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Beyond the Numbers

Traders Clinging To Optimism About U.S.-China Trade Talks
1/9/2019 9:05 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with stocks likely to extend the upward move see over the past few sessions.

News that trade talks between U.S. and China officials were extended to a third day may add to recent optimism about a potential trade deal, generating continued buying interest on Wall Street.

Officials have not made public comments about the outcome of the talks, although traders remain hopeful the U.S. and China will reach a long-term trade agreement before a March 1st deadline.

Trading activity may be somewhat subdued, however, as traders look ahead to the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

The minutes of the December meeting will provide further insight into the Fed’s decision to raise interest rates by 25 basis points to a range of 2.25 percent to 2.50 percent.

Traders are likely to scrutinize the minutes for clues about the outlook for interest rates after Fed Chairman Jerome Powell noted last Friday the central bank “will be patient” as it watches the economy evolve.

The continued upward momentum on Wall Street comes even as the partial government shutdown seems likely to continue after President Donald Trump and Democratic leaders addressed the nation last night.

Both Trump and the Democrats seemed dug in on their positions over the president’s demand for $5.7 billion to construct a wall on the U.S. border with Mexico.

Stocks moved mostly higher over the course of the trading day on Tuesday, extending the upward move seen over the two previous sessions. The major averages all ended the day firmly in positive territory.

The Dow surged up 256.10 points or 1.1 percent to 23,787.45, the Nasdaq jumped 73.53 points or 1.1 percent to 6,897.00 and the S&P 500 shot up 24.72 points or 1 percent to 2,574.41.

Optimism about trade talks between the U.S. and China contributed to the continued strength 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 before the start of trading, President Donald Trump claimed, "Talks with China are going very well!"

Biotechnology stocks showed a substantial move to the upside on the day, driving the NYSE Arca Biotechnology Index up by 1.9 percent.

Significant strength was also visible among transportation stocks, as reflected by the 1.6 percent advance by the Dow Jones Transportation Average.

Most of the other major sectors also moved higher over the course of the session, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are spiking $1.47 to $51.25 a barrel after jumping $1.26 to $49.78 a barrel on Tuesday. Meanwhile, after falling $4 to $1,285.90 an ounce in the previous session, gold futures are unchanged.

On the currency front, the U.S. dollar is trading at 108.76 yen compared to the 108.75 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1458 compared to yesterday’s $1.1441.

Asia

Asian stocks rose across the board on Wednesday, buoyed by optimism that trade talks between the U.S. and China are progressing.

With talks getting extended to Wednesday and U.S. President Donald Trump saying in a tweet that discussions between the world's two largest economies were "going very well," investors are optimistic that a trade deal can be struck ahead of a March 1st deadline established by Trump and Chinese President Xi Jinping.

China's Shanghai Composite Index climbed 17.88 points or 0.7 percent to 2,544.34, while Hong Kong's Hang Seng Index surged up 586.87 points or 2.3 percent to 26,462.32.

Beijing approved the import of five genetically modified crops on Tuesday, the first in about 18 months in a bid to boost its purchases of U.S. grains.

Japanese shares rose for a third day amid signs of progress in the U.S.-China trade talks. The benchmark Nikkei 225 Index jumped 223.02 points or 1.1 percent to 20,427.06, while the broader Topix closed up 1.1 percent at 1,535.11.

Mitsubishi Heavy Industries, Komatsu, Panasonic, Pacific Metals, Yaskawa Electric and Daikin Industries rallied 3-4 percent. Astellas Pharma gained 2.7 percent to hit a three-week high after its drug Evenity received a world-first approval in Japan.

Chip-related stocks underperformed, with Advantest falling 2.5 percent after Goldman Sachs said it expects semiconductor companies to face a challenging year ahead.

Australian stocks hit a five-week high after Wall Street closed higher for a third straight session overnight. The benchmark S&P/ASX 200 Index advanced 55.90 points 1 percent to finish at 5,778.30 amid broad-based gains. The broader All Ordinaries Index climbed 55.10 points or 1 percent to 5,838.40.

