Market Analysis

Beyond the Numbers

Bargain Hunting May Contribute To Rebound On Wall Street
5/14/2019 8:59 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to regain ground following the sell-off seen in the previous session.

Bargain hunting may contribute to early strength on Wall Street, with traders picking up stocks at reduced levels on the heels of the steep drop seen in Monday.

The markets may also benefit from optimism the U.S. and China will eventually reach a trade deal despite the retaliatory tariffs announced by China.

President Donald Trump has continued to express confidence the Chinese will yield to U.S. demands, claiming a trade agreement was 95 percent complete before China reneged.

Trump has repeatedly argued that the U.S. is in a stronger position than China in the negotiations, citing the recent strength of the U.S. economy.

“If you looked at the first quarter — which is always, historically, the worst quarter — we were at 3.2 percent. People were very surprised,” Trump told reporters on Monday.

“Well, a lot of that was the tariffs that we were taking in from China,” he added. “So we’re in a very good position and I think it’s only going to get better.”

Trump also indicated that he would be meeting with Chinese President Xi Jinping at the G20 Summit in Japan late next month.

“We have a very good relationship. Maybe something will happen,” Trump said. “But we’re going to be meeting, as you know, at the G20 in Japan. And that will be, I think, probably, a very fruitful meeting.”

Stocks moved sharply lower over the course of the trading session on Monday amid concerns about a full-fledged trade war between the U.S. and China. The Dow tumbled to a three-month closing low, while the Nasdaq and the S&P 500 slumped to their lowest closing levels in over a month.

The major averages ended the session off their lows of the day but still firmly in negative territory. The Dow plunged 617.38 points or 2.4 percent to 25,324.99, the Nasdaq plummeted 269.92 points or 3.4 percent to 7,647.02 and the S&P 500 dove 69.53 points or 2.4 percent to 2,811.87.

The sell-off on Wall Street came after China announced plans to raise tariffs on $60 billion worth of U.S. goods, shrugging off a warning from U.S. President Donald Trump.

The move by China comes in retaliation for Trump's recent decision to raise tariffs on approximately $200 billion worth of Chinese goods to 25 percent from 10 percent.

China said increased tariffs on a total of 5,140 U.S. products would take effect June 1st, with the tariffs ranging from 5 percent to 25 percent.

Beijing is following through on its pledge to take "necessary countermeasures" in response to the U.S. tariff increase even though Trump warned the situation "will only get worse" if China retaliates.

Trump has sought to continue to pressure China to reach a trade agreement in a series of posts to Twitter, telling the communist country the deal will become "far worse for them if it has to be negotiated in my second term."

"I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don't make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China," Trump tweeted. "You had a great deal, almost completed, & you backed out!"

Trump has previously threatened to raise tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion.

Semiconductor stocks turned in some of the market's worst performances on the day amid concerns about the impact of the escalating trade dispute between the U.S. and China.

Reflecting the weakness in the sector, the Philadelphia Semiconductor Index plunged by 4.7 percent to its lowest closing level in over a month.

Substantial weakness was also visible among computer hardware stocks, as reflected by the 4.5 percent nosedive by the NYSE Arca Computer Hardware Index. The index also fell to a more than one-month closing low.

Oil service stocks also moved sharply lower, dragging the Philadelphia Oil Service Index down by 3.9 percent. The weakness in the sector came as the price of crude oil for June delivery fell $0.62 to $61.04 a barrel.

Steel, biotechnology, networking and banking stocks also saw considerable weakness amid broad based selling pressure.

Meanwhile, gold stocks were among the few groups bucking the downtrend, with the NYSE Arca Gold Bugs Index spiking by 3.5 percent amid a jump by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.53 to $61.57 barrel after falling $0.62 to $61.04 a barrel on Monday. Meanwhile, after jumping $14.40 to $1,301.80 ounce in the previous session, gold futures are slipping $1.60 to $1,300.20 an ounce.

On the currency front, the U.S. dollar is trading at 109.51 yen compared to the 109.30 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1212 compared to yesterday’s $1.1222.


Asian stocks ended mostly lower on Tuesday after China announced tariffs on about $60 billion worth of U.S. goods in retaliation for the U.S. decision to raise tariffs on about $200 billion worth of Chinese imports.

The office of U.S. Trade Representative is taking necessary steps to raise duties of up to 25 percent on a further $300 billion worth of imports from China, with a public hearing likely on June 17, followed by at least a week of discussions leading up to the G20 summit.

China's Shanghai Composite Index fluctuated before ending the session down 20.10 points or 0.7 percent at 2,883.61. Hong Kong's Hang Seng Index slumped 428.22 points or 1.5 percent to 28,122.02.

Japanese shares hit a three-month low as investors remained fearful of a full-blown trade war. The Nikkei 225 Index ended down 124.05 points or 0.6 percent at 21,067.23 after falling as low as 20,751.45, the lowest since mid-February. The broader Topix index closed 0.4 percent lower at 1,534.98 after hitting over a four-month low in initial trade.

