Market Analysis

Beyond the Numbers

Upbeat Comments About Trade Talks May Generate Buying Interest
2/6/2019 9:04 AM

The major U.S. index futures are pointing to a modestly higher opening on Wednesday, with stocks likely to extend the upward trend seen in recent sessions.

Early buying interest may be generated in reaction to remarks by Treasury Secretary Steven Mnuchin, who called last week's trade talks with Chinese Vice Premier Liu He "very productive."

"We are committed to continue these talks," Mnuchin said in an interview on CNBC's "Squawk Box." "We're putting in an enormous amount of effort to hit this deadline and get a deal. That's our objective."

The comments from Mnuchin come after President Donald Trump's State of the Union address last night lacked details on progress in the U.S.-China trade talks.

With Trump saying a trade deal must include real structural change to end unfair trade practices, reduce the chronic trade deficit and protect American jobs, Mnuchin noted that he is part of a delegation heading to China next week for another round of talks.

Extending the strong upward move seen over the course of Monday’s session, stocks moved mostly higher during trading on Tuesday. The gains on the day once again lifted the major averages to their best closing levels in two months.

The major averages finished the day firmly in positive territory. The Dow climbed 172.15 points or 0.7 percent to 25,411.52, the Nasdaq advanced 54.55 points or 0.7 percent to 7,402.08 and the S&P 500 rose 12.83 points or 0.5 percent to 2,737.70.

The continued strength on Wall Street was partly attributed to news of a meeting between Federal Reserve Chairman Jerome Powell and President Donald Trump on Monday, which eased concerns about relations between the central bank chief and the president.

A statement from the Fed said Powell and Trump had an informal dinner to discuss recent economic developments and the outlook for growth, employment and inflation.

Fed Vice Chairman Richard Clarida and Mnuchin also attended the meeting, which came after months of Trump criticizing the central bank for raising interest rates.

The Fed said Powell did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.

Powell also told Trump the Fed's interest rate decisions will based solely on "careful, objective and non-political analysis."

The meeting between Powell and Trump, which was the first since the Fed chief was sworn in, comes after the central bank indicated last week it would take a "patient" approach to monetary policy.

Stocks also benefited from recent upward momentum, which has helped the markets recover from the sell-off seen in the weeks leading up to Christmas.

Optimism about U.S.-China trade talks has contributed to recent buying interest along with indications the prolonged government shutdown did not have a significant impact on the U.S. economy.

The markets were also reacting to fourth quarter results from Google parent Alphabet (GOOGL), which exceeded analyst estimates on both the top and bottom lines.

Meanwhile, traders largely shrugged off a report from the Institute for Supply Management showing activity in the U.S. service sector grew at a slower rate in the month of January.

The ISM said its non-manufacturing index fell to 56.7 in January from an upwardly revised 58.0 in December, although a reading above 50 still indicates growth in the service sector.

Economists had expected the non-manufacturing index to dip to 57.1 from the 57.6 originally reported for the previous month.

With the bigger than expected decrease, the index dropped to its lowest level since a matching reading in July of last year.

"Respondents are concerned about the impacts of the government shutdown but remain mostly optimistic about overall business conditions," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

Despite the continued advance by the broader markets, most of the major sectors ended the day showing only modest moves.

Software, chemical and retail stocks saw some strength on the day, while weakness emerged among natural gas and tobacco stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.19 to $53.47 a barrel after slumping $0.90 to $53.66 a barrel on Tuesday. Meanwhile, after edging down $0.10 to $1,319.20 an ounce in the previous session, gold futures are dipping $1.70 to $1,317.50 an ounce.

On the currency front, the U.S. dollar is trading at 109.79 yen compared to the 109.96 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1389 compared to yesterday's $1.1406.


Asian stocks rose on Wednesday after U.S. President Donald Trump said he would hold a two-day summit with North Korean leader Kim Jong Un in Vietnam at the end of February as part of a “bold new diplomacy.” However, Trump's second State of the Union address lacked details on progress in U.S.-China trade talks.

Ahead of a fresh round of negotiations in Beijing next week, Trump said a new trade deal must include real structural change to end unfair trade practices, reduce the chronic trade deficit and protect American jobs.

Japanese shares ended a tad higher as investors focused on Trump's speech and corporate earnings. The Nikkei 225 Index edged up 29.61 points or 0.1 percent to 20,874.06, while the broader Topix closed marginally lower at 1,582.13.

Shiseido, which has big exposure to the Chinese market, jumped 4.6 percent after Estee Lauder boosted its full-year profit outlook on booming skincare sales in Asia.

Meanwhile, automaker Toyota Motor Corp shed 0.7 percent after its fiscal third quarter profit plunged, hurt by unrealized gains and losses in equity securities.

Suzuki Motor lost 4.3 percent and Sega Sammy Holdings slumped 11.9 percent on disappointing earnings updates.

