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Beyond the Numbers

Profit Taking May Lead To Another Early Pullback On Wall Street
1/11/2019 9:00 AM

The major U.S. index futures are currently pointing to a lower opening on Friday following the upward move seen for five consecutive sessions.

Profit taking may contribute to initial weakness on Wall Street along with concerns about the ongoing government shutdown and skepticism about a potential trade deal between the U.S. and China.

Stocks managed to recover from an early downward move on Thursday, however, as recent upward momentum helped the major averages extend their recent winning streak.

Early trading may be impacted by reaction to a report from the Labor Department showing a slight drop in consumer prices in the month of December.

After recovering from an early move to the downside, stocks moved mostly higher over the course of the trading day on Thursday. With the turnaround on the day, the major averages closed higher for the fifth consecutive session.

The major averages ended the day just off their highs of the session. The Dow advanced 122.80 points or 0.5 percent to 24,001.92, the Nasdaq rose 28.99 points or 0.4 percent to 6,986.07 and the S&P 500 climbed 11.68 points or 0.5 percent to 2,596.64.

The initial weakness on Wall Street came as traders cashed in on recent strength on Wall Street as assessments of trade talks between the U.S. and China showed no significant breakthroughs.

A statement from the office of U.S. Trade Representative Robert Lighthizer said the meetings were held as part of an agreement between President Donald Trump and Chinese President Xi Jinping to engage in 90 days of negotiations with a view to achieving needed structural changes in China.

The statement said the talks included discussions on China's pledge to purchase a substantial amount of U.S. goods and services but did not provide details about the tone or outcome of the meetings.

"The United States officials conveyed President Trump's commitment to addressing our persistent trade deficit and to resolving structural issues in order to improve trade between our countries," the statement said.

The statement indicated the delegation led by Deputy U.S. Trade Representative Jeffrey Gerrish will now report back to receive guidance on the next steps.

Meanwhile, a statement from China's Commerce Ministry described the talks as "extensive, in-depth and detailed" and said the meetings "laid a foundation for the resolution of each others' concerns."

Selling pressure waned shortly after the start of trading, however, as traders remain optimistic the U.S. and China will eventually reach a long-term trade deal.

On the U.S. economic front, the Labor Department released a report showing a bigger than expected drop in initial jobless claims in the week ended January 5th.

The report said initial jobless claims fell to 216,000, a decrease of 17,000 from the previous week's revised level of 233,000.

Economists had expected jobless claims to dip to 225,000 from the 231.000 originally reported for the previous week.

Traders also kept an eye on remarks by Federal Reserve Chairman Jerome Powell, who reiterated the Fed will be patient in raising interest rates further, noting the central bank is "waiting and watching."

Powell also said during a discussion at the Economic Club of Washington that the Fed's balance sheet will be "substantially smaller than it is now."

Biotechnology stocks showed a significant move to the upside over the course of the session, driving the NYSE Arca Biotechnology Index up by 1.6 percent. With the jump, the index reached its best closing level in over a month.

Considerable strength also emerged among interest rate-sensitive commercial real estate and utilities stocks, with the Dow Jones Real Estate Index and the Dow Jones Utility Average both climbing by 1.4 percent.

Telecom, semiconductor, and networking stocks also saw notable strength on the day, while gold stocks moved lower along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are slipping $0.36 to $52.23 a barrel after rising $0.23 to $52.59 a barrel on Thursday. Meanwhile, after falling $4.60 to $1,287.40 an ounce in the previous session, gold futures are climbing $4.90 to $1,292.30 an ounce.

On the currency front, the U.S. dollar is trading at 108.17 yen compared to the 108.43 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1528 compared to yesterday’s $1.1500.

Asia

Asian stocks ended mostly higher on Friday after China's Commerce Ministry said trade talks with the U.S. in Beijing were extensive and helped establish a "foundation" to resolve differences.

Prospects for more Chinese stimulus to arrest the slowdown in growth and rising expectations that the Federal Reserve will pause its rate tightening cycle this year also underpinned sentiment.

China's Shanghai Composite Index climbed 18.73 points or 0.7 percent to 2,553.83, while Hong Kong's Hang Seng Index gained 145.84 points or 0.6 percent to close at 26,667.27.

Japanese shares posted strong gains after Wall Street extended its rally into a fifth straight day on Thursday. The Nikkei 225 Index jumped 195.90 points or 1 percent to 20,359.70, taking overall gains for the week to 4.1 percent, the biggest weekly gain in more than two months. The broader Topix closed 0.5 percent higher at 1,529.73.

Advantest, Hitachi Construction Machinery, Takeda Pharma and Hitachi climbed 4-9 percent. Uniqlo operator Fast Retailing rallied 6.2 percent despite reporting an unexpected decline in quarterly profit.

