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Beyond the Numbers

Optimism About Trade May Generate Continued Buying Interest
1/18/2019 8:50 AM

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

Optimism about trade talks between the U.S. and China is likely to contribute to continued strength on Wall Street after yesterday’s Wall Street Journal report indicating the U.S. is considering lifting tariffs on Chinese goods.

Government officials have denied the report, although traders have recently been unrelentingly upbeat despite uncertainty about trade, the global economic outlook, and the ongoing U.S. government shutdown.

After turning in a lackluster performance for much of the session, stocks shot higher late in the trading day on Thursday. The major averages gave back ground after the spike but managed to remain firmly in positive territory.

With the gains on the day, the major averages once again reached their best closing levels in a month. The Dow advanced 162.94 points or 0.7 percent to 24,370.10, the Nasdaq rose 49.77 points or 0.7 percent to 7,084.46 and the S&P 500 climbed 19.86 points or 0.8 percent to 2,635.96.

The late-day rally came after a report from the Wall Street Journal said the U.S. is considering lifting tariffs on Chinese goods in an effort to calm markets and give Beijing an incentive to make deeper concessions.

People close to internal deliberations told the Journal that Treasury Secretary Steven Mnuchin proposed the idea of lifting some or all tariffs in a series of strategy meetings.

The people said the aim of easing the tariffs is to advance trade talks and win China's support for longer-term reforms.

The report offset trade concerns raised by an earlier Journal report indicating federal prosecutors are pursuing a criminal investigation of China's Huawei Technologies for allegedly stealing trade secrets from U.S. partners.

A negative reaction to quarterly results from Morgan Stanley (MS) also weighed on the markets early in the session, with the financial giant slumping by 4.4 percent.

The steep drop by Morgan Stanley came after the company reported fourth quarter earnings and revenues that came in below analyst estimates.

However, the negative sentiment was partly offset by 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.

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.

A separate report from the Labor Department unexpectedly showed a modest decrease in first-time claims for unemployment benefits in the week ended January 12th.

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.

Chemical stocks showed a strong move to the upside over the course of the session, driving the S&P Chemical Sector Index up by 1.8 percent to its best closing level in well over a month.

PPG Industries (PPG) posted a standout gain after the paint and coatings company reported fourth quarter earnings that beat analyst estimates.

Transportation stocks also saw considerable strength, resulting in a 1.6 percent advance by the Dow Jones Transportation Average. The average reached its best closing level in over a month.

Significant strength also emerged among steel stocks amid optimism about Chinese demand, with the NYSE Arca Steel Index climbing by 1.6 percent.

Tobacco, oil service and semiconductor stocks also moved notably higher on the day, contributing to the continued advance by the broader markets

Commodity, Currency Markets

Crude oil futures are climbing $0.61 to $52.68 a barrel after slipping $0.24 to $52.07 a barrel on Thursday. Meanwhile, after dipping $1.50 to $1,292.30 an ounce in the previous session, gold futures are slumping $10.90 to $1,281.40 an ounce.

On the currency front, the U.S. dollar is trading at 109.40 yen compared to the 109.26 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1402 compared to yesterday’s $1.1389.

Asia

Asian stocks rose on Friday as reports of progress in U.S.-China trade talks as well as stronger than expected economic data from the U.S. helped ease global growth worries.

China's Shanghai Composite Index jumped 36.37 points or 1.4 percent to 2,596.01 ahead of China's fourth-quarter GDP data due on Monday. Hong Kong's Hang Seng Index surged up 335.18 points or 1.3 percent to 27,090.81.

Japanese shares closed higher as the yen weakened on improved risk appetite after a report the U.S. could lift trade tariffs on China.

The benchmark Nikkei 225 Index rallied 263.80 points or 1.3 percent to 20,666.07, while the broader Topix finished higher by 14.39 points or 0.9 percent at 1,557.59.

Exporters surged, with Canon, Nissan Motor, Panasonic and Sony rising between 0.7 percent and 1.3 percent. In the tech sector, Tokyo Electron soared 3.8 percent and Advantest surged 1.9 percent.