Australian markets ended modestly higher despite disappointing results from Commonwealth Bank of Australia. The benchmark S&P/ASX 200 Index rose 20.20 points or 0.3 percent to 6,026.10, while the broader All Ordinaries Index ended up 23.70 points or 0.4 percent at 6,091.80.

Banks lost ground after strong gains in the previous session. Commonwealth Bank of Australia declined 1.4 percent after reporting a drop in half-year profit. The other three big banks fell between 1.2 percent and 1.7 percent.

On the other hand, Insurance Australia Group advanced 4.3 percent after its underlying earnings rose 16 percent.

Energy stocks turned in a mixed performance, while mining heavyweights BHP and Rio Tinto climbed around 2 percent each on supply concerns after Brazilian miner Vale SA declared force majeure on some iron ore contracts.

Viva Energy Group soared 13.8 percent after it renewed its fuel partnership with Coles Group till 2029. Downer EDI gained 2.3 percent on securing a A$900 million order from the NSW government for 17 more of its Waratah Series 2 trains.

Virgin Australia added 2.7 percent. The airline said it has named former Queensland Rail boss Paul Scurrah as its chief executive and managing director following an eight-month search.


European stocks have fallen in cautious trading on Wednesday as earnings updates have proved to be a mixed bag and U.S. President Donald Trump's state of the union address failed to offer any plans to end an ongoing trade war with China.

There is also a likely risk of another government shutdown as Trump vowed to build a border wall that is a source of a deep partisan divide.

While the German DAX Index has fallen by 0.4 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index are down by 0.2 percent and 0.1 percent, respectively.

Daimler shares have moved notably lower in Frankfurt. The company's operating profit fell 22 percent during the final three months of 2018 amid the U.S-China trade war and ballooning costs for developing electric and self-driving cars.

British online supermarket Ocado has also slumped after a huge fire swept through a robotic warehouse in Hampshire.

On the other hand, shares of software firm Dassault Systemes have soared after its quarterly revenue topped forecasts.

Dutch banking firm ING Group NV has also moved sharply higher after its fourth quarter earnings beat expectations.

Housebuilder Redrow has rallied as it reported record half-year earnings despite Brexit uncertainty. Similarly, Barratt Developments has jumped after reporting strong first-half results.

CYBG shares have also spiked. After reporting a slight rise in lending in the first quarter of its 2019, the owner of Clydesdale and Yorkshire Banks said its net interest margin for 2019 would be at the upper end of its previous guidance range.

In economic news, German factory orders decreased for a second straight month in December and at a faster pace, defying expectations for a modest gain, preliminary data from the Federal Statistical Office showed.

Manufacturing orders decreased a calendar and seasonally adjusted 1.6 percent from the previous month, while they were forecast to rise 0.3 percent. The latest drop was the most since June, when orders plunged 3.6 percent.

U.S. Economic Reports

A government shutdown-delayed report released by the Commerce Department showed the U.S. trade deficit narrowed by much more than anticipated in the month of November.

The Commerce Department said the trade deficit narrowed to $49.3 billion in November from a revised $55.7 billion in October.

Economists had expected the deficit to narrow to $54.0 billion from the $55.5 billion originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended February 1st.

Crude oil inventories are expected to climb by 2.2 million barrels after rising by 0.9 million barrels in the previous week.

The Treasury Department is due to announce the results of its auction of $27 billion worth of ten-year notes at 1 pm ET.

At 6:05 pm ET, Federal Reserve Vice Chairman for Supervision Randal Quarles is scheduled to deliver a speech about the Federal Reserve Stress Testing Conference at the Council for Economic Education Vantage Point Reception in New York.

Fed Chairman Jerome Powell is due to address educators in Washington, D.C., and nationwide via webcast at 7pm ET.

Stocks In Focus

Shares of Electronic Arts (EA) are moving sharply lower in pre-market trading after the video game giant reported fiscal third quarter earnings that exceeded analyst estimates but weaker than expected revenues. EA also provided disappointing guidance.

Fellow video game publisher Take-Two Interactive (TTWO) is also likely to come under pressure after reporting weaker than expected fiscal third quarter revenues and forecasting fourth quarter results below analyst estimates.

Shares of Anadarko Petroleum (APC) may also see initial weakness after the oil and gas company reported fourth quarter results that missed expectations on both the top and bottom lines.

On the other hand, shares of Skyworks Solutions (SWKS) are moving notably higher in pre-market trading after the chipmaker reported weaker than expected fiscal first quarter results but announced a $2 billion stock repurchase program.

Microchip Technology (MCHP) is also likely to see initial strength after reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of Capri Holdings (CPRI) may also move to the upside after the luxury retailer reported fiscal third quarter earnings well above analyst estimates.
Follow RTT
Tomorrows Potential Movers