Market Analysis

Beyond the Numbers

Futures Climb Off Worst Levels But Still Point To Lower Open
1/17/2019 8:58 AM

The major U.S. index futures have climbed off their worst levels of the morning but currently continue to point to a modestly lower opening on Thursday following the strength seen on Wall Street over the two previous sessions.

A negative reaction to quarterly results from Morgan Stanley (MS) may generate early selling pressure, with the financial giant down by 3.7 percent in pre-market trading.

Morgan Stanley is likely to see initial weakness after reporting fourth quarter earnings and revenues that came in below analyst estimates.

Renewed trade concerns may also weigh on Wall Street after a report from the Wall Street Journal said federal prosecutors are pursuing a criminal investigation of China’s Huawei Technologies for allegedly stealing trade secrets from U.S. partners.

However, the futures regained ground following the release of a report from the Philadelphia Federal Reserve showing a significant acceleration in the pace of growth in regional manufacturing activity in the month of January.

Stocks moved mostly higher over the course of the trading day on Wednesday, adding to the gains posted on Tuesday. With the continued upward move, the major averages reached their best closing levels in a month.

The major averages ended the day in positive territory but well off their highs of the session. The Dow climbed 141.57 points or 0.6 percent to 24,207.16, the Nasdaq rose 10.86 points or 0.2 percent to 7,034.69 and the S&P 500 edged up 5.80 points or 0.2 percent to 2,616.10.

The continued strength on Wall Street partly reflected a positive reaction to upbeat earnings news from financial giants Bank of America (BAC) and Goldman Sachs (GS).

Shares of Bank of America moved sharply higher trading after the company reported fourth quarter results that beat analyst estimates on both the top and bottom lines.

Goldman Sachs also saw substantial strength after reporting fourth quarter earnings and revenues that exceeded expectations.

Buying interest was somewhat subdued, however, as traders continued to express uncertainty about the ongoing government shutdown.

Stocks remained mostly positive after British Prime Minister Theresa May's government survived a vote of no confidence in parliament.

The U.K.'s House of Commons defeated the motion raised by the leader of the main opposition Labour party Jeremy Corbyn by a vote of 325 to 306. The no-confidence vote came a day after May's Brexit deal was voted down 432 to 202.

The Federal Reserve also released its Beige Book this afternoon, with the report saying economic activity has continued to increase in most of the U.S. but also hinting at a deterioration in optimism.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, said eight of the twelve districts reported modest to moderate growth.

Looking ahead, the Beige Book said outlooks generally remained positive, although many districts reported that contacts had become less optimistic.

The drop in optimism reflected increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.

In other U.S. economic news, the Labor Department released a report showing another steep drop in import prices in the month of December, reflecting a continued nosedive in fuel prices

The Labor Department said import prices tumbled by 1.0 percent in December after plunging by a revised 1.9 percent in November.

Economists had expected import prices to plummet by 1.3 percent compared to the 1.6 percent slump originally reported for the previous month.

The report said export prices also fell by 0.6 percent in December after sliding by a revised 0.8 percent in November. The drop in export prices matched economist estimates.

A separate report from the National Association of Home Builders showed an unexpected improvement in homebuilder confidence in January.

The report said the NAHB/Wells Fargo Housing Market Index rose to 58 in January after slumping to 56 in December. Economists had expected the index to come in unchanged.

The notable decrease seen in the previous month dragged the housing market index down its lowest level since hitting 54 in May of 2015.

Financial stocks turned in some of the market's best performances on the day following the results from industry giants Bank of America and Goldman Sachs.

Reflecting the strength in the financial sector, the NYSE Arca Broker/Dealer Index and the KBW Bank Index surged up by 2.9 percent and 2.5 percent, respectively.

Notable strength was also visible among steel stocks, resulting in a 1.1 percent advance by the NYSE Arca Steel Index.

On the other hand, computer hardware stocks came under considerable selling pressure, dragging the NYSE Arca Computer Hardware Index down by 1.9 percent.

Commodity, Currency Markets

Crude oil futures are tumbling $0.99 to $51.32 a barrel after inching up $0.20 to $52.31 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,290.10, down $3.70 compared to the previous session’s close of $1,293.80. On Wednesday, gold climbed $5.40.

On the currency front, the U.S. dollar is trading at 108.84 yen compared to the 109.09 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1393 compared to yesterday’s $1.1392.


Asian stocks ended mixed on Thursday as a strong start to the U.S. earnings season and hopes for progress on the Brexit front were partly offset by worries about U.S.-China trade relations.

The pound held steady after British Prime Minister Theresa May's government survived a vote of no confidence in parliament.

Safe-haven assets such as gold and the yen rose after the Wall Street Journal reported that U.S. federal prosecutors are investigating Chinese tech giant Huawei Technologies for allegedly stealing trade secrets from U.S. companies.

Chinese stocks ended lower as investors braced for GDP data due to be released next Monday. Growth worries resurfaced after Chinese Premier Li Keqiang said the country is facing a challenging environment.

The benchmark Shanghai Composite Index fell 10.79 points or 0.4 percent to 2,559.64, while Hong Kong's Hang Seng Index ended down 146.47 points or 0.5 percent at 26,755.63.

Japanese shares reversed earlier gains to finish lower as automakers sagged on worries about increased U.S. tariffs.

