Market Analysis

Beyond the Numbers

Reprieve For Huawei May Lead To Rebound On Wall Street
5/21/2019 9:00 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to regain ground after ending the previous session mostly lower.

Early buying interest is likely to be generated in reaction to news that the U.S. Commerce Department has temporarily eased trade restrictions on Chinese tech giant Huawei.

The Commerce Department issued a temporary license authorizing specific, limited engagement in transactions involving the export, re-export, and transfer of items to Huawei for 90 days.

Commerce Secretary Wilbur Ross said the temporary reprieve grants “operators time to make other arrangements and the Department space to determine the appropriate long term measures for Americans and foreign telecommunications providers that currently rely on Huawei equipment for critical services.”

“In short, this license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks,” he added.

The move by the Trump administration led U.S. tech giant Google to reverse an earlier decision and announce it will continue to work with Huawei over the next 90 days.

Stocks fluctuated over the course of the trading day on Monday but maintained a negative bias throughout the session. The major averages all finished the day lower, although the tech-heavy Nasdaq underperformed its counterparts by a wide margin.

While stocks climbed off their worst levels going into the close, the major averages remained stuck in the red. The Nasdaq plunged 113.91 points or 1.5 percent to 7,702.38, while the Dow fell 84.10 points or 0.3 percent to 25,679.90 and the S&P 500 slid 19.30 points or 0.7 percent to 2,840.23.

Tech stocks led the way lower on Wall Street amid ongoing concerns about the escalating U.S.-China trade dispute after Google suspended some of its business with Chinese tech giant Huawei.

Google has cut Huawei off from business involving the transfer of hardware, software and technical services, complying with an order by President Donald Trump blocking the sale or transfer of U.S. technology to Huawei.

"We are complying with the order and reviewing the implications," a Google spokesperson said, noting services such as Google Play and the security protections from Google Play Protect will continue to function on existing Huawei devices.

The blow to Huawei added to trade concerns sparked by last Friday's report from CNBC saying the scheduling of the next round of U.S.-China trade talks is "in flux" because it is unclear what the two sides would discuss.

Two sources briefed on the status of trade talks told CNBC discussions regarding scheduling the next round of talks have not taken place since Trump signed an executive order ramping up scrutiny of Chinese telecom companies.

Trading activity was somewhat subdued, however, with a lack of major U.S. economic data may keeping some traders on the sidelines.

Reports on new and existing home sales and durable goods orders are likely to attract attention in the coming days along with the minutes of the latest Federal Reserve meeting.

Semiconductor stocks turned in some of the market's worst performances on the day, dragging the Philadelphia Semiconductor Index down by 4 percent to its lowest closing level in well over two months.

The weakness in the sector comes after a report from Bloomberg said chipmakers Intel (INTC), Xilinx (XLNX), and Qualcomm (QCOM) told employees they will not supply Huawei until further notice.

Significant weakness was also visible among computer hardware stocks, as reflected by the 2.2 percent slump by the NYSE Arca Computer Hardware Index.

Commercial real estate, chemical, and software stocks also saw considerable weakness, while telecom stocks saw some strength on the day.

Commodity, Currency Markets

Crude oil futures are rising $0.31 to $63.41 barrel after climbing $0.34 to $63.10 a barrel on Monday. Meanwhile, after edging up $1.60 to $1,277.30 ounce in the previous session, gold futures are sliding $5.90 to $1,271.40 an ounce.

On the currency front, the U.S. dollar is trading at 110.55 yen compared to the 109.97 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1157 compared to yesterday’s $1.1166.


Asian stock markets closed mixed on Tuesday, with some markets recovering from early losses after the U.S. Commerce Department temporarily eased some restrictions imposed on Chinese telecom giant Huawei Technologies in order to minimize disruption for its customers. The temporary reprieve will be in effect for 90 days.

China's Shanghai Composite Index jumped 35.36 points or 1.2 percent to t 2,905.97, while Hong Kong's Hang Seng Index fell 130.37 points or 0.5 percent to 27,657.24.

The Japanese market closed lower amid worries about escalating U.S.-China trade tensions after the U.S. blacklisting of Huawei. However, the market pared initial losses following news that the U.S. has temporarily eased trade restrictions on Huawei.

The benchmark Nikkei 225 Index edged down 29.28 points or 0.1 percent to close at 21,272.45 after falling to a low of 21,160.43 earlier.

Shares of SoftBank Group gained 3.5 percent after U.S. wireless telecom carriers T-Mobile and Sprint received support from FCC chairman Ajit Pai for their $26 billion merger. SoftBank is the majority owner of Sprint shares.

Shares of Huawei suppliers fell on worries about the blacklisting of the Chinese telecom giant. Tokyo Electron lost almost 2 percent, Murata Manufacturing Co. declined more than 1 percent and Taiyo Yuden dipped 0.6 percent.

