Market Analysis

Beyond the Numbers

Upward Momentum May Lead To Higher Open On Wall Street
7/12/2019 9:02 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, with stocks likely to benefit from recent upward momentum.

The markets may continue to benefit from renewed optimism about the Federal Reserve lowering interest rates as soon as its next meeting later this month.

Congressional testimony from Fed Chairman Jerome Powell indicating crosscurrents, such as trade tensions and concerns about global growth, have continued to weigh on the U.S. economic outlook helped spark the resurgence in optimism about a rate cut.

Powell’s remarks have triggered an upward trend on Wall Street that lifted the Dow above the 27,000 level for the first time ever.

Trading activity may be somewhat subdued, however, as traders brace for the unofficial start of earnings season next week.

Citigroup (C), Goldman Sachs (GS), Johnson & Johnson (JNJ), JPMorgan (JPM), Wells Fargo (WFC), IBM (IBM), Netflix (NFLX), Microsoft (MSFT), and American Express (AXP) are among the slew of companies due to report their quarterly results.

Stocks fluctuated over the course of the trading session on Thursday before eventually ending the day mixed. Despite the choppy trading, the Dow and the S&P 500 reached new record closing highs, with the Dow closing above 27,000 for the first time ever.

While the Dow jumped 227.88 points or 0.9 percent to 27,088.08 and the S&P 500 rose 6.84 points or 0.2 percent to 2,999.91, the tech-heavy Nasdaq edged down 6.49 points or 0.1 percent to 8,196.04.

The advance by the Dow was partly due to a 5.5 percent jump by UnitedHealth (UNH), which rallied along with other health insurers on news President Donald Trump is abandoning a plan to eliminate rebates from government drug plans.

The proposal was the centerpiece of Trump's blueprint to lower drug costs but faced stiff resistance from pharmacy-benefit managers.

On the other hand, pharmaceutical stocks moved sharply lower on the news, with the NYSE Arca Pharmaceutical Index plunging by 1.8 percent.

Biotechnology stocks also showed a significant move to the downside on the day, dragging the NYSE Arca Biotechnology Index down by 1.3 percent.

Gold and commercial real estate stocks also saw considerable weakness, while notable strength was visible among financial and transportation stocks.

In U.S. economic news, the Labor Department released a report before the start of trading showing an unexpected uptick in U.S. consumer prices in the month of June.

The Labor Department said its consumer price index inched up by 0.1 percent in June, matching the slight increase seen in May. Economists had expected consumer prices to come in unchanged.

Excluding food and energy prices, core consumer prices rose by 0.3 percent in June after inching up by 0.1 percent for four consecutive months. Core prices had been expected to edge up by 0.2 percent.

Andrew Hunter, Senior U.S. Economist at Capital Economics, does not expect the stronger than expected core consumer price growth to prevent the Federal Reserve from cutting interest rates later this month and expressed doubt the strength will be sustained.

"Higher tariffs could yet put some further upward pressure on core goods prices over the coming months but, with growth in unit labor costs slowing, we still think core CPI inflation will remain muted," Hunter said.

He added, "With the latest surveys pointing to a sharp slowdown in activity growth, we expect the Fed to follow a 25bp rate cut this month with further cuts in December and March next year."

A separate Labor Department report showed first-time claims for U.S. unemployment benefits unexpectedly fell in the week ended July 6th.

The report said initial jobless claims dropped to 209,000, a decrease of 13,000 from the previous week's revised level of 222,000. Economists had expected jobless claims to inch up to 223,000.

Commodity, Currency Markets

Crude oil futures are inching up $0.09 to $60.29 a barrel after slipping $0.23 to $60.20 a barrel on Thursday. Meanwhile, after falling $5.80 to $1,406.70 an ounce in the previous session, gold futures are edging down $0.20 to $1,406.50 an ounce.

On the currency front, the U.S. dollar is trading at 108.24 yen versus the 108.50 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1243 compared to yesterday’s $1.1254.


Asian stocks ended broadly higher on Friday even as underlying sentiment remained cautious ahead of Chinese data and amid fresh worries over U.S.-China trade tensions.

U.S. President Donald Trump on Thursday accused China of backsliding on its promises to increase purchases of American farm products.