Nissan Motor lost 3 percent on a Nikkei report that the automaker will likely experience its fourth straight year of decreasing profits in the financial year through March 2020.

Mazda Motor fell a little over 2 percent, Subaru Corp declined 2.3 percent and Isuzu Motors plunged 16 percent. China-related stocks such as Komatsu and Yaskawa Electric rebounded from a recent string of losses amid short covering.

In economic news, Japan posted a current account surplus of 2,847.9 billion yen in March, official data showed, down 10.6 percent from last year. That missed forecasts for a surplus of 3,007.2 billion but was still up from 2,676.8 billion in February.

The trade balance showed a surplus of 700.1 billion yen, also missing expectations for 838.9 billion yen but up from 489.2 billion yen in the previous month.

Australian shares tumbled to a one-month low after China announced retaliatory tariffs on import of American products.

The benchmark S&P/ASX 200 Index pared some losses to end the session down 57.70 points or 0.9 percent at 6,239.90, while the broader All Ordinaries Index slid 54.10 points or 0.9 percent to 6,327.20.

Financials fell for the second straight day, with National Australia Bank plunging 4.7 percent as shares traded ex-dividend. ANZ and Commonwealth Bank fell over 1 percent, while Westpac Banking Corp. shed 0.8 percent. Asset manager IOOF Holdings lost 6 percent.

Miners ended mixed despite a sharp drop in base metal prices. Heavyweight BHP dropped 1.1 percent, while Fortescue Metals Group soared 7.4 percent.

Gold miners surged as gold prices steadied near one-month high. Evolution Mining spiked 7.2 percent, Newcrest Mining advanced 1.8 percent and Northern Star Resources climbed 4.3 percent.

On the data front, Australia business conditions weakened in April, while confidence edged up slightly from March but remained well below average, survey data from the National Australia Bank showed.

Seoul stocks inched higher on institutional buying after the local markets hit a nearly four-month low the previous day. The benchmark Kospi crept up 2.83 points or 0.1 percent to 2,081.84.


European stocks are rebounding from two-month lows on Tuesday, as U.S. President Donald Trump's more conciliatory tone on trade talks with China have helped spur optimism the two sides will eventually reach a deal.

Trump said that a breakthrough with China, if it happens, would be announced in three to four weeks.

The Chinese government's top diplomat, State Councillor Wang Yi, also struck a more upbeat tone, noting there was still hope to resolve the issue in a friendly way.

While the German DAX Index has risen by 0.4 percent, the U.K.’s FTSE 100 Index is up by 0.9 percent and the French CAC 40 Index is up by 1 percent.

Volkswagen has moved to the upside on news it will simplify the group through a full or partial sale of its unit MAN Energy Solutions and RENK.

Evotec and Lanxess have also moved significantly higher on the back of positive earnings updates. Electric utility company Engie has also advanced after backing its 2019 view.

British bakery chain Greggs has jumped after raising its profit forecast for a third time this year. BHP has also advanced after saying it would retain its Australian nickel assets.

On the other hand, Bayer has tumbled after a California court ordered the company to pay more than $2 billion in damages over allegations its Roundup weed killer causes cancer.

French automaker Renault has also come under pressure on reports that a French probe into alleged emissions cheating by the automaker is a step closer to possible court action.

In economic news, German economic sentiment weakened unexpectedly in May, survey data from the ZEW-Leibniz Centre for European Economic Research showed.

The economic sentiment index fell to -2.1 in May from +3.1 in April. The reading was expected to rise to 5.0.

Eurozone industrial production fell for a second straight month in March, in line with market expectations.

The U.K. jobless rate declined in the first quarter to the lowest since 1974, signaling continuing firming of the labor market.

U.S. Economic Reports

With a drop in prices for non-fuel imports partly offsetting another jump in prices for fuel imports, the Labor Department released a report showing U.S. import prices rose by much less than expected in the month of April.

The Labor Department said import prices edged up by 0.2 percent in April after climbing by 0.6 percent in March. Economists had expected import prices to increase by 0.7 percent.

The report said export prices also rose by 0.2 percent in April following a 0.6 percent increase in the previous month. Export prices had been expected to climb by 0.5 percent.

At 12:45 pm ET, Kansas City Federal Reserve President Esther George is scheduled to deliver a speech about the Federal Reserve and the U.S. economy at the Economic Club of Minnesota in Minneapolis.

Stocks In Focus

Shares of StoneCo (STNE) are moving sharply higher in pre-market trading after the Brazilian financial technology solutions provider reported better than expected fiscal first quarter earnings and announced a $200 million share repurchase program.

Touch-based technology company Immersion Corp. (IMMR) is also likely to see initial strength after settling patent infringement litigation with Samsung and entering into a licensing agreement with Sony.

On the other hand, shares of Tencent Music (TME) are likely to come under pressure after the China-based online music platform reported fiscal first quarter earnings that beat estimates but unexpectedly announced the resignation of co-president Guomin Xie.
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