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Beyond the Numbers

Recent Upward Momentum May Lead To Continued Strength On Wall Street
6/11/2019 8:54 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to extend the upward trend seen over the past several sessions.

The markets are likely to benefit from recent upward momentum, which has helped stocks bounce well off the multi-month lows set last month.

Optimism about a potential interest rate cut by the Federal Reserve has contributed to the recent rebound on Wall Street, with the central bank due to make its latest monetary policy decision next week.

The Fed is widely expected to leave interest rates unchanged next week, although the chances for a rate cut next month have spiked since Fed Chairman Jerome Powell pledged to act “as appropriate” to support the economic expansion.

A report from the Labor Department showing wholesale price inflation remains contained may add to confidence that the Fed can feel comfortable lowering rates.

Stocks showed a strong upward move in morning trading on Monday but gave back some ground over the course of the afternoon. The major averages still managed to end the day in positive territory, adding to the strong gains posted last week.

The tech-heavy Nasdaq outperformed its counterparts, surging up 81.07 points or 1.1 percent to 7,823.17, while the Dow and the S&P 500 reached their best closing levels in a month. The Dow rose 78.74 points or 0.3 percent to 26,062.68 and the S&P 500 climbed 13.39 points or 0.5 percent to 2,886.73.

The morning rally came in reaction to news the U.S. and Mexico have reached an agreement to avert President Donald Trump's threatened tariffs on all Mexican imports.

Trump revealed in a post on Twitter late Friday that the 5 percent tariff he threatened to impose on Mexican imports beginning today has been "indefinitely suspended."

The suspension of the tariff threat comes as the two countries signed a deal Trump claims will help stop the flow of migrants through Mexico and into the U.S.

Details of the deal announced by the State Department indicated Mexico will take unprecedented steps to increase enforcement to curb irregular migration, including deploying 6,000 troops from its newly formed National Guard to its southern border.

However, some analysts have questioned the impact of the steps being taken by Mexico, arguing Trump threatened to derail a key economic partnership for a deal that ultimately maintains the status quo.

Trump also warned on Twitter this morning that the tariffs will be reinstated if Mexico's legislative body does not approve an unrevealed but "very important" part of the deal.

The president also indicated in an interview with CNBC that he would continue to use tariffs to advance American interests in trade talks with China.

Trump argued that existing tariffs on Chinese imports will force China to make a deal and threatened to impose more tariffs if Chinese President Xi Jinping does not attend a planned meeting at the G-20 summit later this month.

Semiconductor stocks turned in some of the market's best performances on the day, resulting in a 2.5 percent jump by the Philadelphia Semiconductor Index.

The index has shown a substantial rebound after ending the last trading day of May at its lowest closing level in nearly four months.

Significant strength also remained visible among financial stocks, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index climbing by 1.1 percent and 1.2 percent, respectively.

Retail and transportation stocks also saw considerable strength on the day, while natural gas and gold stocks showed notable moves to the downside.

Commodity, Currency Markets

Crude oil futures are climbing $0.73 to $53.99 barrel after sliding $0.73 to $53.26 a barrel on Monday. Meanwhile, after plunging $16.80 to $1,329.30 ounce in the previous session, gold futures are slipping $3.60 to $1,325.70 an ounce.

On the currency front, the U.S. dollar is trading at 108.72 yen compared to the 108.45 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1311 compared to yesterday’s $1.1312.

Asia

Asian stocks rose broadly on Tuesday despite U.S. President Donald Trump threatening to slap new tariffs on China if his counterpart Xi Jinping does not attend the upcoming G20 summit.

Chinese stocks rallied after Beijing said it would allow local governments to use proceeds from special bonds as capital for major projects, including highways, gas and power supply and railways.

The benchmark Shanghai Composite Index spiked 73.59 points or 2.6 percent to 2,925.72. Hong Kong's Hang Seng Index advanced 210.70 points or 0.8 percent to 27,789.34.

Japanese shares recovered from a weak start to finish higher as the yen's retreat against the dollar helped lift exporters. The Nikkei 225 Index rose 69.86 points or 0.3 percent to 21,204.28, while the broader Topix closed 0.5 percent higher at 1,561.32.

