Market Analysis

Beyond the Numbers

Trade Concerns May Lead To Continued Pullback On Wall Street
2/8/2019 8:56 AM

The major U.S. index futures are currently pointing to a lower opening on Friday, with stocks likely to extend the pullback seen over the two previous sessions.

The downward momentum on Wall Street comes amid lingering concerns about a potential trade deal between the U.S. and China.

Adding to the worries, a report from the Wall Street Journal said the U.S. and China don't even have a draft accord that specifies where they agree and disagree.

The report comes after President Donald Trump told reporters he will not meet with Chinese President Xi Jinping before a crucial March deadline.

“Not yet. Maybe. Probably too soon,” Trump said when asked if he would meet with Xi in the next month or so before flatly saying, “No” when asked if the two leaders would meet before the deadline.

Tariffs on Chinese goods are currently set to jump automatically on the deadline, although Trump is expected to delay the increase as talks continue.

Stocks moved notably lower over the course of the trading session on Thursday, adding to the modest losses posted in the previous session. With the drop, the major averages pulled back further off the two-month closing highs set on Tuesday.

The major averages climbed well off their worst levels of the day but still closed firmly negative. The Dow slumped 220.77 points or 0.9 percent to 25,169.53, the Nasdaq plunged 86.93 points or 1.2 percent to 7,288.35 and the S&P 500 tumbled 25.56 points or 0.9 percent to 2,706.05.

Renewed concerns about a U.S.-China trade deal generated selling pressure after a report from CNBC said President Donald Trump and Chinese President Xi Jinping are "highly unlikely" to meet before a March 2nd deadline.

A senior administration official told CNBC that Trump and Xi may still meet "shortly" after the deadline, when tariffs on Chinese goods are currently set to jump automatically.

The report from CNBC comes after White House economic adviser Larry Kudlow told Fox Business the U.S. and China have a "pretty sizable distance to go" before reaching a trade deal.

Worries about the U.S.-China trade talks added to concerns about the global economy raised by the European Commission lowering its eurozone growth forecast.

The European Commission slashed its GDP growth forecast for 2019 to 1.3 percent from 1.9 percent and lowered its estimate for growth in 2020 to 1.6 percent from 1.7 percent.

The downgrade reflected external factors, such as trade tensions and the slowdown in emerging markets, notably in China.

Officials warned that the European outlook faces substantial risks due to the uncertainty about Brexit and the slowdown in China.

A steep drop by shares of Twitter (TWTR) also weighed on the markets after the social media giant reported better than expected fourth quarter results but forecast a jump in expenses this year.

On the U.S. economic front, a report from the Labor Department showed first-time claims for U.S. unemployment benefits pulled back less than expected in the week ended February 2nd after the jump seen in the previous week.

The report said initial jobless claims fell to 234,000, a decrease of 19,000 from the previous week's unrevised level of 253,000. Economists had expected jobless claims to drop to 221,000.

Energy stocks moved sharply lower over the course of the trading session amid a steep drop by the price of crude oil. Crude for March delivery climbed well off its worst levels but still tumbled amid concerns about global demand.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index nosedived by 4.6 percent, the NYSE Arca Natural Gas Index plunged by 3.4 percent and the NYSE Arca Oil Index slumped by 2.4 percent.

Considerable weakness also emerged among semiconductor stocks, as reflected by the 2.2 percent drop by the Philadelphia Semiconductor Index. The index pulled back after ending the previous session at its best closing level in four months.

Biotechnology, computer hardware, and chemical stocks also moved significantly lower on the day, while utilities stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are inching up $0.16 to $52.64 a barrel after tumbling $1.37 to $52.64 a barrel on Thursday. Meanwhile, after edging down $0.20 to $1,314.20 an ounce in the previous session, gold futures are rising $4.30 to $1,318.50 an ounce.

On the currency front, the U.S. dollar is trading at 109.86 yen compared to the 109.82 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1348 compared to yesterday’s $1.1341.


Asian stocks fell on Friday amid growth and trade worries after the European Commission lowered its forecasts for the eurozone and a report said U.S. President Donald Trump does not plan to meet with Chinese President Xi Jinping before the deadline for reaching a trade deal.

Japanese shares led regional losses to hit a one-month low as the yen strengthened on fresh worries about the U.S.-China trade dispute. Weak earnings results also sapped investors' appetite for risk.

