Market Analysis

Beyond the Number

Optimism About Chinese Stimulus May Generate Early Buying Interest
3/15/2019 8:50 AM

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

Early buying interest may be generated amid optimism about U.S.-China trade talks as well as indications of more Chinese economic stimulus.

Chinese Premier Li Keqiang pledged support for the slowing economy during his annual news conference at the end of the National People's Congress.

Li said the country could use reserve requirements and interest rates to prevent a sharper deceleration in the world's second-largest economy.

However, the positive sentiment may be partly offset by a report from the New York Federal Reserve showing an unexpected slowdown in the pace of growth in regional manufacturing activity.

Stocks showed a lack of direction throughout the trading day on Thursday following the notable upward move seen on Wednesday. The major averages spent the day bouncing back and forth across the unchanged line.

Eventually, the major averages ended the day mixed. While the Dow inched up 7.05 points or less than a tenth of a percent to 25,709.94, the Nasdaq dipped 12.50 points or 0.2 percent to 7,630.91 and the S&P 500 edged down 2.44 points or 0.1 percent to 2.808.48.

The choppy trading on Wall Street came on the heels of recent volatility on Wall Street, with the upward move seen over the past few sessions largely offsetting the pullback seen last week.

Uncertainty about Brexit also kept traders on the sidelines, with members of parliament voting in favor of delaying Brexit after they rejected the idea of leaving the European Union without a deal.

Renewed concerns about a potential trade deal between the U.S. and China weighed on the markets after a report from Bloomberg said a meeting between President Donald Trump and Chinese President Xi Jinping has been pushed back.

Citing three people familiar with the matter, Bloomberg said the meeting to sign an agreement to end the U.S.-China trade war won't occur this month and is more likely to happen in April at the earliest.

The report from Bloomberg comes after Trump told reporters on Wednesday that he is in "no rush" to complete a trade deal with China.

On the U.S. economic front, the Commerce Department released a report showing a substantial pullback in new home sales in the month of January.

The Commerce Department said new home sales plunged by 6.9 percent to an annual rate of 607,000 in January from a revised rate of 652,000 in December.

Economists had expected new home sales to edge down to a rate of 620,000 from the 621,000 originally reported for the previous month.

Before the start of trading, the Labor Department released a report showing first-time claims for U.S. unemployment benefits increased by more than expected in the week ended March 9th.

The report said initial jobless claims rose to 229,000, an increase of 6,000 from the previous week's unrevised level of 223,000. Economists had expected jobless claims to edge up to 225,000.

A separate report released by the Labor Department showed U.S. import and export prices both rose by more than anticipated in the month of February.

The Labor Department said import prices climbed by 0.6 percent in February after inching up by a revised 0.1 percent in January.

Economists had expected import prices to rise by 0.3 percent compared to the 0.5 percent drop originally reported for the previous month.

The report said export prices also increased by 0.6 percent in February after falling by a revised 0.5 percent in January.

Export prices had been expected to tick up by 0.1 percent compared to the 0.6 percent decrease originally reported for the previous month.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Substantial weakness was visible among gold stocks, however, with the NYSE Arca Gold Bugs Index plunging by 2.9 percent after trending higher over the past few sessions. Gold stocks pulled back along with the price of the precious metal.

Steel stocks also showed a notable move to the downside over the course of the session, dragging the NYSE Arca Steel Index down by 1.3 percent.

Chemical and biotechnology stocks also saw some weakness on the day, while moderate strength emerged among financial stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.33 to $58.28 a barrel after rising $0.35 to $58.61 on Thursday. Meanwhile, after tumbling $14.20 to $1,295.10 an ounce in the previous session, gold futures are climbing $7.50 to $1,302.60 an ounce.

On the currency front, the U.S. dollar is trading at 111.65 yen compared to the 111.70 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1310 compared to yesterday’s $1.1304.


Asian shares finished broadly higher on Friday after U.K. lawmakers backed delaying the Brexit process and Chinese Premier Li Keqiang pledged support for the slowing economy during his annual news conference at the end of the National People's Congress.

China's Shanghai Composite Index rallied 31.07 points or 1 percent to 3,021.75 as Li said the country could use reserve requirements and interest rates to prevent a sharper deceleration in the world's second-largest economy. Hong Kong's Hang Seng Index rose 160.87 points or 0.6 percent to 29,012.26.

