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Beyond the Numbers

Unexpected Drop In Retail Sales May Weigh On Wall Street
5/15/2019 8:52 AM

The major U.S. index futures are pointing to a lower opening on Wednesday, with stocks likely to move back to the downside following the rebound seen in the previous session.

A report from the Commerce Department showing an unexpected pullback in U.S. retail sales in the month of April may weigh on the markets in early trading.

Meanwhile, a separate report from the New York Federal Reserve showed an unexpected acceleration in the pace of growth in regional manufacturing activity.

Disappointing Chinese data may also generate some negative sentiment along with lingering concerns about the escalating U.S.-China trade dispute.

Following the sell-off seen on Monday, stocks showed a notable move back to the upside during the trading day on Tuesday. With the rebound, the Dow bounced off its lowest closing level in three months.

The major averages gave back ground going into the close but remained firmly positive. The Dow advanced 207.06 points or 0.8 percent to 25,532.05, the Nasdaq jumped 87.47 points or 1.1 percent to 7,734.49 and the S&P 500 climbed 22.54 points or 0.8 percent to 2,834.41.

Bargain hunting contributed to the rebound on Wall Street, with traders picking up stocks at reduced levels following the steep drop seen in Monday.

The markets also benefited from continued 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."

Oil service stocks moved sharply higher over the course of the trading session, driving the Philadelphia Oil Service Index up by 3.1 percent. The index ended the previous session at its lowest closing level in over four months.

The rebound by oil service stocks came as the price of crude oil for June delivery increased on news of a drone attack on two oil pumping stations in Saudi Arabia.

Bargain hunting also contributed to considerable strength among semiconductor stocks, with the Philadelphia Semiconductor Index surging up by 2.4 percent after plunging by 4.7 percent on Monday.

Substantial strength was also visible among natural gas stocks, as reflected by the 2.2 percent jump by the NYSE Arca Natural Gas Index. An increase by the price of natural gas is contributing to the strength in the sector.

Semiconductor stocks are also seeing considerable strength after turning in some of the market's worst performances on Monday, with the Philadelphia Semiconductor Index surging up by 2.2 percent.

Tobacco, steel, biotechnology and software stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are sliding $0.69 to $61.09 a barrel after climbing $0.74 to $61.78 a barrel on Tuesday. Meanwhile, after falling $5.50 to $1,296.30 an ounce in the previous session, gold futures are rising $4.70 to $1,301 an ounce.

On the currency front, the U.S. dollar is trading at 109.18 yen compared to the 109.61 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1183 compared to yesterday’s $1.1204.

Asia

Asian stocks rebounded from a 3-1/2-month low on Wednesday after U.S. President Donald Trump downplayed the scope of the trade war with China and said dialogue would continue. Sentiment was also boosted by hopes of Beijing unveiling more stimulus.

Chinese shares posted strong gains as weak data reinforced expectations that the government will launch stimulus measures to support the economy.

The benchmark Shanghai Composite Index jumped 55.07 points or 1.9 percent to 2,938.68, while Hong Kong's Hang Seng Index climbed 146.69 points or 0.5 percent to 28,268.71.

Chinese industrial production and retail sales growth eased more than expected in April, suggesting weak economic activity at the start of second quarter.

Industrial production advanced 5.4 percent year-on-year in April following March's 8.5 percent spike. The growth rate was forecast to slow moderately to 6.5 percent.

Likewise, annual growth in retail sales eased to 7.2 percent from 8.7 percent a month ago. Sales were expected to expand 8.6 percent.

On the positive side, fixed asset investment climbed 6.1 percent during January to April compared to the 6.3 percent expansion logged in January to March. Economists had forecast 6.4 percent growth.

Property investment increased 11.9 percent in the four months to April following the 11.8 percent rise in the January to March period.

Japanese shares rose to snap a seven-day losing streak on expectations that Beijing will boost stimulus spending and bank lending to boost slowing growth.

The Nikkei 225 Index ended a choppy session up by 121.33 points or 0.6 percent at 21,188.56, while the broader Topix closed 0.6 percent higher at 1,544.15.

Exporters led the advance as the dollar rose against the yen. Canon, Panasonic, Hitachi and Sony climbed 1-4 percent. Mitsubishi Estate jumped 9.2 percent on share buyback news.

On the other hand, Nissan Motor plunged 6.5 percent after the automaker posted disappointing fiscal 2018 earnings.

Drug maker Takeda Pharmaceutical slumped 7.8 percent after forecasting an unexpected operating loss for the current year due to costs associated with the multi-billion-dollar Shire deal.