The Nikkei 225 Index plunged 418.11 points or 2 percent to 20,333.17, marking its biggest single-day percentage loss since early January and the lowest closing level since January 10th. The broader Topix closed 1.9 percent lower at 1,539.40.

Nikon Corp. slumped 11.7 percent after cutting its annual operating profit forecast for its imaging business. Machinery makers Komatsu, Hitachi Construction Machinery and Fanuc lost 3-4 percent on concerns over Chinese demand. Sony soared 4.1 percent after announcing a share buyback.

On the economic front, a government report showed that Japan posted a current account surplus of 452.8 billion yen in December, down 43.1 percent year-on-year. That was shy of expectations for a surplus of 458.5 billion yen and down from 757.2 billion yen in November.

Japan's trade balance in December showed a surplus of 216.2 billion yen, exceeding forecasts for 132.4 billion yen following the 559.1 billion yen deficit in the previous month.

Average household spending in Japan was up a discontinuity adjusted 0.1 percent year-on-year in December, missing expectations for an increase of 0.9 percent.

Australian markets ended in the red as worries over growth and trade prompted traders to book some profits in the mining and energy sectors. The benchmark S&P/ASX 200 Index dropped 21 points or 0.3 percent to 6,071.50, while the broader All Ordinaries Index ended down 22.90 points or 0.4 percent at 6,136.20.

Mining heavyweights BHP and Rio Tinto as well as smaller rival Fortescue Metals Group ended down between 1.5 percent and 1.8 percent on profit taking after recent sharp gains.

Banks ended mixed after rallying the previous day as the central bank indicated that interest rates could move in either direction.

Energy stocks snapped a four-day winning streak as oil extended overnight losses on concerns about a slump in global demand.

Woodside Petroleum, Santos, Origin Energy and Oil Search lost 2-4 percent, while Beach Energy plummeted 9.7 percent.

REA Group, which is 61.6 percent owned by News Corp., plunged 5 percent. The company said its Australian real estate listings declined 3 percent in the first half. It also warned of further possible declines in the second half of the year due to Federal and State elections.

Seoul shares tumbled amid concerns about U.S.-China trade talks. The benchmark Kospi dropped 26.37 points or 1.2 percent to 2,177.05.

Hong Kong's Hang Seng Index dipped 0.2 percent as traders returned to their desks after a Lunar New Year break, while markets in Taiwan and mainland China remained closed for the Lunar New Year holidays.


European stocks have moved mostly lower on Friday as investors ponder over the prospects for a U.S.-China trade deal. U.S. Treasury Secretary Steven Mnuchin and other U.S. officials will travel to Beijing next week to continue negotiations.

While the U.K.’s FTSE 100 Index is just below the unchanged line, the French CAC 40 Index is down by 0.2 percent and the German DAX Index is down by 0.5 percent.

The pound is heading for its worst weekly decline since October after the Bank of England said it expects growth this year to be the slowest since 2009.

Norwegian engineering company Aker Solutions has come under pressure despite the company ending 2018 on a high note.

On the other hand, payment solutions provider Wirecard has rallied in Frankfurt. Rejecting the media coverage of FT, the company said that nothing about the article published related to alleged compliance breaches is true.

Earthport has also jumped in London after Visa sweetened its offer for the payment company.

Oil services firm Petrofac is rebounding after a plunge on Thursday as a former Petrofac executive pleaded guilty to eleven counts of bribery in an ongoing investigation.

In economic news, German exports rebounded at a faster than expected pace in December, exceeding expectations, while imports followed suit, figures from the Federal Statistical Office showed.

U.S. Economic Reports

San Francisco Federal Reserve President Mary Daly is scheduled to participate in a moderated Q&A at the Bay Area Council Economic Institute's 12th Annual Economic Forecast Conference in San Francisco, California, at 1:15 pm ET.

Stocks In Focus

Despite the downward momentum for the broader markets, shares of Skechers (SKX) are moving sharply higher in pre-market trading after the show company reported better than expected fourth quarter earnings.

Toy maker Mattel (MAT) may also see initial strength after reporting an unexpected fourth quarter profit on revenues that exceeded analyst estimates.

Shares of Coty (COTY) are also likely to jump after the beauty products company reported better than expected fiscal second quarter results.

On the other hand, shares of Hasbro (HAS) are seeing significant pre-market weakness after the toy maker reported fourth quarter results that missed analyst estimates on both the top and bottom lines.
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