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Beyond the Numbers

Traders Continue To Express Optimism About Avoiding Shutdown, Trade Talks
2/13/2019 9:03 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with stocks likely to extend the strong upward move seen in the previous session.

Optimism about avoiding another government shutdown may generate continued buying interest on Wall Street, as President Donald Trump said he was “not happy” with a tentative deal reached by lawmakers but did not specifically reject the proposal.

The agreement includes far less money for physical barriers on the border than Trump has demanded, although political observers have suggested the president will likely want to avoid another damaging shutdown.

Trump has argued Democrats will be to blame for another shutdown, although the public may disagree as his controversial border wall remains the key sticking point in negotiations.

The markets may also benefit from continued optimism about U.S.-China trade talks after Trump indicated he is willing to delay raising tariffs on Chinese goods if the two sides are close to a deal.

A report from the South China Morning Post said Chinese President Xi Jinping is scheduled to meet U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin during this week’s talks in Beijing.

The meeting with Xi as well as a banquet for the U.S. delegation would be a sign of goodwill to cement a trade deal between the world’s two biggest economies, the SCMP said.

Following the lackluster performance seen on Monday, stocks moved sharply higher over the course of the trading day on Tuesday. With the strong upward move, the major averages reached their best closing levels in over two months.

The major averages finished the day firmly in positive territory. The Dow soared 372.65 points or 1.5 percent to 25,425.76, the Nasdaq jumped 106.71 points or 1.5 percent to 7,414.62 and the S&P 500 surged up 34.93 points or 1.3 percent to 2,744.73.

The rally on Wall Street came amid optimism lawmakers will manage to avoid another government shutdown after negotiators reached a tentative agreement on border security.

Senate Appropriations Committee Chairman Richard Shelby, R-Ala., a lead Republican negotiator, said the two sides have reached an "agreement in principle."

The agreement reportedly includes $1.4 billion for physical barriers on the border, well short of the $5.7 billion Trump has demanded for construction of a border wall.

Democrats have also purportedly agreed to drop their demand to reduce the number of illegal immigrants who can be detained by Immigration and Customs Enforcement.

Shelby said the White House was consulted throughout the negotiations, although Trump later expressed displeasure with the terms of the agreement.

Trump told reporters during a Cabinet meeting at the White House on Tuesday that he is "not happy" with the deal struck by lawmakers but stopped short of saying he would reject the plan.

The president suggested he was "adding things" to the compromise agreement and claimed he would still build a "beautiful, big, strong wall" on the U.S. border with Mexico.

The comments from Trump come as lawmakers face a deadline of midnight on Friday to pass a spending bill and avoid another government shutdown.

Trump said he does not think there will be another shutdown but added, "If you did have it, it's the Democrats' fault."

Optimism about the next round of U.S.-China trade talks taking place this week also contributed to the strength on Wall Street.

A report from Bloomberg said some U.S. officials see the most likely scenario at this week's talks is for Trump to defer his deadline for raising tariffs.

Trump told reporters he could let the deadline "slide for a little while" if the U.S. and China are "close to a deal where we think we can make a real deal, and it's going to get done."

Tobacco stocks showed a substantial move to the upside over the course of the trading session, with the NYSE Arca Tobacco Index skyrocketing by 6.2 percent to its best closing level in three months.

Considerable strength was also visible among housing stocks, as reflected by the 3 percent spike by the Philadelphia Housing Sector Index. The index spiked to a four-month closing high.

Chemical stocks also turned in a particularly strong performance on the day, driving the S&P Chemical Sector Index up by 2.5 percent.

Computer hardware, semiconductor, retail, and steel stocks also saw significant strength, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are rising $0.35 to $53.45 a barrel after climbing $0.69 to $53.10 a barrel on Tuesday. Meanwhile, after edging up $2.10 to $1,314 an ounce in the previous session, gold futures are slipping $0.10 to $1,313.90 an ounce.

On the currency front, the U.S. dollar is trading at 110.83 yen compared to the 110.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1299 compared to yesterday's $1.1326.

Asia

Asian stocks ended mostly higher on Wednesday amid optimism about U.S.-China trade talks after U.S. President Donald Trump gave hints at extending an early March deadline to reach an agreement before raising tariffs.

China's Shanghai Composite Index jumped 49.17 points or 1.8 percent to 2,721.07, while Hong Kong's Hang Seng Index surged up 326.26 points or 1.2 percent to 28,497.59.

Japanese shares rose sharply to hit a nearly two-month high after Trump said he's open to extending the deadline to raise tariffs on Chinese products and U.S. lawmakers reached an agreement in principle to avoid another government shutdown.