The benchmark Nikkei 225 Index dipped 40.48 points or 0.20 percent to 20,402.27, while the broader Topix closed 0.4 percent higher at 1,543.20 on speculation the Bank of Japan may ramp up bond buying at next week's policy meeting.

Automakers fell after a Republican senator told reporters U.S. President Donald Trump is "inclined" to move ahead with tariffs on imported vehicles. Toyota Motor shed 0.8 percent and Honda Motor edged down slightly.

Banks and other financial firms closed higher, tracking overnight gains among their U.S. counterparts. Daiwa Securities gained 1.3 percent and Nomura Holdings jumped 4.1 percent.

Australian stocks hit over two-month highs after Wall Street's major indexes hit one-month highs overnight.

The S&P/ASX 200 Index rose 14.90 points or 0.3 percent to 5,850.10, extending gains for the third straight session. The broader All Ordinaries Index ended up 16.10 points or 0.3 percent at 5,909.80.

Banks ANZ, Commonwealth and Westpac rose between 0.3 percent and 0.7 percent, tracking overnight gains among their U.S. peers.

Diversified miner South32 rallied 3.6 percent after its second quarter coking coal output nearly doubled. BHP edged down 0.2 percent ahead of its second quarter production report due next week, while rival Rio Tinto, which will unveil its quarterly production figures on Friday, added 1 percent.

Whitehaven Coal climbed 3.7 percent after it achieved record quarterly output. Woodside Petroleum gained 0.7 percent as it reported a 43 percent jump in fourth quarter revenue.

AGL Energy dropped 2 percent after it revealed a problem with heavy-metal levels detected in coal ash from its Hunter Valley power stations.

On the economic front, official data showed that the number of home loan approvals fell by 0.9 percent in November. Economist expected a decline of 1.5 percent following the 2.2 percent jump in October.

Seoul stocks finished marginally higher as investors cheered strong earnings from Bank of America and Goldman Sachs.


European stocks have fallen in cautious trading on Thursday, with renewed U.S.-China trade tensions, weak results from French bank Societe Generale and concerns over the partial government shutdown in the U.S. keeping investors worried.

U.S.-China trade tensions resurfaced after media reports suggested the U.S. is pursuing criminal charges against Huawei for alleged theft of trade secrets.

While the U.K.’s FTSE 100 Index has slid by 0.7 percent, the French CAC 40 Index is down by 0.5 percent and the German DAX Index is down by 0.3 percent.

STMicroelectronics has moved notably lower after Taiwan Semiconductor forecast a nearly 14 percent drop in first-quarter revenue.

Media firm ITV has also slumped as Bank of America Merrill Lynch downgraded its rating on the company’s stock to Underperform from Buy.

Deutsche EuroShop has fallen in Frankfurt. The company said it anticipates a negative pre-tax valuation result of about 61 million euros in 2018.

French lender Societe Generale has also slid after the bank said its fourth quarter results would be hit by “disposals and a challenging environment in global capital markets.”

On the other hand, sanitary technology solutions provider Geberit has rallied after it posted 2018 sales in line with expectations.

Software provider Sage Group has also soared in London as it reiterated guidance after a strong start to its financial year.

Primark owner ABF has jumped after reporting a rise in revenue in the Christmas quarter and maintaining its full-year earnings guidance.

In economic news, Eurozone inflation slowed to 1.6 percent in December, Eurostat said, confirming its preliminary estimate released earlier in January.

According to the Royal Institution of Chartered Surveyors, the outlook for the U.K. housing market over the next quarter is the worst in 20 years due to uncertainty about Brexit.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly showed a modest decrease in the week ended January 12th, according to a report released by the Labor Department.

The report said initial jobless claims edged down to 213,000, a decrease of 3,000 from the previous week’s unrevised level of 216,000. Economists had expected jobless claims to inch up to 220,000.

A separate report released by the Federal Reserve Bank of Philadelphia on Thursday showed a significant acceleration in the pace of growth in regional manufacturing activity in the month of January.

The Philly Fed said its index for current manufacturing activity in the region jumped to 17.0 in January from 9.1 in December, with a positive reading indicating growth. Economists had expected the index to tick up to 10.0.

At 10:45 am ET, Federal Reserve Vice Chairman for Supervision Randal Quarles is due to participate in a discussion about “Insurance Regulation and Supervision” at the Insurance Information Institute’s Joint Industry Forum in New York.

Stocks In Focus

Shares of H.B. Fuller (FUL) are moving sharply lower in pre-market trading after the adhesives company reported weaker than expected fourth quarter results and forecast full-year 2019 earnings below analyst estimates.

Aluminum producer Alcoa (AA) is also seeing pre-market weakness despite reporting fourth quarter earnings that exceeded expectations.

Shares of PPG Industries (PPG) may also move to the downside after the paint and coatings company reported fourth quarter earnings that beat analyst estimates but provided disappointing guidance for the current quarter.

On the other hand, shares of PG&E Corp. (PCG) are seeing notable pre-market strength after shareholder BlueMountain Capital Management called the utility’s planned bankruptcy filing avoidable and unnecessary.

M&T Bank (MTB) may also see initial strength after reporting stronger than expected fourth quarter earnings growth.
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