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Beyond the Numbers

Futures Pointing To Early Rebound On Wall Street
2/22/2019 8:50 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, with stocks likely to move back to the upside after ending the previous session moderately lower.

Optimism about U.S.-China trade talks may generate early buying interest on Wall Street as negotiators wrap up the latest round of meetings in Washington, D.C.

President Donald Trump is scheduled to meet with Chinese Vice Premier Liu He later today ahead of an early March deadline to reach a trade deal.

Trump has recently suggested he could postpone the increase in tariffs set to take effect at the deadline if the trade talks continue to show signs of progress.

A report from Reuters on Thursday the two sides have started to outline commitments in principle on the stickiest issues in their trade dispute.

Stocks moved moderately lower during the trading session on Thursday following the release of a batch of largely disappointing U.S. economic data. Selling pressure was relatively subdued, however, limiting the downside for the major averages.

The major averages bounced well off their worst levels going into the close but still ended the day firmly negative. The Dow slid 103.81 points or 0.4 percent to 25,850.63, the Nasdaq fell 29.36 points or 0.4 percent to 7,459.71 and the S&P 500 dropped 9.82 points or 0.4 percent to 2,774.88.

The weakness on Wall Street came on the heels of a slew of disappointing economic data, including a report from the Philadelphia Federal Reserve unexpectedly showing a contraction in regional manufacturing activity for the first time since May of 2016.

The Philly Fed said its index for current manufacturing activity in the region tumbled to a negative 4.1 in February from a positive 17.0 in January, with a negative reading indicating contraction. The index had been expected to slip to 14.0.

A separate report from the Commerce Department also showed a smaller than expected increase in durable goods orders in January.

The report said durable goods orders surged up by 1.2 percent in December after jumping by an upwardly revised 1.0 percent in November.

Economists had expected durable goods orders to soar by 1.5 percent compared to the 0.7 percent increase that had been reported for the previous month.

Excluding a jump in orders for transportation equipment, durable goods orders inched up by just 0.1 percent in December after slipping by 0.2 percent in November. Ex-transportation orders had been expected to rise by 0.3 percent.

The Commerce Department also said orders for non-defense capital goods excluding aircraft, a closely watched indicator of business spending, fell by 0.7 percent in December after tumbling by 1.0 percent in November.

Andrew Hunter, Senior U.S. Economist at Capital Economics said, "The December durables goods data suggest that equipment investment growth slowed further in the fourth quarter, and we expect it to remain weak for most of this year."

"Overall, the durable goods data provide further reason to think that economic growth will soon slow to below its 2% potential pace, which will keep the Fed on hold throughout this year," he added.

The National Association of Realtors also released a report showing existing home sales unexpectedly fell to their lowest level in over three years in January.

NAR said existing home sales tumbled by 1.2 percent to an annual rate of 4.94 million in January after plunging by 4.0 percent to a revised rate of 5.00 million in December.

The continued decrease surprised economists, who had expected existing home sales to climb by 1.0 percent to a rate of 5.04 million from the 4.99 million originally reported for the previous week.

With the third consecutive monthly decrease, existing home sales slumped to their lowest annual rate since November of 2015.

Meanwhile, the Labor Department released a report showing first-time claims for unemployment benefits fell more than expected in the week ended February 16th.

The report said initial jobless claims dropped to 216,000, a decrease of 23,000 from the previous week's unrevised level of 239,000. Economists had expected jobless claims to dip to 229,000.

Optimism about trade talks between the U.S. and China also helped to limit the selling pressure, with a report from Reuters saying the two sides have started to outline commitments in principle on the stickiest issues in their trade dispute.

While the U.S. and China remain far apart on demands for structural changes to China's economy, sources familiar with the negotiations told Reuters the broad outline of what could make up a deal is beginning to emerge from the talks.

A separate report from CNBC indicating Chinese authorities could be getting ready to implement more extensive stimulus measures in a bid to encourage economic growth also helped to limit the downside.

Oil service stocks moved sharply lower over the course of the session, dragging the Philadelphia Oil Service Index down by 3 percent. The weakness among oil service stocks came amid a modest decrease by the price of crude oil.

Significant weakness was also visible among biotechnology stocks, as reflected by the 2 percent slump by the NYSE Arca Biotechnology Index.

A steep drop by the price of gold also contributed to considerable weakness among gold stocks, with the NYSE Arca Gold Bugs Index sliding by 1.2 percent.

Natural gas and oil producer stocks also moved to the downside amid the drop by the price of crude oil, while notable strength emerged among software stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.73 to $57.69 a barrel after slipping $0.20 to $56.96 a barrel on Thursday. Meanwhile, after plunging $20.10 to $1,327.80 an ounce in the previous session, gold futures are inching up $0.40 to $1,328.20 an ounce.

On the currency front, the U.S. dollar is trading at 110.74 yen compared to the 110.70 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1334 compared to yesterday’s $1.1336.

Asia

Asian stocks ended mixed on Friday as hopes for Chinese stimulus helped offset weak economic readings from the U.S. and Europe.

Investors continued to keep a close eye on high-level talks between U.S. and Chinese trade negotiators in Washington, as the two sides face a March 1 deadline to avoid a further escalation in tariffs.