Olympus Corp. soared almost 10 percent to reach a nearly three-month high after the medical equipment and camera maker said it would propose to give top shareholder U.S. hedge fund ValueAct Capital a board seat.

Meanwhile, FamilyMart UNY Holdings declined 2.5 percent after its sales for the March-November period fell 1.7 percent.

In economic news, Japan had a current account surplus of 757.2 billion yen in November, the Ministry of Finance said, exceeding expectations for a surplus of 566.3 billion yen but down from 1,309.9 billion yen in October.

The trade balance reflected a deficit of 559.1 billion yen versus expectations for a shortfall of 612.6 billion yen.

Another report showed that the average of household spending in Japan rose 0.3 percent year-over-year in November.

Australian markets fell modestly amid a lack of a clear resolution to the U.S.-China trade talks. The benchmark S&P/ASX 200 Index dropped 20.70 points or 0.4 percent to 5,774.60, while the broader All Ordinaries Index ended down 19.10 points or 0.3 percent at 5,834.80.

An overnight decrease in copper and iron ore prices pulled down miners, with heavyweights BHP and Rio Tinto falling 1.1 percent and 0.6 percent, respectively.

Gold miner Evolution Mining and Northern Star fell over 2 percent despite gold prices rising on a weaker dollar.

On the other hand, Treasury Wine Estates jumped 4.3 percent after saying it expects earnings above consensus estimates. JB Hi-Fi rallied 2.6 percent as retail sales figures for November beat expectations.

Australian retail sales grew a seasonally adjusted 0.4 percent month-on-month in November, exceeding expectations for an increase of 0.3 percent, which would have been unchanged from the October reading.

Another report revealed that the construction sector in Australia contracted a faster rate in December.

Europe

European stocks have moved to the downside on Friday amid concerns about the U.S. government shutdown, a Brexit impasse and the lack of any clear resolution to the U.S-China trade talks.

While the U.K.’s FTSE 100 Index has fallen by 0.4 percent, the German DAX Index and the French CAC 40 Index are sliding by 0.7 percent and 0.8 percent, respectively.

Data from the Office for National Statistics showed the U.K. economy grew 0.2 percent in November versus expectations for 0.1 percent growth.

However, growth slowed to 0.3 percent in the three months through November from 0.4 percent in the period through October, as manufacturing slumped.

Flybe Group has fallen sharply in London following a Sky News report that Stobart Group has teamed up with Virgin Atlantic and a New York-based hedge fund to buy the cash-strapped regional airline.

Renault has also dropped in Paris after reports that Tokyo prosecutors have indicted former Nissan Motor Chairman Carlos Ghosn on two new charges involving financial crimes.

Deutsche Bank has also declined in Frankfurt on a Bloomberg report that the lender is offshoring about 60 accounting positions to Mumbai from its campus in Jacksonville, Florida.

On the other hand, shares of Richemont have jumped. The Swiss luxury goods group reported that its third-quarter total sales climbed 25 percent from last year, despite headwinds in some of its markets.

Construction firm Lafargeholcim has also moved to the upside after Bank of America upgraded its rating on the company’s stock to Buy from Underperform.

Homebuilder Taylor Wimpey has also climbed after releasing an upbeat trading statement, while wind turbines maker Nordex Group has jumped after it signed a major contract for a 150 MW project in the U.S.

U.S. Economic Reports

Consumer prices in the U.S. edged slightly lower in the month of December, according to a report released by the Labor Department on Friday, with the modest decrease largely reflecting a steep drop in gasoline prices.

The Labor Department said its consumer price index slipped by 0.1 percent in December after coming in unchanged in November. The slight drop in consumer prices matched economist estimates.

Excluding food and energy prices, the core consumer price index rose by 0.2 percent in December, matching the increases seen in the two previous months as well as expectations.

Stocks In Focus

Shares of Activision Blizzard (ATVI) are moving significantly lower after the video game giant revealed in a SEC filing it is transferring full publishing rights and responsibilities for the popular Destiny franchise to developer Bungie.

PG&E Corp. (PCG) may also come under pressure after Moody’s lowered the utility’s credit rating to junk, noting the company is increasingly reliant on extraordinary intervention by legislators and regulators that may not occur soon enough or be of sufficient magnitude to address adverse developments.

Shares of Starbucks (SBUX) is also likely to see initial weakness after Goldman Sachs downgraded its rating on the coffee giant to Neutral from Buy, citing concerns about slower growth in China.

On the other hand, shares of Netflix (NFLX) may move to the upside after Raymond James and UBS both upgraded their ratings on the video streaming giant.
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