Market Analysis

Beyond the Number

Wall Street Volatility Likely To Persist Amid Lingering Trade Worries
5/22/2019 9:01 AM

The major U.S. index futures are pointing to a lower opening on Wednesday following the notable advance seen over the course of the previous session.

Stocks are likely to move back to the downside as traders continue to worry the trade dispute between the U.S. and China is escalating into a full-fledged trade war.

A report from the South China Morning Post said Chinas is re-examining the entire bilateral economic relationship between the U.S. and China.

The SCMP said Chinese government advisers are highlighting the risk of sourcing critical supplies from an increasingly hostile U.S. following the Trump administration’s recent move to blacklist Chinese tech giant Huawei.

Mei Xinyu, a fellow at the research institute under China’s Ministry of Commerce, told the SCMP that Beijing should prepare for the worst-case scenario to defend its rights in climbing up the global value chain through technological catch-up.

“Even if a deal is reached, it could be torn apart [by President Donald Trump] easily at any time,” Mei said, comparing the current trade talk deadlock to the Panmunjom peace talks during the Korean War.

Potentially adding to the trade concerns, Treasury Secretary Steven Mnuchin recently told CNBC’s Ylan Mui the U.S. has no plans to go to Beijing to resume trade negotiations.

Later in the session, trading may be impacted by reaction to the release of the minutes of the latest Federal Reserve meeting.

The minutes may shed additional light on the outlook for interest rates but could also be viewed as old news considering the constantly shifting developments on the trade front.

With the markets continuing to show intense sensitivity to trade-related news, stocks showed a strong move back to the upside during the trading day on Tuesday after moving mostly lower over the course of Monday’s session.

The major averages ended the day firmly in positive territory. The Dow climbed 197.43 points or 0.8 percent to 25,877.33, the Nasdaq jumped 83.35 points or 1.1 percent to 7,785.72 and the S&P 500 advanced 24.13 points or 0.9 percent to 2,864.36.

The rebound on Wall Street came 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.

Tech stocks rebounded on the news after falling sharply in the previous session amid reports of companies cutting off supplies to Huawei.

Meanwhile, traders largely shrugged off a report from the National Association of Realtors showing an unexpected drop in existing home sales in the month of April.

NAR said existing home sales dipped by 0.4 percent to an annual rate of 5.19 million in April after plunging by 4.9 percent to a rate of 5.21 million in March.

The continued decrease came as a surprise to economists, who had expected existing home sales to jump by 2.7 percent to a rate of 5.35 million.

Semiconductor stocks turned in some of the market's best performances on the day after falling sharply in the previous session.

Reflecting the rebound by the sector, the Philadelphia Semiconductor Index spiked by 2.1 percent after plunging by 4 percent on Monday.

Substantial strength also emerged among biotechnology stocks, as reflected by the 2.2 percent jump by the NYSE Arca Biotechnology Index.

Natural gas, steel, computer hardware and oil service stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are tumbling $0.86 to $62.27 a barrel after edging down $0.08 to $63.13 a barrel on Tuesday. Meanwhile, after falling $4.10 to $1,273.20 an ounce in the previous session, gold futures are rising $3.40 to $1,276.60 an ounce.

On the currency front, the U.S. dollar is trading at 110.34 yen compared to the 110.50 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1170 compared to yesterday’s $1.1161.


Asian stocks ended Wednesday's session on a muted note despite the U.S. temporarily lifting a ban on American businesses working with Chinese telecom giant Huawei.

Markets kept an eye on the minutes of the latest Federal Reserve meeting due out later in the day as a protracted trade war threatens to depress global economic growth.

The Organization for Economic Co-operation and Development has lowered the 2019 global growth outlook as escalating trade disputes hurt manufacturing and investment decisions.

In its latest Economic Outlook, the Paris-based think tank forecast 3.2 percent growth for 2019 versus 3.3 percent estimated in March.

China's Shanghai Composite Index ended down 14.26 points or 0.5 percent at 2,891.70 as trade tensions continued to linger. Hong Kong's Hang Seng Index inched up 48.70 points or 0.2 percent to 27,705.94.

In a speech in Jiangxi, Chinese President Xi Jinping called for the people to "start again" and begin a modern "long march," in a dramatic sign that Beijing is preparing for a protracted trade war with the U.S.