Japanese shares advanced to end two days of declines. The Nikkei 225 Index climbed 163.83 points or 0.8 percent to 21,450.85 after the Bank of Japan left its monetary stimulus program unchanged, as widely expected but offered a relatively weak assessment of the economy. The broader Topix closed 0.9 percent higher at 1,602.63.

A weaker yen helped lift export stocks, with Canon, Honda Motor and Toyota rising between 0.6 percent and 1.1 percent. Tokyo Electron surged up 2.8 percent after Broadcom posted better than expected first quarter earnings.

Descente jumped 2.7 percent after trading house Itochu Corp. said it has acquired a 40 percent stake in the sportswear maker. Shares of Itochu gained 0.7 percent.

Machinery maker Komatsu jumped 1.8 percent and robot maker Fanuc added 1.4 percent on hopes of Chinese stimulus.

Meanwhile, Australian markets ended marginally lower in thin trading, dragged down by financials and mining companies. The benchmark S&P/ASX 200 Index edged down 4.40 points or 0.1 percent to 6,175.20.

ANZ dropped 1 percent as Morgan Stanley downgraded its rating and price target on the stock. Commonwealth shed 0.8 percent and Westpac declined half a percent, while NAB rose 0.6 percent.

Mining heavyweight BHP fell 1.8 percent and smaller rival Fortescue Metals Group dropped 1.2 percent as copper prices drifted lower on weak China industrial output data released the previous day.

Seoul stocks rose as investors watched global trade issues and developments on the Brexit front. The benchmark Kospi rallied 20.43 points or 1 percent to 2,176.11.

Tech heavyweight Samsung Electronics gained 0.8 percent and SK Hynix jumped 1.2 percent. Mobile carrier SK Telecom advanced 2.8 percent after launching its 5G Mobile Edge Computing Open Platform.

On the other hand, Samsung Biologics, which is under investigation for suspected violation of accounting rules, slumped 4.2 percent.


European stocks have moved notably higher on Friday and remain on track to post their best weekly gain in a month, as Brexit-related worries ease and investors remained hopeful for a U.S.-China trade deal.

The strength in the markets also comes after U.K. lawmakers voted to postpone the country's departure from the European Union, giving Prime Minister Theresa May some breathing space.

While the U.K.’s FTSE 100 Index has climbed by 0.6 percent, the French CAC 40 Index and the German DAX Index are both up by 0.9 percent.

Restaurant Group has soared in London. After posting a drop in annual profits, the company said its controversial takeover of Wagamama would prove "transformative."

Berkeley Group Holdings has also advanced. The builder of homes, neighborhoods and communities said its trading environment remains consistent with that experienced over the last two years.

Automakers BMW and Daimler have also moved higher in Frankfurt after industry data showed February car sales grew 2.7 percent in Germany following months of decline.

On the other hand, Hennes & Mauritz has slumped after the Swedish fashion retailer said its first-quarter net sales increased by 10 percent. Sales grew by 4 percent in local currencies.

U.S. Economic Reports

Growth in New York manufacturing activity unexpectedly slowed in the month of March, according to a report released by the Federal Reserve Bank of New York on Friday.

The New York Fed said its headline general business conditions index fell to 3.7 in March after climbing to 8.8 in February.

While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to rise to 10.0.

The index remained below 10 for the third straight month, which the New York Fed said suggests growth has remained quite a bit slower so far this year than it was for most of 2018.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of February. Industrial production is expected to rise by 0.4 percent in February after falling by 0.6 percent in January.

The University of Michigan is due to release its preliminary report on consumer sentiment in the month of March at 10 am ET. Economists expect the consumer sentiment index to climb to 95.3 in March after rising to 93.8 in February.

Stocks In Focus

Shares of Broadcom (AVGO) are moving significantly higher in pre-market trading after the chipmaker reported fiscal first quarter earnings that exceeded analyst estimates.

Beauty products retailer Ulta Beauty (ULTA) is also likely to see initial strength after reporting better than expected fiscal fourth quarter results and providing upbeat guidance.

Shares of Newell Brands (NWL) may also move to the upside after the household products maker said President and CEO Michael Polk will retire at the end of the second quarter.

On the other hand, shares of Adobe Systems (ADBE) may come under pressure after the software company reported better than expected fiscal first quarter results but provided disappointing second quarter earnings guidance.

Business software giant Oracle (ORCL) is also seeing pre-market weakness despite reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.
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