Market Analysis

Beyond the Numbers

Futures Pointing To Initial Strength On Wall Street
12/12/2018 9:00 AM

The major U.S. index futures are pointing to a sharply higher opening on Wednesday, although traders may be wary of the initial jump following recent volatility.

The upward momentum on Wall Street comes after President Donald Trump expressed optimism about striking a trade deal with Chinese President Xi Jinping in an interview with Reuters on Tuesday.

Trump noted that trade talks between U.S. and Chinese officials were underway by telephone and suggested more meetings are likely.

“We’ll probably have another meeting. And maybe a meeting of the top people on both sides,” Trump said. “If it’s necessary, I’ll have another meeting with President Xi, who I like a lot and get along with very well.”

Trump also indicated he would be willing to intervene with the Justice Department in the case against Huawei Chief Financial Officer Meng Wanzhou if it would help secure a trade deal with China.

“If I think it’s good for the country, if I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” Trump said.

The comments from Trump seem likely to contribute to initial strength on Wall Street, although traders have recently waffled between optimism and skepticism about a trade deal with China.

After failing to sustain an initial upward move, stocks showed a lack of direction over the course of the trading session on Tuesday. The major averages pulled back off their early highs and spent the rest of the day bouncing back and forth across the unchanged line.

Eventually, the major averages ended the day mixed. While the tech-heavy Nasdaq rose 11.31 points or 0.2 percent to 7,031.83, the Dow dipped 53.02 points or 0.2 percent to 24,370.24 and the S&P 500 edged down 0.94 points or less than a tenth of a percent to 2,636.78.

The volatility on the day came as traders waffled between optimism and skepticism about a potential trade agreement between the U.S. and China.

Renewed optimism about U.S.-China trade talks contributed to the initial strength on Wall Street after a telephone call between top officials from the world's two largest economies.

China's Commerce Ministry said Chinese Vice Premier Liu He spoke with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer.

"Both sides exchanged views on putting into effect the consensus reached by the two countries' leaders at their meeting, and pushing forward the timetable and roadmap for the next stage of economic and trade consultations work," the ministry said in a statement.

A report from Bloomberg News that China is moving toward cutting tariffs on imported U.S.-made cars added to the positive sentiment.

Citing people familiar with the matter, Bloomberg said a proposal to reduce tariffs on cars made in the U.S. to 15 percent from the current 40 percent has been submitted to China's Cabinet.

Just after his meeting with Xi, Trump claimed in a post on Twitter that China had agreed to reduce and remove tariffs on cars coming into China from the U.S.

However, skepticism resurfaced after a report from the Washington Post said the Trump administration is preparing a series of actions this week to call out China for allegedly stealing U.S. trade secrets and technologies.

Citing U.S. officials, the Washington Post said multiple government agencies would condemn China, with the Justice Department expected to announce the indictments of multiple hackers suspected of working for a Chinese intelligence service.

A testy public exchange between Trump and top Democratic leaders over funding for his proposed border wall may have also raised concerns about a partial government shutdown.

Meanwhile, traders largely shrugged off a report from the Labor Department unexpectedly showing a modest uptick in producer prices in the month of November.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in November after climbing by 0.6 percent in October. Economists had expected prices to be unchanged.

Excluding food and energy prices, core producer prices rose by 0.3 percent in November following a 0.5 percent increase in October. Core prices had been expected to edge up by 0.1 percent.

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

Oil service stocks saw notable weakness, however, with the Philadelphia Oil Service Index falling by 1.5 percent to its lowest closing level in nearly fifteen years. The weakness among oil service stocks came despite an increase by the price of crude oil.

Banking and housing stocks also saw notable weakness on the day, while some strength remained visible among semiconductor and networking stocks.

Commodity, Currency Markets

Crude oil futures are jumping $0.98 to $52.63 a barrel after climbing $0.65 to $51.65 a barrel on Tuesday. Meanwhile, after dipping $2.20 to $1,247.20 an ounce in the previous session, gold futures are rising $4 to $1,251.20 an ounce.

On the currency front, the U.S. dollar is trading at 113.34 yen compared to the 113.38 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1360 compared to yesterday’s $1.1317.


Asian stocks ended with strong gains on Wednesday amid renewed optimism about a U.S.-China trade deal after the two countries resumed talks earlier this week to end their disputes.

The markets also reacted positively to news about Canada granting bail to the detained Huawei Chief Financial Officer Meng Wanzhou. Meng was apprehended at the behest of the U.S. last week.

In an interview with Reuters, President Donald Trump expressed optimism he could strike a trade agreement with Chinese President Xi Jinping and also said he would intervene with the U.S. Justice Department in the case against Wanzhou if it would help close a deal with China.