Japanese shares ended largely unchanged after the New York Times reported that the Trump administration is considering placing limits on Chinese video surveillance firm Hikvision's ability to buy U.S. technology.

Investors also reacted to mixed economic data and comments by Bank of Japan board member Yutaka Harada that monetary easing should be strengthened further without delay.

Japanese exports fell for a fifth straight month in April, in a sign of weakness in external demand. On the positive side, the country's core private-sector machinery orders rose for the second straight month.

The Nikkei 225 Index crept up 10.92 points or 0.1 percent to 21,283.37, while the broader Topix closed 0.3 percent lower at 1,546.21.

Exporters such as Canon, Sony and Panasonic closed lower despite a weaker yen. Index heavyweights Softbank and Fanuc slid around half a percent, while Fast Retailing rose 1 percent.

Australian shares inched higher even as overall gains remained limited amid fears that a protracted trade war between the United States and China could harm demand for Australian products.

The benchmark S&P/ASX 200 Index rose 10.60 points or 0.2 percent to 6,510.70, while the broader All Ordinaries index ended up 13.70 points or 0.2 percent at 6,598.10.

Banks ended flat to slightly lower after the country's financial regulator said it may impose additional capital requirements on some financial institutions. Westpac Banking Corp shares climbed 1.1 percent.

Mining heavyweights BHP and Rio Tinto eked out modest gains amid record higher iron ore prices. Smaller rival Fortescue Metals Group slumped over 8 percent on going ex-dividend.

Gold miner Evolution Mining dropped 2.4 percent and Northern Star declined 1.9 percent as gold prices held near a two-week low.

Construction materials supplier James Hardie rallied 2.2 percent as Australia's prudential regulator eased lending criteria for home loans.

Seoul stocks recovered from an early slide to end modestly higher for the day. The Kospi rose 3.61 points or 0.2 percent to 2,064.86.


European stocks are trading mixed on Wednesday as global trade tensions linger and investors look ahead to the release of the Fed meeting minutes for direction.

Investors remain worried about a protracted U.S.-China trade war after the New York Times reported that the Trump administration is considering placing limits on Chinese video surveillance firm Hikvision's ability to buy U.S. technology.

Ahead of the release of the Fed minutes, St. Louis Fed President James Bullard said there is a case for lowering interest rates if inflation doesn't appear on track to rise back to desired levels.

While the U.K.’s FTSE 100 Index is just above the unchanged line, the German DAX Index and the French CAC 40 Index are down by 0.4 percent and 0.5 percent, respectively.

Royal Mail has jumped after announcing it would introduce a second daily delivery of parcels, to be fully operational by 2023.

Online trading major IG Group Holdings has also moved sharply higher on the day after unveiling a plan to drive growth.

On the other hand, British retailer Marks & Spencer has tumbled after it reported a 10 percent drop in full-year profit, marking a third straight decline.

In economic news, U.K. consumer price inflation accelerated in April, while output price inflation eased slightly, figures from the Office for National Statistics revealed.

U.S. Economic Reports

New York Federal Reserve Bank John Williams is scheduled to deliver opening remarks at the Economic Press Briefing on Homeownership and Housing in New York at 10 am ET.

At 10:10 am ET, Atlanta Fed President Raphael Bostic and Dallas Fed President Robert Kaplan are due to give opening remarks at the Dallas Fed's Technology-Enabled Disruption: Implications for Business, Labor Markets and Monetary Policy conference in Dallas, Texas.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 17th at 10:30 am ET.

Crude oil inventories are expected to decrease by 2.5 million barrels after jumping by 5.4 million barrels in the previous week.

At 2 pm ET, the Fed is due to release the minutes of its latest monetary policy meeting, which may shed additional light on the outlook for interest rates.

Stocks In Focus

Shares of Qualcomm (QCOM) are moving sharply lower in pre-market trading after a federal judge ruled the communications chip maker violated antitrust law, suppressing competition and using its dominant position to exact excessive licensing fees.

Home improvement retailer Lowe’s (LOW) is also likely to come under pressure after reporting weaker than expected fiscal first quarter earnings and lower its full-year profit forecast.

Shares of Nordstrom (JWN) are also likely to see initial weakness after the department store operator reported first quarter results that missed estimates on both the top and bottom lines and cut its full-year guidance.

On the other hand, shares of Target (TGT) are moving significantly higher in pre-market trading after the retail giant reported better than expected first quarter results.
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