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Beyond the Numbers

Uncertainty About U.S.-China Trade Talks May Lead To Choppy Trading
2/20/2019 8:56 AM

The major U.S. index futures are pointing to a roughly flat opening on Wednesday, with stocks likely to extend the lackluster performance seen in the previous session.

Traders may be reluctant to make significant moves as they wait for developments regarding the latest round of trade talks between the U.S. and China.

Officials from the U.S. and China are meeting in Washington this week as the world's two largest economies attempt to reach a long-term trade deal.

The U.S. and China currently face an early March deadline to strike an agreement, although President Donald Trump has suggested the deadline could be postponed.

An editorial by state-run Chinese newspaper the Global Times warned the global stock markets could face a "catastrophic strike" if Trump raises tariffs on Chinese goods as currently planned.

"In terms of avoiding such blows, the Trump administration is probably the most pressured," the Global Times wrote. "Thus in general, by the end of the trade negotiations, China and the US have become more psychologically equal."

"Both sides have showed their strength and volition in the unprecedented trade war: The US didn't easily stop and China was not that fragile to be defeated," the paper added. "However, it has proven no empty talk that in a long-term trade war, both sides would eventually lose."

Trump has claimed China is under pressure to avoid an increase in tariffs, citing recent weakness in the Chinese economy and stock markets.

Traders are also likely to look ahead to this afternoon's release of the minutes of the Federal Reserve's monetary policy meeting held in late January.

The minutes may shed additional light on the Fed's shift toward a "patient" approach regarding future interest rate hikes.

Stocks fluctuated over the course of the trading session on Tuesday as traders returned to their desks following the long holiday weekend.

After spending the morning bouncing back and forth across the unchanged line, the major averages climbed more firmly into positive territory in the afternoon.

The major averages pulled back going into the close but still ended the day modestly higher. The Dow inched up 8.07 points or less than a tenth of a percent to 25,891.32, the Nasdaq rose 14.36 points or 0.2 percent to 7,486.77 and the S&P 500 edged up 4.16 points or 0.2 percent to 2,779.76.

The choppy trading came amid uncertainty about the potential for a trade deal between the U.S. and China as the next round of trade talks get underway in Washington, D.C. this week.

News that China accused the U.S. of attempting to curtail its technology development by putting pressure on allies to shun networks supplied by Huawei Technologies raised concerns about tensions between the world's two largest economies.

However, President Donald Trump later told reporters the U.S.-China trade talks are "going very well" and once again hinted that an early March deadline to reach a deal could be postponed.

"I can't tell you exactly about timing, but the date is not a magical date," Trump said in the Oval Office. "A lot of things can happen."

Trump claimed China is "trying to move fast" so that an increase in tariffs on Chinese goods currently set to take effect does not happen.

On the U.S. economic front, the National Association of Home Builders released a report showing a much bigger than expected improvement in homebuilder confidence in the month of February.

The report said the NAHB/Wells Fargo Housing Market Index climbed to 62 in February after rising to 58 in January. Economists had expected the index to inch up to 59.

With the increase, the index continued to recover after hitting a more than three-year low of 56 in December.

"Ongoing reduction in mortgage rates in recent weeks coupled with continued strength in the job market are helping to fuel builder sentiment," said NAHB Chairman Randy Noel.

He added, "In the aftermath of the fall slowdown, many builders are reporting positive expectations for the spring selling season."

Most of the major sectors ended the day showing only modest moves, although substantial strength was visible among gold stocks.

Reflecting the strength in the gold sector, the NYSE Arca Gold Bugs Index spiked by 4.4 percent to its best closing level in over seven months. The rally by gold stocks came amid a sharp increase by the price of the precious metal.

Considerable strength was also visible among brokerage stocks, as reflected by the 1.4 percent gain posted by the NYSE Arca Broker/Dealer Index. The index reached a three-month closing high.

On the other hand, telecom stocks saw substantial weakness on the day, dragging the NYSE Arca North American Telecom Index down by 3.1 percent. The steep drop by the index came after it skyrocketed to its best closing level in over two months last Friday.

Commodity, Currency Markets

Crude oil futures are sliding $0.39 to $55.70 a barrel after climbing $0.50 to $56.09 a barrel on Tuesday. Meanwhile, after soaring $22.70 to $1,344.80 an ounce in the previous session, gold futures are inching up $1.40 to $1,346.20 an ounce.

On the currency front, the U.S. dollar is trading at 110.77 yen compared to the 110.63 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1338 compared to yesterday's $1.1341.

Asia

Asian stocks moved broadly higher on Wednesday, with encouraging U.S. earnings and hopes for a U.S.-China trade deal boosting sentiment.

