Market Analysis

Beyond the Numbers

Optimism About Trade Talks May Generate Continued Buying Interest
1/8/2019 8:53 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to extend the strong upward move seen over the two previous sessions.

Optimism about trade talks between the U.S. and China may continue to generate buying interest on Wall Street amid a second day of meetings between U.S. and Chinese officials.

The second day of negotiations coincided with an unannounced visit by North Korean leader Kim Jong Un, with some analysts saying China could use Kim’s visit as a bargaining chip in the trade talks.

In a post on Twitter this morning, President Donald Trump claimed, “Talks with China are going very well!”

Traders remain skeptical about the potential for a long-term trade deal, however, potentially keeping buying interest somewhat subdued.

A relatively quiet day on the U.S. economic front may also keep some traders on the sidelines amid the ongoing government shutdown.

Following the substantial rally seen last Friday, stocks saw some further upside over the course of the trading session on Monday. With the upward move, the major averages continued to offset the sell-off seen last month.

The major averages pulled back off their best levels in afternoon trading but remained firmly positive. The Dow rose 98.19 points or 0.4 percent to 23,531.35, the Nasdaq surged up 84.61 points or 1.3 percent to 6,823.57 and the S&P 500 climbed 17.75 points or 1.7 percent to 2,549.69.

The continued strength on Wall Street partly reflected optimism about high-level trade talks between the U.S. and China in Beijing.

Deputy U.S. Trade Representative Jeffrey Gerrish is leading the U.S. team at the two-day meeting, with a spokesman for China's Foreign Ministry predicting "positive and constructive discussions."

Meanwhile, traders largely shrugged off a report from the Institute for Supply Management showing growth in U.S. service sector activity slowed by more than anticipated in the month of December.

The ISM said its non-manufacturing index dropped to 57.6 in December after inching up to 60.7 in November. While a reading above 50 still indicates service sector growth, economists had expected the index to dip to 59.0.

"The non-manufacturing sector's growth rate cooled off in December," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee. "Respondents indicate that there still is concern about tariffs, despite the hold on increases by the U.S. and China."

Last Thursday, the ISM released a separate report showing a notable slowdown in the pace of growth in U.S. manufacturing activity in December

The purchasing managers index tumbled to 54.1 in December after rising to 59.3 in November, hitting its lowest level since November of 2016. Economists had expected the index to slip to 57.9.

Oil service stocks moved sharply higher over the course of the session, resulting in a 4.4 percent spike by the Philadelphia Oil Service Index. The rally by oil service stocks comes amid an increase by the price of crude oil.

Considerable strength was also visible among biotechnology stocks, as reflected by the 3.4 percent jump by the NYSE Arca Biotechnology Index.

Loxo Oncology (LOXO) led the sector higher after the biopharmaceutical company agreed to be acquired by drug giant Eli Lilly (LLY) for $235 per share in cash or approximately $8 billion.

Retail stocks also turned in a particularly strong performance on the day, driving the Dow Jones Retail Index up by 2.7 percent.

Natural gas, semiconductor, networking and computer hardware stocks also saw significant strength, while gold and utilities stocks bucked the uptrend.

Commodity, Currency Markets

Crude oil futures are advancing $0.77 to $49.29 barrel after climbing $0.56 to $48.52 a barrel on Monday. Meanwhile, after rising $4.10 to $1,289.90 ounce in the previous session, gold futures are falling $7.70 to $1,282.20 an ounce.

On the currency front, the U.S. dollar is trading at 108.81 yen compared to the 108.72 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1439 compared to yesterday’s $1.1474.


Asian stocks ended mixed on Tuesday despite optimism over U.S.-China trade talks as U.S. officials held a second day of trade talks with Chinese counterparts in Beijing.

The second day of negotiations coincided with an unannounced visit by North Korean leader Kim Jong Un, with some analysts saying China could use Kim's visit as a bargaining chip in the U.S. trade talks.

China's Shanghai Composite Index fell 0.3 percent to 2,526.46, while Hong Kong's Hang Seng Index rose 0.2 percent to 25,875.45.

Japanese shares ended on a positive note after Amazon and Microsoft fueled a second straight session of gains on Wall Street overnight.

The Nikkei 225 Index gained 165.07 points or 0.8 percent to finish at 20,204.04, and the broader Topix closed 0.4 percent higher at 1,518.43.

Automaker Honda Motor rallied 3.2 percent and Toyota rose 1.2 percent, while banks Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Mizuho Financial advanced between 0.3 percent and 1.3 percent.

