Market Analysis

Beyond the Numbers

Upbeat Retail Earnings May Generate Early Buying Interest
8/21/2019 8:56 AM

The major U.S. index futures are currently pointing to a higher opening on Wednesday, with stocks likely to move back to the upside following the pullback seen in the previous session.

Early buying interest is likely to be generated in reaction to upbeat earnings news from retail giants Target (TGT) and Lowe’s (LOW), which are both moving sharply higher in pre-market trading.

Target and Lowe’s both reported quarterly results that exceeded analyst estimates on both the top and bottom lines, with Target also raising its full-year earnings guidance.

The better than expected results from the retailers may add to optimism that strength in consumer spending will continue to support the U.S. economy despite early indicators of a looming recession.

Overall trading activity may be somewhat subdued, however, as traders look ahead to the release of the minutes of the Federal Reserve’s latest monetary policy announcement this afternoon.

Stocks fluctuated over the course of morning trading on Tuesday before coming under pressure in the afternoon. The major averages slid more firmly into negative territory, partly offsetting the strong upward move seen over the two previous sessions.

The major averages accelerated to the downside going into the close, ending the session at their worst levels of the day. The Dow slid 173.35 points or 0.7 percent to 25,962.44, the Nasdaq fell 54.25 points or 0.7 percent to 7,948.56 and the S&P 500 slumped 23.14 points or 0.8 percent to 2,900.51.

The weakness on Wall Street came amid a pullback by bond yields, which moved back to the downside following the rebound seen on Monday and Friday.

Traders also expressed some uncertainty ahead of the release of the minutes of the Federal Reserve's late-July meeting on Wednesday.

The minutes, along with Fed Chairman Jerome Powell's speech on Friday, may shed additional light on the outlook for interest rates.

The Fed cut interest rates by 25 basis points last month and CME Group's FedWatch tool currently indicates a 95 percent chance of another 25 basis point rate cut in September.

Powell suggested that the July rate cut should not be seen as "the beginning of a lengthy cutting cycle," but President Donald Trump has been putting intense pressure on the Fed to continue cutting rates.

Trump claimed in a post on Twitter on Monday that the U.S. economy is very strong in spite of Powell's "horrendous lack of vision."

"The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well," Trump tweeted.

He added, "If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!"

Negative sentiment was also generated by comments from Trump once again threatening to impose tariffs on European auto imports.

Banking stocks showed a significant move to the downside over the course of the trading session, dragging the KBW Bank Index down by 1.7 percent. The index pulled back after moving sharply higher over the two previous sessions.

Considerable weakness was also visible among chemical stocks, as reflected by the 1.4 percent loss posted by the S&P Chemical Sector Index.

Biotechnology, natural gas and oil service stocks also saw notable weakness, moving lower along with most of the other major sectors.

On the other hand, gold stocks moved sharply higher over the course of the session, driving the NYSE Arca Gold Bugs Index up by 3 percent. The rally by gold stocks came amid an increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.59 to $56.72 a barrel after edging down $0.01 to $56.13 a barrel on Tuesday. Meanwhile, after rising $4.10 to $1,515.70 an ounce in the previous session, gold futures are tumbling $5.50 to $1,510.20 an ounce.

On the currency front, the U.S. dollar is trading at 106.45 yen compared to the 106.23 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1103 compared to yesterday’s $1.1100.


Asian stocks ended mixed on Wednesday as trade worries resurfaced and investors awaited cues from Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole symposium on Friday and the Group of Seven (G7) summit to be held in southwestern France this weekend.

Concerns about Italy's political chaos and Britain's tumultuous exit from the European Union also kept investors on the sidelines.

Chinese stocks ended roughly flat as U.S. President Donald Trump toughened his trade rhetoric. Trump said on Tuesday that he had to confront China over trade even if it caused short-term harm to the U.S. economy "because Beijing had been cheating Washington for decades".

The benchmark Shanghai Composite Index ended marginally higher at 2,880.33, while Hong Kong's Hang Seng Index edged up 0.2 percent to 26,270.04.