Australian markets advanced in light trading as Trump downplayed his escalating tariff war with China. The benchmark S&P/ASX 200 Index climbed 44.30 points or 0.7 percent to 6,284.20, while the broader All Ordinaries Index ended up 43.70 points or 0.7 percent at 6,370.90.

Miners recovered despite China's steel futures struggling near five-week lows. Heavyweights BHP and Rio Tinto jumped around 2 percent.

Energy stocks such as Woodside Petroleum, Santos, Origin Energy and Oil Search rose 1-2 percent after a drone attack on Saudi Aramco's facilities.

Meanwhile, gold minders fell on profit taking on improved risk appetite. Northern Star Resources dropped 1.4 percent and Regis Resources lost 2.1 percent.

In economic news, Australian consumer confidence improved in May, data from Westpac showed. The Westpac-Melbourne Institute Index of Consumer Sentiment rose to 101.3 in May from 100.7 in April.

Seoul stocks gained ground as investors cheered Trump's optimistic remarks on the prospects of a U.S.-China trade deal. The benchmark Kospi rose 10.94 points or 0.5 percent to 2,092.78.

Europe

European stocks have moved mostly lower on Wednesday, as fears over the U.S.-China trade dispute have prompted traders to book some profits after the previous session's rally.

U.S. President Donald Trump's optimistic comments on trade talks as well as positive eurozone GDP data have helped to limit the downside to some extent.

The eurozone's quarterly economic growth rate doubled in the first three months of the year, the latest figures from Eurostat showed, confirming the initial estimate released late April.

Gross domestic product grew 0.4 percent from the fourth quarter of 2018, when the euro area economy expanded 0.2 percent. The pace of growth was the strongest since a matching rate in the second quarter of 2018.

While the U.K.’s FTSE 100 Index is just below the unchanged line, the French CAC 40 Index is down by 0.6 percent and the German DAX Index is down by 0.8 percent.

Commerzbank has fallen after reports that Italian bank UniCredit has stepped up preparations to bid for the German lender.

Raiffeisen Bank International, ABN Amro and Credit Agricole have also moved notably lower after posting disappointing earnings results.

Leoni, a German cable and harnessing manufacturing firm, has also slumped after it slipped to loss in the first quarter.

French automaker Renault has tumbled after its Japanese partner, Nissan Motor, forecast operating profit for the current year that fell short of analysts' lowest estimate.

On the other hand, British lender CYBG has rallied after it posted a first-half profit, despite the impact of costs from its acquisition of Virgin Money.

Compass Group has also moved sharply higher after the catering company upped its growth forecasts for the full year.

U.S. Economic Reports

Reflecting a sharp pullback in auto sales, the Commerce Department released a report showing an unexpected drop in U.S. retail sales in the month of April.

The Commerce Department said retail sales edged down by 0.2 percent in April after spiking by an upwardly revised 1.7 percent in March.

Economists had expected retail sales to rise by 0.2 percent compared to the 1.6 percent jump originally reported for the previous month.

Excluding the steep drop in auto sales, retail sales inched up by 0.1 percent in April after surging up by 1.3 percent in March. Ex-auto sales had been expected to climb by 0.7 percent.

A separate report from the Federal Reserve Bank of New York said New York manufacturing activity has picked up significantly in the month of May.

The New York Fed said its general business conditions index jumped to 17.8 in May from 10.1 in April, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to drop to 8.5.

With the unexpected increase, the New York Fed’s general business conditions index reached its highest level since November of 2018.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of April. Industrial production is expected to show no change in April after edging down by 0.1 percent in March.

Fed Vice Chairman for Supervision Randal Quarles is due to give testimony before the Senate Banking Committee beginning at 9:30 am ET.

At 10 am ET, the Commerce Department is scheduled to release its report on business inventories in the month of March. Business inventories are expected to come in unchanged.

The National Association of Home Builders is also due to release its report on homebuilder confidence in the month of May at 10 am ET. The housing market index is expected to inch up to 64 in May from 63 in April.

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

Crude oil inventories are expected to increase by 3.0 million barrels after tumbling by 4.0 million barrels in the previous week.

Richmond Fed President Tom Barkin is due to give remarks on “Sentiment and the Real Economy” at the New York Association for Business Economics in New York at 1 pm ET.

Stocks In Focus

Shares of Agilent Technologies (A) are moving sharply lower in pre-market trading after the laboratory instruments maker reported weaker than expected fiscal second quarter results.

Marijuana producer Aurora Cannabis (ACB) may also come under pressure after reporting a fiscal third quarter loss that matched estimates but weaker than expected revenues.

On the other hand, shares of Macy’s (M) are likely to see initial strength after the department store operator reported much better than expected first quarter earnings.
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