Market Analysis

Beyond the Numbers

Traders Digesting Trump-Kim Summit As Fed Announcement Looms
6/12/2018 8:54 AM

The major U.S. index futures are pointing to a roughly flat opening on Tuesday following an historic summit between President Donald Trump and North Korean leader Kim Jong Un.

The lack of momentum on Wall Street comes after Trump and Kim signed a joint statement pledging to work together to “build a lasting and stable peace regime on the Korean Peninsula.”

The statement said Kim reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula, while Trump committed to provide security guarantees to North Korea.

The U.S. and North Korea also committed to hold follow-on negotiations led by the Secretary of State Mike Pompeo and a relevant high-level North Korean official.

Overall trading activity may remain somewhat subdued, as traders look ahead to monetary policy announcements by the Federal Reserve and the European Central Bank.

The Fed is widely expected to raise interest rates by 25 basis points, while the ECB has indicated its meeting will be used to discuss ending its bond purchasing program.

After initially showing a lack of direction, stocks moved modestly higher over the course of the trading session on Monday. With the upward gains on the day, the Dow and the S&P 500 reached their best closing levels in three months.

The major averages pulled back going into the close but managed to end the day in positive territory. The Dow inched up 5.78 points or less than a tenth of a percent to 25,322.31, the Nasdaq rose 14.41 points or 0.2 percent to 7,659.93 and the S&P 500 edged up 2.97 points or 0.1 percent to 2,782.00.

The higher close on Wall Street came as traders looked ahead to the historic summit between President Donald Trump and North Korean leader Kim Jong Un on Tuesday.

Ahead of the meeting, Secretary of State Mike Pompeo indicated the U.S. is prepared to offer North Korea "unique" security assurances in exchange for the complete, verifiable and irreversible denuclearization of the Korean peninsula.

In remarks last Thursday, Trump expressed some optimism about his meeting with Kim but stressed that he is willing to walk away from negotiations.

Trump said his administration has stopped using the term "maximum pressure" with regard to North Korea and suggested the success of the negotiations could be determined by whether he uses the words after the meeting.

Meanwhile, trade concerns continue to hang over the markets after Trump backed out of a joint G7 communiqué over the weekend.

Trump continued to hammer U.S. allies on trade after leaving the G7 summit early in order to attend the meeting with Kim in Singapore.

Natural gas stocks showed a significant move to the upside on the day, driving the NYSE Arca Natural Gas Index up by 1.7 percent.

The strength among natural gas stocks came amid an increase by the price of the commodity, with natural gas for July delivery climbing $0.059 to $2.949 per million BTUs.

Considerable strength also emerged among transportation stocks, as reflected by the 1.1 percent gain posted by the Dow Jones Transportation Average. The average reached its best closing level in well over four months.

Computer hardware and gold stocks also saw some strength on the day, while interest-rate sensitive utilities stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are slipping $0.09 to $66.01 a barrel after rising $0.36 to $66.10 a barrel on Monday. Meanwhile, after edging up $0.50 to $1,303.20 an ounce in the previous session, gold futures are falling $4.10 to $1,299.10 an ounce.

On the currency front, the U.S. dollar is trading at 110.27 yen compared to the 110.03 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1795 compared to yesterday’s $1.1784.


Asian stocks ended broadly higher on Tuesday as President Donald Trump and North Korean leader Kim Jong Un signed a document committing to work together to “build a lasting and stable peace regime on the Korean Peninsula.”

Aside from the summit, investors also awaited cues from three major central bank meetings this week.

While the U.S. Federal Reserve is almost certain to raise rates again when it meets on Wednesday, the European Central Bank is likely to signal on Thursday that it will start to wind down its vast bond-buying program by the end of this year.

The Bank of Japan also concludes its two-day policy meeting on Friday, with analysts expecting no change to policy.

Chinese stocks ended higher, with the benchmark Shanghai Composite Index climbing 27.77 points or 0.9 percent to 3,080.55, snapping a three-session losing streak. Hong Kong's Hang Seng Index inched up 39.36 points or 0.1 percent to 31,103.06.

Japanese shares hit a three-week high after Trump said he had “developed a very special bond” with Kim during their historic summit.