Japanese shares fell slightly as trade tensions resurfaced and political uncertainty in Italy and Britain added to concerns over the state of the global economy. The Nikkei 225 Index ended down 58.65 points, or 0.3 percent, at 20,618.57, while the broader Topix closed 0.6 percent lower at 1,497.51.

Market heavyweight SoftBank Group fell 2.9 percent after reports that it plans to lend employees up to $20 billion to invest in its Vision Fund 2.

Seven & i Holdings declined 1.6 percent and FamilyMart UNY Holdings slumped 1.8 percent after industry data showed sales at convenience stores in Japan dropped 0.6 percent year-on-year in July.

Australian markets also fell, dragged down by miners and retailers on renewed concerns about the global economic outlook. The benchmark S&P/ASX 200 Index dropped 61.70 points, or 0.9 percent, to 6,483.30, while the broader All Ordinaries Index ended down 54.80 points, or 0.8 percent, at 6,572.60.

Mining heavyweights BHP and Rio Tinto fell 2-3 percent as iron ore futures in China sank to their lowest level in 10 weeks. Smaller rival Fortescue Metals Group slumped 4.1 percent.

Banks ended broadly lower, with ANZ, NAB and Commonwealth losing 1-2 percent. Residential developer Stockland Corp. plunged 6.7 percent and fast food chain Domino's Pizza lost 4.8 percent on posting disappointing earnings.

WorleyParsons tumbled 3.9 percent after the company tempered growth expectations, citing macroeconomic global uncertainty. Logistics giant Brambles plummeted 9.4 percent as it warned of potential "contagion effect" from the U.S.-China trade war.

Meanwhile, Seoul stocks closed slightly higher ahead of the upcoming Jackson Hole Fed meeting, where Fed Chairman Jerome Powell may give a hint of his thinking on the future direction of U.S. monetary policy. The benchmark Kospi inched up 4.40 points, or 0.2 percent, to 1,964.65.


European stocks have moved sharply higher on Wednesday, with automakers leading the surge on reports that merger talks between Fiat Chrysler Automobiles and Renault have gained traction.

Investors have also cheered media reports suggesting the German government has agreed to a draft law largely scrapping the so-called "Solidarity Surcharge" on income tax to shore up Europe's largest economy.

Elsewhere, Giuseppe Conte resigned as Italian Prime Minister, passing the baton over to President Sergio Mattarella to decide whether to call new elections or ask parties to form a new government. Italian bonds breathed a sigh of relief despite the political upheaval in the country.

While the French CAC 40 Index has surged up by 1.6 percent, the German DAX Index and the U.K.’s FTSE 100 Index are up by 1.3 percent and 1.2 percent, respectively.

Fiat Chrysler and Renault shares have moved sharply higher, while German carmakers BMW, Daimler and Volkswagen are also seeing notable strength.

Danish jewelry group Pandora A/S has also spiked to extend gains from the previous session after backing its full-year guidance.

Hammerson has also advanced after the British property development and investment company appointed James Lenton as CFO and Executive Director.

Capita is also posting a standout gain on the day after brokerage Goldman Sachs upgraded its rating on the stock to Buy.

In economic news, the U.K. budget balance showed a surplus in July, figures from the Office for National Statistics showed.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales in the month of July at 10 am ET.

Existing home sales are expected to jump by 2.3 percent to an annual rate of 5.39 million in July after slumping by 1.7 percent to a rate of 5.27 million in June.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended August 16th.

Crude oil inventories are expected to drop by 1.9 million barrels after rising by 1.6 million barrels in the previous week.

The Federal Reserve is schedule to release the minutes of late-July monetary policy meeting at 2 pm ET. The Fed voted to lower interest rates by 25 basis points at the meeting.

Stocks In Focus

Shares of Children’s Place (PLCE) are moving sharply lower in pre-market trading after the children’s appeal retailer reported second quarter revenues that missed analyst estimates and cut its full-year forecast.

Lighting solutions company Cree (CREE) may also see initial weakness after reporting better than expected fiscal fourth quarter results but providing disappointing guidance for the current quarter.

On the other hand, shares of La-Z-Boy (LZB) are likely to move to the upside after the furniture maker reported fiscal first quarter earnings that beat analyst estimates.
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