&P/ASX 200 Index dropped 36.30 points, or 0.6 percent, to 6,001.30, while the broader All Ordinaries Index ended down 30.60 points, or 0.50 percent, at 6,135.90.

Banks ended mostly lower, with NAB losing 1.3 percent and Westpac declining 1 percent. Mining heavyweight BHP ended little changed, while rival Rio Tinto declined 1.1 percent.

Telecom firm Telstra Corp. tumbled 2.3 percent after it agreed to sell its Melbourne data centre for about US$300 million.

Gold stocks rallied after safe-haven gold spiked to a record high. Evolution Mining surged 3.7 percent, Newcrest added 2.9 percent and Northern Star Resources soared 4.3 percent.

On the economic front, the latest survey from the Australian Industry Group showed that the construction sector in Australia continued to contract in July, albeit at a slower pace, with a Performance of Construction Index score of 42.7, up from 35.5 in the previous month.

Seoul stocks rose for the third straight session to close at their highest level in nearly two years after reports suggested that U.S. lawmakers were inching closer to a stimulus deal to help the world's top economy recover from pandemic jitters.

The benchmark Kospi surged up 31.89 points, or 1.4 percent, to 2,311.86, marking the highest level since October 1, 2018.

Hanmi Pharmaceutical shares jumped by the daily permissible limit of 29.91 percent to 360,500 won after the company said it has exported technology for a liver treatment drug material to leading global drugmaker Merck Sharp & Dohme.

Europe

European stocks have risen on Wednesday as investors parse through a slew of corporate earnings and look forward to further progress in U.S. stimulus talks.

Sentiment was also boosted after survey data showed the eurozone's private sector grew at its fastest rate in over two years in July.

While the U.K.'s FTSE 100 Index has jumped by 1 percent, the French CAC 40 Index is up by 0.8 percent and the German DAX Index is up by 0.5 percent.

Ahold Delhaize NV, a major operator of supermarket chains in the United States and Europe, has surged after company raised its guidance for the year after reporting strong second quarter results.

Bank of Ireland has also jumped. After posting a loss for the first half of the year, the lender said it would cut 1,400 jobs in the coming years to rein in costs.

Residential real estate company Vonovia has also rallied. The company confirmed its guidance for the year after reporting an 8 percent rise in first-half core profits.

Logistics group Deutsche Post has also shown a strong move to the upside after its second quarter sales beat estimates.

Ferrexpo shares have also spiked. The iron ore producer declared a second interim dividend after both sales and production volumes increased in the first half of the trading year.

PageGroup has also climbed. After posting a half-year loss, the recruiter said activity has started to pick up and there have been improvements such as new opportunities, candidates sent to clients, interviews and offers.

Bookmaker William Hill has soared after the company said that trading has recovered well post-lockdown and it is repaying £24.5m of U.K. furlough funds.

Meanwhile, automaker BMW has tumbled after it swung to a 666 million billion euros ($786 million) loss before interest and taxes in the quarter ending June.

Life insurer Legal & General has also moved to the downside after it reported a 2 percent decline in first-half operating profit.

In economic news, the euro area private sector expanded at the fastest pace since mid-2018 after four months of contraction, final data from IHS Markit showed today.

The IHS Markit final composite output index rose to 54.9 in July from 48.5 in June, as easing of Covid-19 lockdown restrictions boosted demand and expectations. The flash reading was 54.8.

Both the manufacturing and service sectors reported marked rates of growth in July, with manufacturing registering a slightly stronger pace of expansion.

Separately, Eurozone retail sales grew at a moderate pace in June after rebounding sharply in May, data from Eurostat showed. Retail sales increased 5.7 percent on a monthly basis, following a 20.3 percent spike in May. Economists had forecast a 5.9 percent increase for June.

The U.K. service sector logged its strongest growth in five years in July, as the phased reopening of business operations lifted corporate and household spending, final data from IHS Markit showed.

The final IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 56.5 in July from 47.1 in June. The flash score was 56.6.

U.S. Economic Reports

Private sector job growth in the U.S. showed a substantial slowdown in the month of July, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment rose by 167,000 jobs in July after soaring by an upwardly revised 4.314 million jobs in June.

Economists had expected employment to surge up by another 1.5 million jobs compared to the 2.369 million job spike originally reported for the previous month.

"The labor market recovery slowed in the month of July," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "We have seen the slowdown impact businesses across all sizes and sectors."

A separate report from the Commerce Department showed the U.S. trade deficit narrowed in the month of June amid a spike in the value of exports.

The Commerce Department said the trade deficit narrowed to $50.7 billion in June from a revised $54.8 billion in May.

Economists had expected the trade deficit to narrow to $50.1 billion from the $54.6 billion originally reported for the previous month.

The narrower deficit came as the value of exports spiked by 9.4 percent to $158.3 billion, outpacing a 4.7 percent jump in the value of imports to $208.9 billion.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of July.

The ISM's non-manufacturing index is expected to dip to 55.0 in July after spiking to 57.1 in June, although a reading above 50 would still indicate growth.

The Energy Information Administration is due to release its report on oil inventories in the week ended July 31st at 10:30 am ET.

Crude oil inventories are expected to decreased by 3.3 million barrels after tumbling by 10.6 million barrels in the previous week.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month's auctions of three-year and ten-year notes and thirty-year bonds.

Cleveland Federal Reserve President Loretta Mester is due to speak about the economic outlook at a Liberal Arts Macroeconomics Conference webinar at 5 pm ET.

Stocks In Focus

Shares of Novavax (NVAX) are soaring in pre-market trading after the drug maker reported positive results in an early study of its coronavirus vaccine candidate.

Payments processor Square (SQ) is also seeing significant pre-market strength after unexpectedly reporting second quarter adjusted earnings on better than expected revenues.

On the other hand, shares of WW International (WW) may come under pressure after the company formerly known as Weight Watchers reported second quarter results that missed analyst estimates.

Plant-based meat maker Beyond Meat (BYND) is also seeing notable pre-market weakness despite reporting better than expected second quarter revenues, as investors worry about rising costs.

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