In economic news, the Ministry of Internal Affairs and Communications said that overall consumer prices in Japan rose an annual 0.3 percent in December, in line with expectations.

Australian stocks hit over two-month highs, with banks and material stocks gaining ground on hopes of easing U.S.-China trade tensions.

The benchmark S&P/ASX 200 Index rose 29.50 points or 0.5 percent to 5,879.60, extending gains for the fourth straight session. The broader All Ordinaries Index ended up 31.40 points or 0.5 percent at 5,941.20.

The big four banks rose between 0.3 percent and 0.6 percent. Mining giant Rio Tinto edged up 0.3 percent after it flagged a rise in Pilbara iron ore exports this year. BHP, which will unveil its second quarter production figures next week, advanced 0.7 percent.

Payment service provider Afterpay Touch Group soared 13 percent after its first-half global underlying sales jumped 240 percent. Language tech company Appen climbed 5 percent.

Seoul stocks closed higher for the fourth consecutive session on optimism for progress in the U.S.-China trade dispute.

The benchmark Kospi climbed 17.22 points or 0.8 percent to 2,124.28 after a report suggested U.S. Treasury Secretary Steven Mnuchin has discussed lifting some or all tariffs imposed on Chinese imports to secure a beneficial long-term trade deal with Beijing.

Automakers led the surge after the government presented its hydrogen economy plan featuring fuel cell electric vehicles. Hyundai Motor rose 1.2 percent and Hyundai Mobis added 1.5 percent.

Europe

European stocks rose on Friday and hit their highest level since early December as investors cheered a solid start to the U.S. corporate earnings season as well as signs of progress in U.S.-China trade talks.

There is anticipation of a thaw in the China-U.S. trade war amid a report U.S. officials are debating lifting tariffs on Chinese imports to give Beijing a reason to make deeper concessions in ongoing trade talks.

While the German DAX Index has spiked by 1.9 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index have both shot up by 1.6 percent.

Automakers BMW, Daimler, Volkswagen and Renault have moved notably higher amid easing concerns around tariffs.

French retailer Casino Group has also rallied after its fourth quarter total sales grew 5.1 percent on an organic basis and 3.6 percent on a same-store basis.

On the other hand, Telecom Italia has plunged after the company warned 2018 earnings from its domestic business would be lower than in 2017. Low-cost airline Ryanair has also dropped after yet another profit warning.

Cyber security expert Sophos has also slumped after the company reported “subdued performance” in its third quarter trading update.

U.S. Economic Reports

New York Federal Reserve President John Williams is scheduled to speak about the U.S. economic outlook and monetary policy at the New Jersey Bankers Association's Economic Leadership Forum in Somerset, New Jersey, at 9:05 am.

At 9:15 am ET, the Federal Reserve is due to release its report on industrial production in the month of December. Industrial production is expected to rise by 0.2 percent in December after climbing by 0.6 percent in November.

The University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of January at 10 am ET. The consumer sentiment index is expected to drop to 97.0 in January after rising to 98.3 in December.

Stocks In Focus

Shares of Atlassian (TEAM) are moving sharply higher in pre-market trading after the collaboration and productivity software provider reported fiscal second quarter results that exceeded analyst estimates on both the top and bottom lines.

Business software maker Progress Software (PRGS) may also see initial strength after reporting better than expected fiscal fourth quarter earnings and revenues.

Shares of CVS Health (CVS) may also move to the upside after the drugstore chain said it has reached an agreement under which Walmart (WMT) will continue participating in the CVS Caremark pharmacy benefit management commercial and Managed Medicaid retail pharmacy networks.

On the other hand, shares of Netflix (NFLX) may come under pressure after the video streaming giant reported fourth quarter earnings that beat estimates but weaker than expected revenues.

Credit card giant American Express (AXP) could also move to the downside after reporting fourth quarter results that missed analyst estimates on both the top and bottom lines.
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