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Beyond the Numbers

Optimism About Trade Talks May Generate Early Buying Interest
2/11/2019 9:04 AM

The major U.S. index futures are pointing to a higher opening on Monday amid optimism about the next round of trade talks between the U.S. and China due to take place later this week.

Treasury Secretary Steven Mnuchin will lead the U.S. delegation to Beijing as the world’s two largest economies seek to reach a trade deal before an early March deadline.

A report from Axios said President Donald Trump’s advisers have informally discussed holding a summit with Chinese President Xi Jinping at Mar-a-Lago next month.

Two administration officials with direct knowledge of the internal discussions told Axios the meeting could come as soon as mid-March but stressed that nothing is set.

The report comes after Trump confirmed last week that he would not meet with Xi ahead of the deadline, when a jump in tariffs on Chinese goods is currently set to take effect.

Trump could delay the tariff increase if the talks between U.S. and Chinese officials continue to make progress toward a trade deal.

The uncertainty may keep buying interest somewhat subdued along with the lack of major U.S. economic data scheduled to be released today.

After coming under pressure early in the session, stocks showed a significant recovery over the course of the trading day on Friday. The major averages climbed well off their worst levels of the day before ending the session mixed.

A late-day spike lifted the Nasdaq and the S&P 500 into positive territory, although the Dow still ended the day down 63.20 points or 0.3 percent at 25,106.33. The Nasdaq edged up 9.85 points or 0.1 percent to 7,298.20 and the S&P 500 inched up 1.83 points or 0.1 percent to 2,707.88.

Despite the mixed performance on the day, the major averages all moved higher for the week. The Nasdaq climbed by 0.5 percent, while the Dow rose by 0.2 percent and the S&P 500 crept up by less than a tenth of a percent.

The early weakness on Wall Street came 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 would 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.

White House economic adviser Larry Kudlow told Fox Business on Thursday the U.S. and China have a "pretty sizable distance to go" before reaching a trade deal.

Overall trading activity was somewhat subdued, however, as a lack of major U.S. economic data kept some traders on the sidelines.

Tobacco stocks showed a substantial move to the upside over the course of the session, driving the NYSE Arca Tobacco Index up by 4.8 percent. With the jump, the index ended the session at its best closing level in well over three months.

Significant strength also emerged among networking stocks, as reflected by the 2.9 percent spike by the NYSE Arca Networking Index.

Gold and telecom stocks have also moved notably higher as the day progressed, while considerable weakness remained visible among oil service stocks.

The Philadelphia Oil Service Index slumped by 1.5 percent even though the price of crude oil inched higher on the day.

Commodity, Currency Markets

Crude oil futures are sliding $0.43 to $52.29 a barrel after edging up $0.08 to $52.72 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,309, down $9.50 from the previous session’s close of $1,318.50. On Friday, gold rose $4.30.

On the currency front, the U.S. dollar is trading at 110.38 yen compared to the 109.73 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1308 compared to last Friday’s $1.1323.

Asia

Asian markets ended mixed on Monday after a lackluster session, as investors were wary of making significant moves due to worries about global economic growth.

Chinese stocks, which resumed trading after the Lunar New Year holidays, closed higher, while the Japanese markets were closed for National Foundation Day.

Investors, reacting to corporate earnings results, looked ahead to the next round of trade negotiations between the U.S. and China due to start this week in Beijing.

China’s Shanghai Composite Index surged up 1.4 percent to 2,653.90, with investors lapping up shares even as they awaited a new round of trade talks. Hong Kong's Hang Seng Index closed higher by 0.7 percent at 28,143.84.

Meanwhile, Australia’s benchmark S&P/ASX 200 Index ended down 0.2 percent at 6,060.80, while the broader All Ordinaries index settled at 6,128.60, slipping 0.1 percent.

Bendigo & Adelaide Bank tumbled 6.8 percent after reporting half-yearly cash earnings of 45.1 cents per share. That was down 0.4 percent from the prior corresponding period.

Spark Infrastructure Group shares tumbled 6.3 percent after the company gave an update on the Federal Court decision on tax treatment of certain cash contributions and gifted assets for Victoria Power Networks for the tax years 2008 to 2011.

On the other hand, Sigma Healthcare jumped 5.4 percent after the company announced a strong outlook. The company said it expects to deliver underlying EBITDA of $55-$60 million for Financial Year 2020.

South Korea’s KOSPI ended with a modest 0.2 percent gain, bouncing back well after an early setback.

Europe

European stocks are moving mostly higher during trading on Monday, rebounding following the notable pullback seen last week.

While the French CAC 40 Index has jumped by 1.1 percent, the German DAX Index and the U.K.’s FTSE 100 Index are up by 0.9 percent and 0.8 percent, respectively.

Shares of Deutsche Post Have shown a strong move to the upside after a report from a German newspaper said the government could order a larger increase in the cost of sending a letter than initially planned.

TUI AG is also moving notably higher, bouncing back after recent losses. The stock tumbled last week after the company warned about it earnings.

On the other hand, shares of Smith & Nephew have plunged sharply on reports the company is in discussions to buy NuVasive (NUVA), a U.S.-based surgical instruments maker. The deal is said to be worth more than $3 billion.

In economic news, data from the Office for National Statistics showed the U.K. economy expanded at its slowest annual rate in six years in 2018. The economy grew 1.4 percent, down from 1.8 percent a year earlier.

Growth in October - December 2018 slowed, falling to 0.2 percent from 0.6 percent in the preceding quarter, due to Brexit uncertainty and slowing global economy.

On the Brexit front, responding to Jeremy Corbyn's letter that set out his demand for a Brexit deal, British Prime Minister Theresa May said she welcomed more talks with Labour on a Brexit agreement, especially on how alternate arrangements to the Irish backstop could work.

May wrote, "It is good to see that we agree that the UK should leave the European Union with a deal and that the urgent task at hand is to find a deal that honours our commitments to the people of Northern Ireland, can command support in Parliament and can be negotiated with the EU - not to seek an election or second referendum."

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today, although reports on consumer and producer price inflation, import and export prices and industrial production are likely to attract attention in the coming days.

Stocks In Focus

Shares of Avis Budget (CAR) are moving significantly higher in pre-market trading after Goldman Sachs upgraded its rating on the car rental company’s stock to Buy from Sell.

Tim Hortons and Burger King parent Restaurant Brands International (QSR) may also move to the upside after reporting fourth quarter results slightly above analyst estimates.

On the other hand, shares of Bed Bath & Beyond (BBBY) are likely to see initial weakness after Loop Capital Markets downgraded its rating on the housewares retailer to Sell from Hold.

A downgrade to Market Perform from Outperform by Bernstein may also weigh on shares of graphics chipmaker Nvidia (NVDA).
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