Chinese shares ended sharply higher after data showed growth in China's new home prices fell to a nine-month low in January, boosting stimulus hopes.

The benchmark Shanghai Composite Index jumped 52.43 points or 1.9 percent to 2,804.23, its highest level since September. Hong Kong's Hang Seng Index gained 186.38 points or 0.7 percent to close at 28,816.30.

A report from CNBC indicated that Chinese authorities could be getting ready to implement more extensive stimulus measures in a bid to encourage economic growth.

Meanwhile, Japanese shares snapped a four-day winning streak as investors digested a batch of weak U.S. data. Japanese inflation picked up in January but remained far below the Bank of Japan's target, a government report showed.

The Nikkei 225 Index dipped 38.72 points or 0.2 percent to 21,425.51 but ended the week higher by 2.5 percent. The broader Topix declined 3.98 points or 0.3 percent to 1,609.52.

Financials pulled back after recent gains, with lender Mitsubishi UFJ Financial Group falling 1.2 percent and Sumitomo Mitsui Financial Group declining 0.8 percent. Exporters turned in a mixed performance.

Australian markets eked out modest gains as U.S.-China trade talks reach a pivotal point. The benchmark S&P/ASX 200 Index rose 28.10 points or 0.5 percent to 6,167.30, while the broader All Ordinaries Index ended 27.30 points or 0.4 percent higher at 6,241.90.

Banks ANZ and Commonwealth rose around 1 percent after Reserve Bank of Australia Governor Philip Lowe sounded optimistic about the economy. Online travel booking company Webjet soared 8.4 percent on robust results.

Whitehaven Coal reversed early losses to end 0.7 percent higher as Treasurer Josh Frydenberg clarified that there was no Chinese ban on Australian coal.

On the losing side, Woodside Petroleum fell 4.2 percent on going ex-dividend. Regis Healthcare plunged 5.3 percent after it reported a more than 12 percent drop in its first-half profit.

Seoul stocks ended little changed, with the benchmark Kospi finishing marginally higher at 2,230.50 as investors monitored ongoing trade talks between Washington and Beijing.

Shares of Samsung SDI dropped over 1 percent on speculation that it may not benefit from the release of a foldable Galaxy phone. Posco and LG Chem also ended down around 1 percent.

Europe

European stocks are broadly higher on Friday as optimism over U.S.-China trade talks has prevailed and investors count on more stimulus from Beijing to lift growth.

U.S.-China talks are entering a more serious phase with U.S. President Donald Trump scheduled to meet with Chinese Vice Premier Liu He in the White House today with the goal of reaching a trade deal ahead of a March 1 deadline.

While the U.K.’s FTSE 100 Index has advanced by 0.6 percent, the German DAX Index is up by 0.5 percent and the French CAC 40 Index is up by 0.4 percent.

Chipmaker ASM International has soared after it reported record high orders in the fourth quarter. Specialty chemical company Sika has also rallied after its annual profit topped forecasts.

Non-Standard Finance has also jumped as it announced the terms of a firm offer to acquire the entire issued share capital of Provident Financial plc.

Kingspan Group has also showed a significant move to the upside after posting strong growth in 2018 profits. IT services and consulting firm Sopra Steria has also spiked after unveiling its full-year results.

On the other hand, Inspiration Healthcare Group has plunged after the medical device company said it expects flat profit before tax and revenues for fiscal 2019.

Radiation therapy equipment maker Elekta is also posting a steep loss after its third quarter core earnings lagged forecasts.

Saint Gobain has also moved notably lower. The construction materials group suffered a slump in annual net profit, hit by asset impairments due to economic uncertainty.

In economic news, Germany's economy stagnated in the final three months of the year, thus narrowly avoiding a technical recession, the latest data from the Federal Statistical Office confirmed.

The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of companies, declined to 98.5 this month from 99.1 last month, hitting the lowest level since November 2014

Eurozone headline consumer inflation fell 1.0 percent sequentially in January, Eurostat said. That came in line with the previous estimates and matched expectations.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today, although traders are likely to keep an eye on remarks by several Federal Reserve officials.

Fed Vice Chairman Richard Clarida, Fed Vice Chairman for Supervision Randal Quarles, San Francisco Fed President Mary Daly, New York Fed President John Williams, and St. Louis Fed President James Bullard are all due to participate in the U.S. Monetary Policy Forum in New York City.

Stocks In Focus

Shares of Roku (ROKU) are moving significantly higher in pre-market trading after the video streaming company reported fourth quarter results that beat analyst estimates on both the top and bottom lines.

Information technology company Hewlett Packard Enterprise (HPE) may also move to the upside after reporting better than expected fiscal first quarter earnings and raising its full-year earnings guidance.

On the other hand, shares of Kraft Heinz (KHC) are likely to come under pressure after the packaged food giant reported fourth quarter results that fell short of expectations and revealed an SEC subpoena regarding its accounting policies.

Online file-sharing company Dropbox (DBX) is also seeing considerable pre-market weakness after reporting better than expected fourth quarter results but providing disappointing guidance.
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