Takeda Pharmaceutical climbed 2.3 percent after completing its acquisition of Irish drugmaker Shire plc. Inpex and Japan Petroleum gained around 1 percent after crude oil prices rose more than 1 percent overnight.

Olympus Corp jumped 8.4 percent after Morgan Stanley upgraded the stock's rating to Overweight from Equal-Weight.

South Korean stocks fell as investors monitored the second day of trade talks between the U.S. and China. The benchmark Kospi dropped 0.6 percent to 2,025.27. Samsung Electronics tumbled 1.7 percent after forecasting much weaker than expected fourth quarter results.

On the data front, South Korea posted a current account surplus of $5.06 billion in November, the Bank of Korea said, down from the $9.19 billion surplus in October. The goods account surplus stood at $7.97 billion, down from $11.46 billion in November of 2017.

Australian markets stocks notably higher amid signs that Beijing and Washington may be inching toward a trade deal.

Traders shrugged off weak trade data showing that Australia had a seasonally adjusted merchandise trade surplus of A$1.925 billion in November, shy of expectations for a surplus of A$2.175 billion and down from A$2.316 billion in October.

The benchmark S&P/ASX 200 Index rose 0.7 percent to 5,722.40, while the broader All Ordinaries Index ended higher by 0.7 percent at 5,783.30.

Banks ANZ, NAB and Westpac rose between 0.9 percent and 1.2 percent. Waste management giant Bingo Industries soared 5.7 percent after it offered to sell its Sydney processing plant to address antitrust concerns related to the planned acquisition of Dial-a-Dump.

Gold miner Evolution lost 3.4 percent, St Barbara tumbled 5 percent and Northern Star Resources declined 2.6 percent as dovish comments from the Fed boosted investors' appetite for risk.

Sleep device maker ResMed advanced 1.4 percent after completing the $225 million acquisition of U.S.-based asthma and pulmonary specialist Propeller Health.


European stocks have risen on Tuesday as investors express hopes for a trade deal between the U.S. and China and the Italian government approved a decree aimed at shoring up troubled lender Banca Carige.

While the French CAC 40 Index has jumped by 1.6 percent, the German DAX Index and the U.K.’s FTSE 100 Index are up by 1.2 percent and 1.1 percent, respectively.

Shares of Carrefour have rallied in Paris after Bank of America Merrill Lynch upgraded its rating on the company’s stock to buy.

Rolls- Royce Holdings has also jumped in London after Britain's Serious Fraud Office dropped its investigation of some individuals associated with the company.

Meanwhile, shares of Sika AG have fallen following reports the specialty chemicals company will buy French rival Parex for $2.55 billion.

WM Morrison Supermarkets has also fallen after a disappointing trading update as it reported a sharp slowdown in sales growth at its stores over Christmas.

On the data front, Eurozone economic sentiment decreased more than expected in December to its lowest level since the start of 2017, survey data from the European Commission showed.

The economic sentiment index dropped to 107.3 from 109.5 in November. Economists had predicted a reading of 108.2.

France's merchandise trade deficit widened sharply in November and was worse than economists' forecast, preliminary figures from the French Customs showed.

The visible trade deficit rose to 5.1 billion euros from 4.1 billion euros in October. Economists had expected a shortfall of 4.9 billion euros for November. A year ago, the deficit was 5.96 billion euros.

German industrial production decreased for a third straight month in November, defying expectations for an increase, amid a sharp drop in consumer goods and energy output, preliminary data from the Federal Statistical Office revealed.

Industrial production fell a calendar and seasonally adjusted 1.9 percent from October, when it decreased 0.8 percent. Economists had expected a 0.3 percent increase.

The British pound was little changed as a report showed British house prices unexpectedly surged in December and U.K. Brexit Secretary Stephen Barclay denied a report in the Telegraph that U.K. officials are "putting out feelers" in Brussels about an extension to the Article 50 notice.

U.S. Economic Reports

At 10 am ET, the Labor Department is scheduled to release the results of its Job Openings and Labor Turnover Survey for November.

The Treasury Department is due to announce the results of its auction of $38 billion worth of three-year notes at 1 pm ET.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of November. Consumer credit is expected to increase by $18.0 billion.

Stocks In Focus

Shares of Union Pacific (UNP) are moving significantly higher in pre-market trading after the railway operator named industry veteran Jim Vena as its chief operating officer.
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