Major exporters closed mixed. Sony lost more than 4 percent and Mitsubishi Electric fell almost 2 percent, while Canon rose more than 1 percent and Panasonic added almost 1 percent.

Among the major banks, Mitsubishi UFJ Financial added 0.7 percent but Sumitomo Mitsui Financial declined 0.4 percent. In the oil sector, Inpex tumbled 2.7 percent, while Japan Petroleum advanced more than 1 percent.

Australian stocks closed higher for a fifth straight day, reaching a fresh eleven-and-a-half year high. The benchmark S&P/ASX 200 Index added 24.00 points or 0.4 percent to close at 6,500.10. The broader All Ordinaries Index rose 19.70 points or 0.3 percent to 6,584.40.

The big four banks rose after the prudential regulator APRA proposed dropping the requirements for banks to use a minimum 7 percent interest rate to assess customers' ability to meet their mortgage repayments.

Westpac advanced almost 3 percent, while ANZ Banking and Commonwealth Bank gained slightly more than 2 percent each. National Australia Bank added more than 1 percent.

ANZ said it has appointed Ken Adams, who has been a senior partner at Herbert Smith Freehills, as its top lawyer to replace Bob Santamaria, who is retiring.

In the tech space, Afterpay Touch Group fell almost 5 percent, WiseTech Global lost more than 1 percent and Altium declined more than 2 percent.

Among the major miners, Fortescue Metals fell more than 2 percent, Rio Tinto lost more than 1 percent, and BHP Group declined 0.7 percent.

Oil stocks also edged lower despite an increase in crude oil prices overnight. Oil Search declined 0.1 percent and Woodside Petroleum dipped less than 0.1 percent.

James Hardie Industries reported a 57 percent surge in full-year profit on higher revenues but cut its final dividend. The construction materials company's shares gained almost 4 percent.

OFX Group reported a 12 percent increase in its full-year underlying profit, while net profit declined 5.8 percent. The foreign exchange provider's shares jumped almost 17 percent.

South Korean stocks closed modestly higher. The benchmark Korea Composite Stock Price Index or KOSPI added 5.54 points or 0.3 percent to settle at 2,061.25.

Shares of Samsung Electronics gained 2.7 percent as investors bet that the issues surrounding China's Huawei could provide a boost to the South Korean conglomerate.


European markets have advanced on Tuesday, led by gains in technology stocks after the U.S. government temporarily eased some trade restrictions imposed on Chinese telecom giant Huawei Technologies.

The U.S. Commerce Department will now allow the Chinese company to purchase US goods in order to maintain existing networks and provide software updates to existing Huawei handsets.

However, Huawei will not be allowed to buy American parts and components to manufacture new products without license approvals.

While the German DAX Index has jumped by 1 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both up by 0.5 percent.

Infineon, which closed sharply lower in the previous session, is moving notably higher, while shares of semiconductor manufacturer STMicroelectronics are also coming back strongly after Monday's setback.

A Reuters report said French businessman Jacques Veyrat, who has a controlling stake of over 50% in renewable energy group Neoen, is likely to sell Neoen to Engie in return for a small take in Engie.

Meanwhile, shares of natural gas distribution company Engie are plummeting on reports France's finance ministry is preparing to reduce its stake in the company from 24 percent to around 15 percent within a year.

In economic news, the Organization for Economic Co-operation and Development downgraded the global growth outlook for 2019 as trade disputes hurt manufacturing and investment decisions.

In its latest Economic Outlook, the agency forecast 3.2 percent growth for 2019 compared to the 3.3 percent estimated in March. The global outlook for 2020 was retained at 3.4 percent.

The OECD cautioned that current growth rates are insufficient to bring about major improvements in employment or living standards.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales in the month of April at 10 am ET.

Existing home sales are expected to climb to an annual rate of 5.35 million in April after tumbling to a rate of 5.21 million in March.

At 10:45 am ET, Chicago Federal Reserve President Charles Evans is due to speak at the Financial Markets Conference at Fernandina Beach, Florida.

Boston Fed President Eric Rosengren is scheduled to speak at the Economic Club of New York in New York at 12 pm ET.

Stocks In Focus

Shares of Kohl’s (KSS) are moving sharply lower in pre-market trading after the retailer reported weaker than expected first quarter earnings and cuts its full-year guidance.

Department store operator J.C. Penney (JCP) is also likely to come under pressure after reporting a wider than expected first quarter loss.

On the other hand, shares of AutoZone (AZO) are likely to see initial strength after the auto parts retailer reported fiscal third quarter results that beat analyst estimates on both the top and bottom lines.

Snapchat parent Snap Inc. (SNAP) may also see initial strength after appointing Derek Andersen, currently its Vice President of Finance, as Chief Financial Officer.
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