The Nikkei 225 Index spiked 280.27 points or 1.3 percent to 21,144.48, the highest level since December 17. The broader Topix closed up 1.1 percent at 1,589.33.

SoftBank Group jumped 4.9 percent and Fanuc advanced 2.4 percent, while oil explorer Inpex soared 12.5 percent after raising its annual profit forecast.

Kabu.com Securities rallied 5.9 percent after KDDI said it would buy a minority stake in the online brokerage company.

Meanwhile, Australian stocks gave up early gains to end lower as improved consumer confidence figures for February dashed hopes for an interest rate cut.

The benchmark S&P/ASX 200 Index dropped 15.50 points or 0.3 percent to 6,063.60, while the broader All Ordinaries Index edged down 8.50 points or 0.1 percent to 6,140.20.

Pharma giant CSL tumbled almost 4 percent despite posting a rise in first-half profits, while lender Commonwealth Bank of Australia lost 2.9 percent on going ex-dividend.

Mining heavyweights BHP Group and Rio Tinto shed 0.6 percent and 1 percent, respectively after a sharp decrease in iron ore futures.

On the other hand, Oil Search and Santos climbed around 2 percent as Goldman Sachs doubled down on its bullish outlook for oil. Airline Virgin Australia soared 7.7 percent as it recorded a turnaround to a profit in the first half of the year.

Seoul stocks extended gains for a third straight session amid easing trade tensions. The benchmark Kospi climbed 11.01 points or 0.5 percent to 2,201.48.

Chemical stocks led the surge, with LG Chem rising 1.8 percent and Lotte Chemical soaring 5.8 percent, while automakers Hyundai Motor and Kia Motors fell over 3 percent.

Europe

European stocks are trading higher for the third straight day on Wednesday amid optimism the U.S. and China might be able to resolve their long-running trade dispute before the early March deadline.

Investors shrugged off political uncertainty in Spain, with media reports suggesting the socialist government would call a snap general election after its expected defeat in a budget vote.

While the U.K.’s FTSE 100 Index has advanced by 0.6 percent, the French CAC 40 Index and the German DAX Index are both up by 0.4 percent.

Brewing company Heineken NV and paint maker Akzo Nobel NV have jumped after reporting better than expected earnings.

Copper producer Aurubis has also moved notably higher in Frankfurt after confirming its full-year forecast. French asset manager Amundi has also soared after confirming its profit targets for 2020.

Construction company Galliford Try has also showed a significant move to the upside after posting a record half-year profit.

British packaging company Smurfit Kappa has also rallied. The company posted strong full-year results and said it plans to hike its shareholder dividend by 12 percent.

Meanwhile, Swiss specialty chemicals company Clariant has come under pressure after reporting a drop in fourth quarter sales and operating profit.

Dutch bank ABN Amro has also slumped after its fourth quarter profit missed estimates.

In economic news, Eurozone industrial output slid for the second month in a row in December, underlining the trend of slowing economic growth.

Industrial output in the 19-country currency union shrank by 0.9 percent in December from the previous month. On an annual basis, output fell 4.2 percent.

The British pound retreated from its early highs after a government report showed the U.K. inflation rate fell to 1.8 percent in January, the lowest in two years.

U.S. Economic Reports

Consumer prices in the U.S. were unchanged for the third straight month in January, according to a report released by the Labor Department.

The Labor Department said its consumer price index was unchanged in January, matching the revised reading for December. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices rose by 0.2 percent for the fifth consecutive month. The uptick in core prices matched economist estimates.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended February 8th.

Crude oil inventories are expected to increase by 2.7 million barrels after rising by 1.3 million barrels in the previous week.

Philadelphia Federal Reserve President Patrick Harker is due to deliver a speech on the economic outlook at the Jewish Business Network's Power Lunch in Philadelphia, Pennsylvania, at 12 pm ET.

Stocks In Focus

Shares of Hilton Worldwide (HLT) are moving notably higher in pre-market trading after the hotel operator reported fourth quarter earnings that exceeded analyst estimates.

Video game publisher Activision Blizzard (ATVI) may also see initial strength after reporting better than expected fourth quarter earnings, although its forward guidance came in below expectations. The company also announced an 8 percent workforce reduction.

Shares of Akamai (AKAM) could also move to the upside after the technology company reported fourth quarter results that beat analyst estimates on both the top and bottom lines.

On the other hand, shares of Groupon (GRPN) are moving sharply lower in pre-market trading after the daily deals provider reported fourth quarter earnings that fell short of expectations

Travel website operator TripAdvisor (TRIP) is also seeing notable pre-market weakness after reporting fourth quarter earnings that misses analyst estimates.

Shares of DISH Network (DISH) are also likely to come under pressure after the satellite television provider reported weaker than expected fourth quarter earnings.
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