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Beyond the Numbers

Claims Of Progress In Trade Talks May Generate Buying Interest
2/15/2019 9:06 AM

The major U.S. index futures are currently pointing to a higher opening on Friday following the mixed performance seen in the previous session.

Continued optimism about trade talks between the U.S. and China may generate early buying interest on Wall Street.

A statement from the White House said high level U.S.-China trade talks this week led to “progress between the two parties” but noted “much work remains.”

The White House said the U.S. hopes to see additional progress as discussions at the ministerial and vice-ministerial levels continue in Washington next week.

Traders may also react positively to news that both the House and Senate passed legislation to avoid another government shutdown.

President Donald Trump plans to sign the legislation but will also declare a national emergency in order to gain additional funding for construction of his controversial border wall.

The national emergency declaration is likely to face immediate legal challenges, however, with some lawmakers warning about the dangerous precedent set by the move.

After recovering from an initial move to the downside, stocks showed a lack of direction over the course of the trading session on Thursday. The major averages eventually ended the session on opposite sides of the unchanged line.

The tech-heavy Nasdaq pulled back going into the close but still ended the day up 6.58 points or 0.1 percent to 7,426.95, while the Dow dropped 103.88 points 0.4 percent to 25,439.39 and the S&P 500 fell 7.30 points or 0.3 percent to 2,745.73.

The initial weakness on Wall Street came after a report from the Commerce Department unexpectedly showed a substantial decrease in retail sales in December, increasing the appeal of safe havens like bonds.

The Commerce Department said retail sales tumbled by 1.2 percent in December after inching up by a revised 0.1 percent in November.

Economists had expected retail sales to rise by 0.2 percent, matching the uptick originally reported for the previous month.

Excluding a jump in auto sales, retail sales plunged by an even steeper 1.8 percent in December after coming in unchanged in November. Ex-auto sales had been expected to edge up by 0.1 percent.

Sales by gas stations helped lead the way lower amid a drop in gasoline prices, plummeting by 5.1 percent in December following a 4.4 percent nosedive in November.

Underlying sales figures were also troubling, however, as closely watched core retail sales, which exclude autos, gasoline, building materials and food services, tumbled by 1.7 percent in December after an upwardly revised 1.0 percent jump in November.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the data suggests the economy entered 2019 with much less momentum than anticipated.

"That doesn't mean the economy is falling into recession; after all, that decline is hard to square with the recent strength of payroll gains and the drop in energy prices in recent months," Pearce said.

He added, "But with the producer price data suggesting inflationary pressures remain contained, it strengthens the case for the Fed to remain 'patient' in the months ahead."

A separate Labor Department report showed producer prices in the U.S. unexpectedly edged lower in the month of January.

The Labor Department said its producer price index for final demand slipped by 0.1 percent for the second straight month in January. Economists had expected the index to inch up by 0.1 percent.

Excluding steep drops in food and energy prices, core producer prices increased by 0.3 percent in January after coming in unchanged in December. Core producer prices were expected to rise by 0.2 percent.

Reflecting the monthly decrease, the annual rate of producer price growth slowed to 2.5 percent in January from 2.8 percent in December.

The annual rate of growth in core producer prices also slipped to 2.6 percent in January from 2.7 percent in the previous month.

Selling pressure has waned over the course of the morning, as traders continued to express optimism about U.S.-China trade talks and avoiding another government shutdown.

Reflecting the lackluster close by the broader markets, most of the major sectors ended the day showing only modest moves.

Gold stocks showed a strong move to the upside, however, with the NYSE Arca Gold Bugs Index climbing by 1.2 percent.

The strength among gold stocks came despite a modest decrease by the price of the precious metal, as gold for April delivery slipped $1.20 to $1,313.90 an ounce.

Networking and tobacco stocks also saw some strength on the day, while weakness was visible among banking and chemical stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.54 to $54.95 a barrel after rising $0.51 to $54.41 a barrel on Thursday. Meanwhile, after slipping $1.20 to $1,313.90 an ounce in the previous session, gold futures are advancing $5.80 to $1,319.70 an ounce.

On the currency front, the U.S. dollar is trading at 110.57 yen compared to the 110.48 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1252 compared to yesterday’s $1.1295.

Asia

Asian stocks succumbed to selling pressure on Friday as weak data from the U.S. and China rekindled investor worries about a slowdown in the global economy.

U.S. President Donald Trump's insistence that border security justifies a national emergency and skepticism over the latest round of U.S.-China trade talks also kept investors nervous.

China's Shanghai Composite Index tumbled 37.31 points or 1.4 percent to 2,682.38 as weak inflation data raised deflation concerns. Hong Kong's Hang Seng Index plunged 531.21 points or 1.9 percent to 27,900.84.

Consumer prices in China were up 1.7 percent year-over-year in January, the National Bureau of Statistics said. That was shy of expectations for an increase of 1.9 percent, which would have been unchanged from the December reading.

Factory inflation slowed for the seventh straight month on cooling demand. Producer prices were up 0.1 percent on year, shy of expectations for an increase of 0.5 percent and down from 0.9 percent in the previous month.

Japanese shares fell sharply as a firm yen pulled down exporters and falling U.S. yields on the back of weak U.S. data weighed on the financial sector.

The benchmark Nikkei 225 Index slumped 239.08 points or 1.1 percent to 20,900.63, and the broader Topix closed 0.8 percent lower at 1,577.29.

