Market Analysis

Beyond the Numbers

Lingering Trade Concerns May Lead To Pullback On Wall Street
5/17/2019 8:46 AM

The major U.S. index futures are currently pointing to a lower opening on Friday, with stocks likely to give back ground after moving significantly higher over the past few sessions.

Lingering concerns about the escalating trade dispute between the U.S. and China are likely to weigh on the markets early in the session.

President Donald Trump has sought to blame China for backing out of a nearly completed trade deal, although a spokesperson for China’s Ministry of Commerce claims the U.S. is responsible for serious setbacks in the trade talks.

Commerce Ministry spokesperson Gao Feng accused the Trump administration of “bullying behavior” with a recent increase in tariffs, according to state-run Chinese news agency Xinhua.

“It is regrettable that the U.S. side unilaterally escalated trade disputes, which resulted in severe negotiating setbacks,” Gao said.

He added, “We urge the U.S. side to correct wrongdoings as soon as possible to avoid causing heavier damages to businesses and consumers in both countries and dragging down the global economy.”

Stocks moved mostly higher during the trading day on Thursday, extending the upward move seen over the course of the two previous sessions. With the continued advance, the major averages have largely offset the steep drop seen on Monday.

The major averages gave back some ground in afternoon trading but remained firmly positive. The Dow climbed 214.66 points or 0.8 percent to 25,862.68, the Nasdaq jumped 75.90 points or 1 percent to 7,898.05 and the S&P 500 advanced 25.36 points or 0.9 percent to 2,876.32.

The strength on Wall Street partly reflected a positive reaction to earnings news from Walmart (WMT), with the retail giant climbing by 1.4 percent.

The advance by Walmart comes after the company reported fiscal first quarter earnings that exceeded analyst estimates on better than expected comparable store sales growth.

Networking giant Cisco Systems (CSCO) also surged up by 6.7 percent after reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

The markets also benefited from the release of a batch of upbeat economic data, including report from the Labor Department showing initial jobless claims dropped more than expected in the week ended May 11th.

The report said initial jobless claims slid to 212,000, a decrease of 16,000 from the previous week's unrevised level of 228,000. Economists had expected jobless claims to dip to 220,000.

A separate report from the Commerce Department showed a substantial increase in new residential construction in the month of April.

The Commerce Department said housing starts surged up by 5.7 percent to an annual rate of 1.235 million in April after climbing by 1.7 percent to a revised rate of 1.168 million in March.

Building permits, an indicator of future housing demand, also rose by 0.6 percent to a rate of 1.296 million in April after edging down by 0.2 percent to a revised rate of 1.288 million in March.

The Philadelphia Federal Reserve also released a report a significant acceleration in the pace of growth in regional manufacturing activity in May.

The upbeat news has offset trade concerns after President Donald Trump signed an executive order declaring a national emergency with respect to the threats against information and communications technology and services.

Software stocks turned in some of the market's best performances on the day, resulting in a 2.1 percent jump by the Dow Jones U.S. Software Index. The index continued to rebound after ending Monday's trading at its lowest closing level in over a month.

Significant strength also emerged among chemical stocks, as reflected by the 1.8 percent gain posted by the S&P Chemical Sector Index. With the advance, the index climbed further off the three-month closing low set on Monday.

Transportation, banking, and retail stocks also saw considerable strength on the day, while semiconductor and gold stocks bucked the uptrend.

Commodity, Currency Markets

Crude oil futures are rising $0.40 to $63.27 a barrel after climbing $0.85 to $62.87 a barrel on Thursday. Meanwhile, after tumbling $11.60 to $1,286.20 an ounce in the previous session, gold futures are slipping $0.50 to $1,285.70 an ounce.

On the currency front, the U.S. dollar is trading at 109.60 yen versus the 109.85 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1172 compared to yesterday’s $1.1174.


Asian stock markets turned in a mixed performance on Friday despite overnight gains on Wall Street for a third straight session following upbeat corporate earnings results and U.S. economic data.

Worries about U.S.-China trade tensions continued to weigh on investor sentiment after the Trump administration banned Chinese telecom giant Huawei Technologies from buying U.S. technology without prior approval from the U.S. government.

China's Shanghai Composite Index plunged 73.41 points or 2.5 percent to 2,882.30 amid worries about the ongoing trade tensions between the U.S. and China following U.S. President Donald Trump's move to block Huawei. Hong Kong's Hang Seng Index tumbled 328.61 points or 1.2 percent to close at 27,946.46.

Meanwhile, Japanese stocks closed higher as the safe-haven yen weakened, lifting exporters' stocks. The benchmark Nikkei 225 Index added 187.11 points or 0.9 percent to settle at 21,250.09.

Shares of Sony Corp. gained 9.9 percent after the company said Thursday that it will buy back shares worth up to 200 billion yen, or $1.82 billion, and also announced a new partnership with Microsoft. In February, the electronics conglomerate had announced its first ever stock repurchase of 100 billion yen.

Other major exporters also closed higher. Canon advanced more than 2 percent, Panasonic rose 1 percent and Mitsubishi Electric added 0.5 percent.

Among tech stocks, Tokyo Electron rose 0.4 percent, while Advantest declined more than 2 percent. In the oil sector, Inpex advanced 1.6 percent and Japan Petroleum gained 2.6 percent after crude oil prices rose to a two-week high.