China's Shanghai Composite Index rose 5.57 points or 0.2 percent to 2,761.22 after U.S. President Donald Trump told reporters the U.S.-China trade talks are "going very well" and suggested an early March deadline to reach a deal could be postponed. Hong Kong's Hang Seng Index rose jumped 285.92 points or 1 percent to finish at 28,514.05.

Trump claimed China is "trying to move fast" so that an increase in tariffs on Chinese goods currently set to take effect does not happen.

Japanese shares hit a nine-week high, with automakers and heavyweight SoftBank Group pacing the gainers despite the release of weak exports data.

Exports in Japan fell the most in more than two years in January as machinery goods orders fell sharply, a government report showed.

The Nikkei 225 Index climbed 128.84 points or 0.6 percent to 21,431.49, the highest closing level since December 17. The broader Topix closed 0.4 percent higher at 1,613.47.

Honda, Mazda Motor and Toyota Motor rose about 1 percent, while SoftBank shares surged 3.6 percent.

Meanwhile, the Australian markets edged lower even as resource-related stocks gained ground after Fortescue's half-year profit exceeded expectations.

The benchmark S&P/ASX 200 Index slipped 10.40 points or 0.2 percent to 6,096.50, while the broader All Ordinaries Index edged down 8.40 points or 0.1 percent to 6,175.80.

Supermarket chain Woolworths Group slumped 5.2 percent after it warned of subdued consumer demand.

Likewise, casino operator Crown Resorts tumbled 5.3 percent and fast food giant Domino's Pizza Enterprise lost over 3 percent after posting disappointing half-year profits.

Shares of Stockland Corp. also dropped 2.4 percent after the property development company reported a 56 percent decrease in its half-year net profit and warned of weaker full-year results.

On the other hand, Fortescue Metals Group jumped 5.4 percent on strong half-year earnings, a surprise special dividend and a positive outlook. Mining heavyweights BHP and Rio Tinto ended up around 3 percent.

Gold miners Newcrest and Northern Star climbed 2-4 percent after gold prices hit 10-month highs on worries about a global economic slowdown.

In economic news, wage prices in Australia were up a seasonally adjusted 0.5 percent sequentially in the fourth quarter of 2018, the Australian Bureau of Statistics said.

That was shy of expectations for an increase of 0.6 percent, which would have been unchanged. On a yearly basis, wage prices advanced 2.3 percent - unchanged and matching forecasts.

Seoul stocks ended higher on hopes for a possible U.S.-China trade deal. The benchmark Kospi jumped 24.13 points or 1.1 percent to 2,229.76, with large-cap stocks such as Samsung Electronics and SK Hynix leading the surge.

Europe

European stocks have moved modestly higher on Wednesday as hopes for a U.S.-China trade deal continued to build and British Prime Minister Theresa May ditched a radical Brexit plan to save her EU exit deal.

Investors also awaited the Federal Reserve's policy meeting minutes due later in the session for clues on policymakers' thinking on interest rates and its balance sheet reduction policy.

While the German DAX Index has risen by 0.4 percent, the French CAC 40 Index is up by 0.3 percent and the U.K.'s FTSE 100 Index is up by 0.2 percent.

Irish nutrition company Glanbia has soared after it agreed to acquire Watson, a non-dairy ingredient solutions business headquartered in Connecticut for $89 million.

Danish software company Simcorp has also jumped after it announced a share buyback program for up to 12.5 million euros.

Spanish utility Iberdrola has also advanced. The company reported 2018 net profit of 3.014 billion euros, 7.5 percent higher than the previous year's 2.804 billion euros.

Air France-KLM Group has also gained in Paris after its fourth quarter net loss narrowed to 218 million euros from 928 million euros in the previous year.

Shares of Fresenius shares have jumped after the German healthcare firm said it expects earnings to grow faster than sales from 2020.

Meanwhile, Footasylum shares have plunged in London after larger rival JD Sports Fashion Plc increased its stake in the company to more than 18 percent.

Sainsbury has also slumped after the competition watchdog raised a catalogue of concerns over its merger with Asda.

U.S. Economic Reports

At 2 pm ET, the Federal Reserve is scheduled the release the minutes of its Federal Open Market Committee meeting held in late January.

Stocks In Focus

Shares of CVS Health (CVS) are moving significantly lower in pre-market trading after the drugstore chain reported better than expected fourth quarter adjusted earnings but provided disappointing full-year guidance.

Southwest Airlines (LUV) may also see initial weakness after the airline lowered its forecast for first quarter revenue per seat mile due to the prolonged government shutdown.

Shares of Concho Resources (CXO) are also likely to move to the downside after the oil and gas company reported fourth quarter results that came in below analyst estimates.

On the other hand, shares of Garmin (GRMN) are seeing significant pre-market strength after the navigation device maker reported better than expected fourth quarter results, provided upbeat guidance, and proposed raising its dividend.
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