China’s Shanghai Composite Index rose 8.06 points or 0.3 percent to 2,602.15, with oil, real estate and electricity stocks leading the way higher. Hong Kong’s Hang Seng Index surged up 415.04 points or 1.6 percent to 26,186.71.

Japanese stocks also rallied sharply on widespread buying. The benchmark Nikkei 225 Index spiked 454.73 points or 2.2 to 21,602.75. The mood was so bullish that just 21 stocks out of the 225-stock index failed to make it to the positive territory.

Yamaha Corp., Showa Denko K.K., Tokyo Electric Power, Kawasaki Kisen Kaisha, Daikin Industries, JGC Corp., Toto, NTT Data Corp. and Kikkoman Corp. posted standout gains. Auto, chemical, food, electric power, machinery and petroleum stocks also moved notably higher.

In economic news from Japan, the Cabinet Office said core machinery orders soared 7.6 percent to 863.2 billion yen in October. That was shy of expectations for an increase of 9.7 percent following an 18.3 percent plunge in September.

The Bank of Japan said producer prices in Japan were down 0.3 percent on month in November compared to expectations for a decline of 0.1 percent following a 0.4 percent increase in October.

Australian stocks also moved to the upside on the day. The benchmark S&P/ASX 200 Index jumped 77.60 points or 1.4 to 5,653.50, while the broader All Ordinaries Index surged up 76.10 points or 1.4 to 5,727.30.

Speedcast International spiked 7.8 percent and Mayne Pharma Group shares gained more than 6 percent. Galaxy Resources added 5.9 percent, Altium gained 5.6 percent and AHG moved up 5.3 percent.

Meanwhile, prominent losers included St. Barbara, Regis Resources, Northern Star Resources, Nine Entertainment Co. Holdings and Lynas Corporation.

Markets in Malaysia, New Zealand, Singapore, South Korea, Indonesia and Taiwan also ended on a strong note.


Extending the strong upward move seen in the previous session, European stocks have moved significantly higher on Wednesday amid renewed optimism about a U.S.-China trade deal.

Meanwhile, British Prime Minister Theresa May will face a no confidence vote in her leadership later today. According to the BBC, Conservative members of parliament will vote between 6 pm GMT and 8 pm GMT.

May has reportedly said she will contest the no confidence vote with everything she has got. In the event of May managing to secure a majority, she will remain unchallenged for another year.

May had called off the Commons vote on her Brexit negotiations after admitting she was heading for a heavy defeat.

While the French CAC 40 Index has surged up by 1.9 percent, the U.K.’s FTSE 100 Index and the German DAX Index are up by 1.2 percent and 1.1 percent, respectively.

In economic news, data from Eurostat showed eurozone industrial production grew in line with expectations at 0.2 percent in October after a slump in the previous month. In September, industrial production declined 0.6 percent.

On a year-on-year basis, industrial production grew 1.2 percent in October following a 0.8 percent increase in September. Economists were looking for 0.8 percent growth.

U.S. Economic Reports

With a sharp pullback in gasoline prices offsetting increases in other prices, the Labor Department released a report showing consumer prices came in flat in the month of November.

The Labor Department said its consumer price index was unchanged in November after rising by 0.3 percent in October. The unchanged reading matched economist estimates.

Excluding food and energy prices, core consumer prices edged up by 0.2 percent in November, matching the uptick seen in October as well as expectations.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended December 7th.

Crude oil inventories are expected to drop by 2.9 million barrels after tumbling by 7.2 million barrels in the previous week.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $24 billion worth of ten-year notes.

Stocks In Focus

Shares of Pivotal Software (PVTL) are showing a strong move to the upside in pre-market trading after the software and services company reported a narrower than expected fiscal third quarter loss on revenues that exceeded analyst estimates.

Athletic apparel maker Lululemon (LULU) is also seeing pre-market strength after Citi upgraded its rating on the company’s stock to Buy from Neutral.

Shares of First Solar (FSLR) may also move to the upside after forecasting fiscal 2019 net sales of $3.25 to $3.45 billion compared to analyst estimates for $2.97 billion.

On the other hand, shares of American Eagle Outfitters (AEO) are likely to see initial weakness after the apparel retailer reported fiscal third quarter results that came roughly in line with estimates but provided disappointing guidance for the current quarter.

Restaurant chain Dave & Buster’s (PLAY) is also likely to come under pressure after reporting fiscal third quarter earnings and revenues that exceeded estimates but forecasting weaker than expected revenue growth in fiscal 2019.

Shares of Verizon (VZ) may also move to the downside after Morgan Stanley downgraded its rating on the telecom giant to Equal-weight from Overweight.
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