Automakers Honda Motor and Mazda Motor fell around 2 percent, while Japan Display declined 2.7 percent after the company said it expects to post its fifth straight year of losses.

In the financial sector, T&D Holdings and Dai-ichi Life Holdings plummeted 4-5 percent.

On the other hand, Australian markets edged up slightly, with energy stocks leading the surge. The benchmark S&P/ASX 200 Index inched up 6.70 points or 0.1 percent to 6,066.10, while the broader All Ordinaries Index rose 9.00 points or 0.2 percent at 6,148.60.

Energy stocks Woodside Petroleum, Santos, Origin Energy, Oil Search and Beach Energy climbed 1-2 percent as Brent crude futures hit fresh 2019 highs.

Lynas Corp soared 11.9 percent after the minerals miner provided an update to the exchange on its NUF residue produced at the Lynas Malaysia plan.

Property classifieds business Domain Holdings Australia jumped 21 percent after posting strong first-half revenue.

Medibank Private rallied 2.9 percent after the health insurer said it would consider acquiring a private health insurance business in a stressed operating environment.

Meanwhile, scandal-hit wealth manager AMP lost 3.1 percent after issuing a weak outlook. Whitehaven Coal slumped 6.7 percent after cutting its full-year production guidance.

Automotive Holdings Group plunged 8.2 percent after the company said it would record a combined impairment of A$226 million against its struggling franchised and refrigerated logistics businesses in its first-half year results.

Seoul stocks tumbled as weak U.S. retail sales data and tepid inflation figures from China rekindled global growth worries.

On the domestic front, South Korea posted a current account surplus of $4.82 billion in December, the Bank of Korea said, down from $5.22 billion in November.

The benchmark Kospi dropped 29.76 points or 1.3 percent to 2,196.09, marking the steepest single-day loss since January 2. Tech heavyweight Samsung Electronics fell over 3 percent and chipmaker SK Hynix tumbled 4.7 percent.

Europe

European stocks are moving higher on Friday, even as two days of U.S.-Chinese trade talks ended with no immediate word of progress and Spain entered a new period of political uncertainty.

Spanish Prime Minister Pedro Sánchez has called for a snap general election in April two days after his minority Socialist government suffered a major defeat in Parliament.

While the U.K.’s FTSE 100 Index has advanced by 0.8 percent, the French CAC 40 Index and the German DAX Index are both spiking by 1.9 percent.

Telecom Italia has jumped after a report from Reuters said the board of Italian state lender Cassa Depositi e Prestiti approved the purchase of additional shares in the company.

Royal Bank of Scotland Group has also advanced as it reported a sharp increase in 2018 profits and announced a special dividend.

Internet portal Scout24 has soared in Frankfurt after Hellman & Friedman and Blackstone made a 5.7 billion euro offer for the online classifieds group.

French media giant Vivendi has also jumped after posting strong results for its Universal Music Group arm.

On the other hand, Premier Foods has slumped after it issued an update regarding the potential disposal of its Ambrosia brand.

Automakers are broadly lower after industry data showed that European car sales fell by 4.6 percent in January from the same month last year.

The British pound recovered from its early lows against its major counterparts after data showed U.K. retail sales rebounded strongly in January after the biggest fall in a year-and-a-half in December.

Sales volumes rose 1.0 percent during the month, while on an annual basis, retail sales jumped 4.2 percent to post the biggest annual rise since December 2016.

U.S. Economic Reports

U.S. import and export prices both fell by much more than anticipated in the month of January, according to a report released by the Labor Department.

The report said import prices fell by 0.5 percent in January after tumbling by 1.0 percent in December, while economists had expected import prices to edge down by 0.1 percent.

Excluding a steep drop in prices for fuel imports, import prices still dipped by 0.2 percent in January after coming in unchanged in the previous month.

The Labor Department said export prices also slid by 0.6 percent for the second consecutive month in January. Economists had expected export prices to slip by 0.1 percent.

Prices for non-agricultural exports fell by 0.3 percent in January after plunging by 1.1 percent in the previous month.

A separate report released by the Federal Reserve Bank of New York showed a notable rebound in the pace of growth in regional manufacturing activity in the month of February.

The New York Fed said its general business conditions index climbed to 8.8 in February from 3.9 in January, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to rise to 7.0.

The bigger than expected increase by the index came after it tumbled to its lowest level in well over a year in the previous month.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of January. Industrial production is expected to inch up by 0.1 percent in January after rising by 0.3 percent in December.

Atlanta Fed President Raphael Bostic is due to deliver a speech to the Public Affairs Research Council of Alabama on "Workforce Development" in Birmingham, Alabama, at 9:55 am ET.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of February. The consumer sentiment index is expected to rise to 93.0 in February from 91.2 in January.

Stocks In Focus

Shares of Nvidia (NVDA) are moving significantly higher in pre-market trading after the graphics chipmaker reported fiscal fourth quarter earnings that beat analyst estimates and forecast better than expected sales in the current year.

Suncor Energy (SU) may also see initial strength on news Warren Buffett’s Berkshire Hathaway acquired 10.8 million shares in the Canadian energy company.

On the other hand, shares of Oracle (ORCL) are seeing pre-market weakness after Berkshire Hathaway revealed it has dissolved its 41.4 million-share stake in the business software giant.

Automotive pricing and information website TrueCar (TRUE) is moving more sharply lower in pre-market trading after reporting weaker than expected fourth quarter results and providing disappointing guidance.
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