The benchmark Nikkei 225 Index gained 74.31 points or 0.3 percent to finish at 22,878.35. The broader Topix Index also rose by 0.3 percent to end at a three-week high of 1,792.82, led by railway operators and food companies.

Australian shares eked out modest gains in thin trading on cautious optimism over the historic meeting between Trump and Kim.

The benchmark S&P/ASX 200 Index rose 9.20 points or 0.2 percent to 6,054.40 as traders returned to their desks after the Queen’s birthday public holiday. The broader All Ordinaries Index inched up 8 points or 0.1 percent to end at 6,164.80.

Retail conglomerate Wesfarmers advanced 1.3 percent after it announced the completion of the sale of its U.K. business Homebas. Healthcare and industrial stocks also closed broadly higher, with CSL and Transurban Group climbing 1 percent and 1.5 percent, respectively.

Airline Virgin Australia jumped 2.3 percent following news that its chief executive John Borghetti will leave his role in 2020 after a decade at the company.

Meanwhile, weaker iron ore and base metal prices pulled down mining stocks, with BHP Billiton, Fortescue Metals Group, South32 and Rio Tinto ending down 1-2 percent.


European stocks have moved modestly lower on Tuesday as German investor confidence data disappointed and the Trump-Kim summit ended with the signing of a joint statement that gave few details on how the goals set by both sides would be achieved.

While the German DAX Index has edged down by 0.1 percent, the French CAC 40 Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is down by 0.3 percent.

British American Tobacco is marginally lower in London after releasing its first-half trading statement.

AstraZeneca has also moved to the downside. The British pharmaceutical firm announced that it would discontinue global clinical trials for lanabecestat, a treatment for Alzheimer's disease.

Heidelberger Druckmaschinen shares have also slumped after the German precision mechanical engineering company announced it is on track to meet medium-term targets.

On the other hand, Carrefour has rallied in Paris. The food retailer is partnering with Google to make groceries available on the U.S. search engine's new dedicated shopping site in France.

Casino Guichard-Perrachon shares have also jumped. The supermarket company aims to sell non-core assets worth about 1.5 billion euros ($1.77 billion) by early 2019 to reduce debt.

Zurich Insurance Group has advanced after announcing the successful placement of 350 million Swiss francs of senior notes.

In economic news, German investor confidence declined more-than-expected in June to its lowest level in over five-and-a-half years, survey data from the Centre for European Economic Research showed.

The ZEW Indicator of Economic Sentiment for Germany shed 7.9 points in June to stand at -16.1 points, the Mannheim-based think tank said. Economists had expected a score of -14.

Separately, the U.K.'s ILO jobless rate remained at 4.2 percent in the three months ended April, the Office for National Statistics reported.

There were 1.42 million unemployed people, 38,000 fewer than for November 2017 to January 2018 and 115,000 fewer than for a year earlier.

U.S. Economic Reports

A report released by the Labor Department showed another modest increase in consumer prices in the U.S. in the month of May.

The Labor Department said its consumer price index rose by 0.2 percent in May, matching the increase seen in April as well as economist estimates.

Excluding food and energy prices, core consumer prices still increased by 0.2 percent in May after inching up by 0.1 percent in April. The core price growth also matched expectations.

At 1 pm ET, the Treasury Department is scheduled to release the results of its auction of $14 billion worth of thirty-year bonds.

Stocks In Focus

Shares of RH (RH) are moving sharply higher in pre-market trading after the home furnishings company reported better than expected fiscal first quarter earnings and provided upbeat guidance for the current quarter.

Restaurant chain Dave & Buster’s (PLAY) is also likely to see early strength after reporting fiscal first quarter results that beat estimates. The company also announced CFO Brian Jenkins will succeed CEO Stephen M. King.

Shares of AT&T (T) and Time Warner (TWX) are likely to be in focus amid expectations U.S. District Judge Richard Leon will announce whether he plans to allow or block their planned merger.

Meanwhile, shares of AstraZeneca (AZN) and Eli Lilly (LLY) may move to the downside after the drug makers discontinued development of an experimental Alzheimer's treatment.
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