Australian stocks also closed higher after touching an eleven-year high in morning trading, with higher iron ore and oil prices boosting resources stocks. Rising optimism about a possible interest rate cut by the Reserve Bank of Australia also boosted sentiment.

The benchmark S&P/ASX 200 Index rose 37.50 points or 0.6 percent to 6,365.30, after rising to a high of 6,398.30 earlier. The broader All Ordinaries Index climbed 42.70 points or 0.7 percent to 6,460.20.

Mining heavyweights Rio Tinto and BHP Group both rose more than 2 percent, while smaller rival Fortescue Metals surged up 6.6 percent.

Oil stocks advanced after crude oil prices rose to a two-week high overnight. Oil Search and Woodside Petroleum added more than 1 percent, while Santos rose 0.1 percent.

In the tech sector, WiseTech Global rose more than 4 percent, Afterpay Touch edged up 0.5 percent and Altium advanced almost 1 percent. In the consumer staples sector, Coles advanced 2.9 percent and Woolworths gained 2.2 percent.

Meanwhile, the big four banks closed lower. ANZ Banking lost 3 percent, Westpac fell almost 2 percent, National Australia Bank declined more than 1 percent and Commonwealth Bank declined 0.7 percent.

Virgin Australia said it expects to report a full-year underlying earning loss of at least A$35.6 million. The airline's shares fell more than 5 percent.

South Korean stocks gave up early gains and closed lower, while the Korean won hit its lowest level in more than 28 months against the U.S. dollar. The benchmark Kopsi declined 11.89 points or 0.6 percent to settle at 2,055.80.

New Zealand-based infrastructure investment company Infratil reported a loss for the full year and its shares entered a trading halt as the company initiated a NZ$400 million capital raising to fund its joint acquisition of mobile operator Vodafone NZ, along with Canada's Brookfield Asset Management.

Citadel Group's shares plunged 39.8 percent after the information management company issued a profit warning.

Shares of Neuren Pharmaceuticals gained 14.6 percent after the biotech company said one of its drug candidates to treat neurodevelopmental disorders showed early promise in two preliminary studies.


European markets continue to exhibit weakness after a negative start Friday, with traders choosing to exit counters amid fresh worries about U.S.-China trade issues and Brexit uncertainty. Traders also appear a bit keen on taking some profits after recent gains.

U.S.-China trade tensions have escalated this week following the U.S. government's decision to declare a national emergency to protect U.S. networks from foreign espionage threats against U.S. technology and the move to blacklist Chinese technology major Huawei, blocking it from buying American technology.

Reacting to U.S. move on Huawei, China's People's Daily newspaper came out with a front page write-up that said the trade war would never bring the country down.

While the German DAX Index has slumped by 1.2 percent, the French CAC 40 Index is down by 0.7 percent and the U.K.’s FTSE 100 Index is down by 0.5 percent.

Shares of tour operator Thomas Cook have plunged to their lowest level since mid 2012 after analysts downgraded the stock following the company's profit warning.

Hikma Pharma, Babcock International, Glencore, Standard Chartered, Informa and ITV are also posting notable losses on the day.

On the other hand, EasyJet has jumped after the company said it would meet its target this year despite a likely fall in revenue per seat due to tough trading environment in the second half.

A report from European Automobile Manufacturers' Association showed new car sales dropped for an eighth consecutive month, declining by 0.4 percent in the EU in April compared to a year ago. While demand for cars increased in Italy, France and Spain, sales were down in the U.K. and Germany.

Data released by Eurostat showed Eurozone core inflation, which excludes prices for energy, food, alcohol and tobacco, accelerated in April to its highest level in two years. Core inflation climbed to 1.3 percent in April, higher than the initial estimate of 1.2 percent.

Another report from the statistical office said Eurozone construction output declined a calendar and seasonally adjusted 0.3 percent month-on-month in March after a 3 percent spike in February.

Meanwhile, on the Brexit front, talks between Labour and the government aimed at breaking the Brexit impasse ended without an agreement today. Prime Minister Theresa May blamed the Labour Party's pro-second referendum faction for the failure of talks.

U.S. Economic Reports

At 10 am ET, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of May. The consumer sentiment index is expected to inch up to 97.5 in May from 97.2 in April.

The Conference Board is also due to release its report on leading economic indicators in the month of April at 10 am ET. Economists expect the leading economic index to rise by 0.3 percent.

At 1:40 pm ET, Federal Reserve Vice Chairman Richard Clarida is scheduled to give a speech at a Fed Listens: Education, Employment, and Monetary Policy in the Third District event in Philadelphia, Pennsylvania.

New York Fed President John Williams is due to speak at the "Equitable Growth Meeting in Chinatown" event in New York at 2 pm ET.

Stocks In Focus

Shares of Pinterest (PINS) are moving sharply lower in pre-market trading after the social media company reported a much wider than expected first quarter loss and provided disappointing full-year revenue guidance.

Chinese search engine operator Baidu (BIDU) is also likely to come under pressure after reporting weaker than expected first quarter results.

Shares of Deere & Co. (DE) may also see initial weakness after the agricultural equipment maker reported fiscal second quarter earnings that missed estimates and cut its full-year forecast.

On the other hand, shares of Applied Materials (AMAT) are likely to move to the upside after the semiconductor equipment maker reported fiscal second quarter results that exceeded expectations and provided upbeat guidance.
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