Healthcare stocks led the surge, with CSL and Cochlear rising around 3 percent. Energy stocks such as Origin Energy, Woodside Petroleum, Oil Search and Santos rose 1-3 percent after oil prices jumped more than 2 percent on Tuesday on reports about output reductions by oil producers. Banks ANZ, NAB and Westpac rose between 0.9 percent and 1.3 percent.

Meanwhile, shares of Navigator Global Investments slumped 27.6 percent after the fund manager said that increased volatility and the downturn in global asset markets over the December 2018 quarter reduced its assets under management.

On the data front, the service sector in Australia continued to expand in December, albeit at a slower pace, the latest survey from the Australian Industry Group showed with a Performance of Service Index score of 52.1, down from 55.1 in November.

South Korean stocks rallied on growing optimism over a trade deal between the U.S. and China. The benchmark Kospi jumped 39.44 points or 2 percent to finish at 2,064.71, posting its biggest single-day gain since November.

Shares of electric and electronic and transportation equipment led the surge after China said it would unveil policies to boost domestic spending on items such as autos and home appliances.

Tech heavyweights Samsung Electronics and SK Hynix closed higher by 3.9 percent and 7.4 percent, respectively, even as Samsung forecast a decline in quarterly operating profit for the first time in two years.

Europe

European stocks are moving notably higher on Wednesday amid continued optimism about trade talks between the U.S. and China.

As the trade talks entered a third day, there is speculation that a trade deal can be struck ahead of a March 1 deadline established by President Donald Trump and Chinese President Xi Jinping.

While the U.K.’s FTSE 100 Index has surged up by 1.1 percent, the French CAC 40 Index and the German DAX Index are both up by 1.4 percent.

Tech stocks have risen despite reports that Apple is cutting its current production plan for new iPhones by about 10 percent for the next three months.

Homebuilder Taylor Wimpey has moved sharply higher in London. After a positive trading update, the company said it remains committed to returning 600 million pounds to shareholders by way of total dividend in 2019.

Fashion chain Ted Baker has also jumped. The company reported over 12 percent growth in retail sales for the five-week period from December 2, 2018 to January 5, 2019 and said its results for the 52 weeks ending January 26th will be in line with expectations.

Airbus shares have also rallied after the aircraft manufacturer confirmed that it achieved 800 commercial aircraft deliveries in 2018, subject to the finalization of the auditing process.

On the economic front, Germany's merchandise trade surplus unexpectedly grew in November to its biggest level in five months despite weaker exports, preliminary data from the Federal Statistical Office showed.

The non-adjusted trade surplus grew to 20.5 billion euros from 18.9 billion euros in October. Economists had expected a surplus of 18.6 billion euros.

Meanwhile, permanent job appointments in the U.K. grew at the weakest pace since early 2017 amid a sharp decline in the supply of candidates, survey data from IHS Markit showed.

The KPMG/REC report on jobs showed that weaker growth in appointments led to further marked increases in starting pay and salary inflation was the quickest in over three years.

U.S. Economic Reports

At 9 am ET, Chicago Federal Reserve President Charles Evans is due to deliver a speech at a Discover Financial Services meeting in Riverwoods, Illinois.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended January 4th at 10:30 am ET. In the previous week, crude oil inventories remained virtually unchanged.

At 11:30 am ET, Boston Fed President Eric Rosengren is due to provide an economic outlook to members of the Boston Economic Club as well as Boston Fed staff in Boston, Massachusetts.

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

At 2 pm ET, the Fed is due to release the minutes of its December monetary policy meeting. At the meeting, the Fed decided to raise rates by 25 basis points to 2.25 to 2.50 percent.

Stocks In Focus

Shares of J.C. Penney (JCP) are likely to see initial strength after the department store chain reported a 3.5 percent drop in same-store holiday sales but said it still expects to generate positive free cash flow in fiscal 2018, reduce inventory and end the year with liquidity in excess of $2 billion.

Apple supplier Skyworks Solutions (SWKS) is also moving notably higher in pre-market trading despite lowering its fiscal first quarter guidance due to unit weakness across its largest smartphone customers.

Meanwhile, shares of Constellation Brands (STZ) are moving significantly lower in pre-market trading after the producer and marketer of beer, wine and spirits reported fiscal third quarter results that exceeded analyst estimates but lowered its full-year earnings guidance.
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