Market Analysis

Beyond the Number

Continued Optimism About Trade Deal May Generate Buying Interest
12/13/2018 8:58 AM

The major U.S. index futures are pointing to a modestly higher opening on Thursday, with stocks likely to add to the gains posted in the previous session.

Optimism about a potential trade deal between the U.S. and China may contribute to initial strength on Wall Street, although buying interest may be somewhat subdued amid lingering skepticism.

Positive sentiment may also be generated in reaction to a report from the Labor Department showing a much steeper than expected drop in initial jobless claims in the week ended December 8th.

Following the substantial volatility seen in the previous session, stocks closed mostly higher on Wednesday, as traders expressed renewed optimism about U.S.-China trade talks after waffling between hopeful and skeptical on Tuesday.

The major averages pulled back off their best levels in afternoon trading but remained firmly positive. The Dow climbed 157.03 points or 0.6 percent to 24,527.27, the Nasdaq jumped 66.48 points or 1 percent to 7,098.31 and the S&P 500 rose 14.29 points or 0.5 percent to 2,651.07.

The strength on Wall Street came 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.

On the U.S. economic front, the Labor Department released a report showing consumer prices came in flat in the month of November, with a sharp pullback in gasoline prices offsetting increases in other prices.

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.

Gold stocks showed a substantial move to the upside over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.6 percent. With the jump, the index reached a four-month closing high. The rally by gold stocks came amid an increase by the price of the precious metal.

Significant strength was also visible among networking stocks, as reflected by the 1.7 percent advance by the NYSE Arca Networking Index.

Biotechnology stocks, semiconductor, and oil service stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Meanwhile, commercial real estate stocks bucked the uptrend on Wall Street, resulting in a 1.7 percent drop by the Dow Jones Real Estate Index
Commodity, Currency Markets

Crude oil futures are sliding $0.57 to $50.58 a barrel after falling $0.50 to $51.15 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,246.30, down $3.70 compared to the previous session’s close of $1,250. On Wednesday, gold rose $2.80.

On the currency front, the U.S. dollar is trading at 113.49 yen compared to the 113.29 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1342 compared to yesterday’s $1.1369.


Asian markets ended on a firm note on Thursday, extending recent gains amid rising optimism about a long-term trade deal between the U.S. and China.

With recent news on the trade deal front turning out to be quite encouraging, investors are slowly building up positions, betting on hopes the U.S. and China will work out a solution to their disputes.

According to Reuters, some state-owned companies in China have purchased U.S. soybeans for the first time in more than six months.

This suggests the world's second-largest economy is keen on implementing the agreements the U.S. and Chinese Presidents arrived at during their meeting during the G20 summit earlier this month.

Although buying interest was slightly subdued in some of the markets, the undertone was fairly bullish across the region.

Chinese stocks ended higher amid rising optimism about a trade deal with the U.S. The Shanghai Composite Index jumped 31.90 points or 1.2 to 2,634.05, led by gains by Languang Development, Center International Group and Nanging Panda Electronics.

Hong Kong's Hang Seng Index surged up 337.64 points or 1.3 percent to 26,524.35 on notable gains by China Resources, Geely Automobile, Galaxy Entertainment, Sands China and Shenzhou International, among others.

In the Japanese market, automobile stocks rallied sharply. Shares from electric machinery, banking, chemicals, and precision instruments sections also posted impressive gains. The benchmark Nikkei 225 Index ended up 213.44 points or 1 percent at 21,816.19.

Australian stocks saw more modest strength on the day. The benchmark S&P/ASX 200 Index edged up 8.10 points or 0.1 percent to 5,661.60, while the broader All Ordinaries Index also inched up by 0.1 percent.

Mining and energy stocks were among the prominent gainers in the Australian market. Syrah Resources jumped more than 8%. Nine Entertainment Holdings added about 8.3% and Ioof Holdings shares rose 7.3%.

Meanwhile, the Australian Competition and Consumer Commission, the competition watchdog, raised concerns that the planned merger of Vodafone Australia and TPG Telecom could mean higher mobile prices for consumers. Shares of TPG Telecom and Hutchison Telecom declined sharply in today's session.

Stocks in South Korea, New Zealand, Singapore, Taiwan, Indonesia and Malaysia also ended on a positive note, with their benchmark indices gaining between 0.6 percent and 1 percent.


European stocks are turning in a mixed performance after the European Central Bank left interest rates unchanged and confirmed it will end asset purchases under the massive 2.6 trillion euro Asset Purchase Programme, or APP, in December. The bank also said it is "enhancing its forward guidance on reinvestment."

"Accordingly, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation," the ECB said in a statement.

Meanwhile, the major European markets are turning in a mixed performance on the day. While the U.K.’s FTSE 100 Index is down by 0.1 percent, the French CAC 40 Index is just above the unchanged line and the German DAX Index is up by 0.2 percent.

British Prime Minister Theresa May, who survived a confidence vote on Wednesday, will be attending the EU summit in Brussels today and look to get some additional concessions on the Irish border aspect of the agreement.

U.S. Economic Reports

Import prices in the U.S. plunged by much more than expected in the month of November amid a steep drop in fuel prices, according to a report released by the Labor Department.

The report said initial jobless claims fell to 206,000, a decrease of 27,000 from the previous week’s revised level of 233,000.

Economists had expected jobless claims to slip to 225,000 from the 231,000 originally reported for the previous week.

Jobless claims pulled back further off the nearly eight-month high reached two weeks ago to hit their lowest level in almost three months.

A separate report from the Labor Department showed import prices plunged by much more than expected in the month of November amid a steep drop in fuel prices.

The report said import prices plummeted by 1.6 percent in November after climbing by 0.5 percent in October. Economists had expected import prices to slump by 0.9 percent.

Additionally, the Labor Department said export prices tumbled by 0.9 percent in November following an upwardly revised 0.5 percent advance in October.

Export prices had been expected to edge down by 0.1 percent compared to the 0.4 percent increase originally reported for the previous month.

At 1 pm ET, Treasury Department is due to finish off this week’s long-term securities auctions with the sale of $16 billion worth of thirty-year bonds.

Stocks In Focus

Shares of General Electric (GE) are moving sharply higher in pre-market trading after J.P. Morgan upgraded its rating on the industrial conglomerate to Neutral from Underweight. J.P. Morgan said GE now has more “balanced risk reward at current levels.”

Insurer Aflac (AFL) is also likely to see initial strength after confirming reports it is engaged in discussions with Japan Post Holdings regarding a potential minority investment in Aflac achieved through open market purchases.

Shares of Ciena (CIEN) may also move to the upside after the networking equipment maker reported better than expected fiscal fourth quarter results and announced a new $500 million stock repurchase program.

On the other hand, shares of Tailored Brands (TLRD) are seeing substantial pre-market weakness after the parent of apparel chains Jos. A. Bank and Men's Wearhouse reported third quarter earnings that beat estimates but weaker than expected revenues and lowered its full-year guidance.

Tommy Bahama and Lilly Pulitzer apparel brands maker Oxford Industries (OXM) may also come under pressure after reporting third quarter results that missed expectations and forecast weaker than expected current quarter results.
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