Exporters Canon, Toyota Motor, TDK Corp and Tokyo Electron gained 1-2 percent. Renesas Electronics soared 4.4 percent after it jointly opened a laboratory in Shanghai with a local affiliate of Germany's Volkswagen group.

Higher U.S. bond yields boosted financials, with banks Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial all ending up over 1 percent.

Australian stocks posted strong gains as traders returned to their desks following a long weekend. The benchmark S&P/ASX 200 index jumped 102.40 points or 1.6 percent to 6,546.30, extending gains for a fifth straight session amid easing trade tensions between the U.S. and Mexico. The broader All Ordinaries Index ended up 99.20 points or 1.5 percent at 6,624.40.

Miners BHP, Rio Tinto and Fortescue Metals Group climbed 2-3 percent after a jump in China's iron ore prices. The big four banks rose around 1 percent to extend recent gains after last week's central bank rate cut.

Woodside Petroleum, Santos, Origin Energy and Oil Search rallied 1-2 percent despite a decline in crude oil prices overnight.

On the other hand, gold miner Northern Star tumbled 4.2 percent and Evolution Mining dropped 2 percent after gold prices snapped an eight-session winning streak to close lower overnight.

Star Entertainment Group slumped 15.7 percent. The casino operator said it expects full-year earnings to be lower than last year.

On the data front, survey data from National Australia Bank showed Australian business confidence strengthened in May after the Federal election, although conditions weakened, signaling that the private sector continues to lose momentum.

The business confidence index advanced to 7 in May from zero a month ago, but it is unlikely to persist at these levels given the weakness in other forward looking indicators, NAB said.

Meanwhile, the business conditions index fell 2 points to +1 in May, largely driven by declines in profitability and trading sub-components.

Seoul stocks rose, tracking strong gains in the Chinese markets after China said it would ease restrictions on local governments' borrowing for major infrastructure investments to spur growth in the world's second-largest economy. The benchmark Kospi gained 12.32 points or 0.6 percent to close at 2,111.81.

Europe

European shares are moving higher on Tuesday as investors shrug off U.S. President Donald Trump's new threat to impose tariffs on China and priced in more stimulus from global central banks.

Market participants also shrugged off the latest data published by the Sentix research group showing that investor confidence in the Eurozone deteriorated sharply in June amid the escalation in the U.S.-China trade dispute. The gauge slipped to -3.3 in June from 5.3 in May.

Elsewhere, official data revealed that the U.K. unemployment rate remained stable in April at the lowest level since 1974.

While the German DAX Index has jumped by 1.4 percent, the French CAC 40 Index is up by 0.8 percent and the U.K.’s FTSE 100 Index is up by 0.5 percent.

Novo Nordisk has moved sharply higher after a trial outcome of rival Eli Lilly's diabetes drug missed investors' expectations.

German luxury fashion house Hugo Boss has also rallied after Morgan Stanley upgraded its rating on the stock.

Air France KLM shares have also advanced after the airline said it carried 9.2 million passengers in May, up 3.3 percent from the previous year.

On the other hand, luxury clothing retail company Ted Baker has shown a substantial move to the downside after issuing a profit warning.

U.S. Economic Reports

Producer prices in the U.S. showed a modest increase in the month of May, according to a report released by the Labor Department.

The Labor Department said its producer price index for final demand inched up by 0.2 percent in May after rising by 0.2 percent in April. The uptick in prices matched economist estimates.

Excluding food and energy prices, core producer prices rose by 0.2 percent in May after edging up by 0.1 percent in the previous month. The increase in core prices also met expectations.

At 1 pm ET, the Treasury Department is due to announce the results of its auction of $38 billion worth of three-year notes.

Stocks In Focus

Shares of Casey’s General Stores (CASY) are moving sharply higher in pre-market trading after the convenience store operator reported fiscal fourth quarter results that beat analyst estimates on both the top and bottom lines.

Chipmaker Broadcom (AVGO) is also likely to see initial strength after revealing that it has entered into a two-year supply agreement with tech giant Apple (AAPL).

On the other hand, shares of HD Supply (HDS) may come under pressure after the industrial distributor reported fiscal first quarter results that exceeded estimates but lowered its full-year guidance.

Apparel retailer Chico’s FAS (CHS) is also seeing notable pre-market weakness after reporting better than expected fiscal first quarter earnings but cuttings its full-year sales forecast.
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