Chinese shares ended higher as investors awaited a slew of key data for directional cues. The benchmark Shanghai Composite Index rose 12.79 points or 0.4 percent to 2,930.55 ahead of trade and lending data due out later in the day and second-quarter GDP figures scheduled for Monday. Hong Kong's Hang Seng Index inched up 39.82 points or 0.1 percent to 28,471.62.

Japanese shares edged higher in choppy trading ahead of a holiday on Monday and quarterly earnings results from U.S. and Japanese companies next week.

The Nikkei 255 Index edged up 42.37 points or 0.2 percent to 21,685.90, while the broader Topix closed 0.2 percent lower at 1,576.31.

Fast Retailing rallied 3.2 percent after its group net profit in the nine months to May rose 7.0 percent from a year earlier. Lawson, a convenience franchise chain, jumped 4.6 percent on strong first quarter results.

On the flip side, Yaskawa Electric tumbled 3.9 percent after reporting a 58 percent slump in its operating profit for the March-May quarter. Fanuc declined 2 percent and Keyence shed 1.5 percent.

Australian markets ended modestly lower on worries that renewed U.S.-China trade tensions will hurt the global economy.

The benchmark S&P/ASX 200 Index dropped 19.60 points or 0.3 percent to 6,696.50, while the broader All Ordinaries Index ended down 17 points or 0.3 percent at 6,788.80.

Mining stocks accounted for most losses as investors awaited Chinese trade data for clues on whether the world's second-largest economy continued to weaken. BHP, Rio Tinto and South32 ended down between 0.6 percent and 0.9 percent.

Gold miners Evolution, Newcrest, Regis Resources and St Barbara also fell 1-3 percent as gold prices eased on dollar strength.

Meanwhile, Oil Search rallied 3.5 percent on reports that Santos could be looking at staging a takeover of its rival. Santos shares rose 0.6 percent.

In economic news, Australia's lending to households declined in May, data from the Australian Bureau of Statistics showed. Lending for investment dwellings decreased 1.7 percent from the previous month. Economists had forecast a 0.5 percent increase.

Seoul stocks extended gains for the third straight day on the back of foreign buying after the U.S. Federal Reserve signaled it is prepared to start cutting rates. The Kospi rose 6.08 points or 0.3 percent to 2,086.66.


European stocks have moved higher on Friday as reassuring export data out of China as well as encouraging Eurozone industrial production data helped investors shrug off concerns surrounding the U.S.-China trade war.

Chinese exports fell 1.3 percent on a yearly basis in June, slightly slower than the 1.4 percent drop economists had forecast. At the same time, imports slid 7.3 percent annually versus the expected decrease of 4.6 percent in June.

Closer to home, figures from Eurostat revealed Eurozone industrial production rebounded at a faster than expected pace in May, largely driven by consumer goods output.

Industrial output grew 0.9 percent month-on-month in May after declining 0.4 percent in April. This was the first increase in four months. Production was forecast to grow 0.2 percent.

While the French CAC 40 Index has risen by 0.4 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both up by 0.1 percent.

Banks have moved broadly higher amid bets the U.S. Federal Reserve will start cutting interest rates at a policy meeting later this month.

British advertising giant WPP has also moved to the upside after it agreed to sell 60 percent of Kantar, its global data, research, consulting and analytics business, to Bain Capital.

On the other hand, Thomas Cook shares have plunged on news the troubled travel firm is in £750 million rescue talks with banks and its largest shareholder, Fosun Tourism.

Daimler fell has also moved to the downside as the maker of Mercedes-Benz slashed its 2019 profit forecast for the second time in a few weeks. Volkswagen, Renault and Peugeot were up 1-2 percent.

Hiscox has also tumbled after the specialist insurer said catastrophes contributed to a deterioration in the global insurance market.

U.S. Economic Reports

A day after reporting an unexpected uptick in U.S. consumer prices, the Labor Department released a report on Friday showing U.S. producer prices also unexpectedly edged higher in the month of June.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in June, matching the uptick seen in May. Economists had expected producer prices to come in unchanged.

Excluding food and energy prices, core producer prices climbed by 0.3 percent in June after rising by 0.2 percent in May. Core prices had been expected to show another 0.2 percent increase.

Stocks In Focus

Shares of Milacron (MCRN) are spiking in pre-market trading after the plastics equipment maker agreed to be acquired by Hillenbrand (HI) in a cash and stock deal valued at about $2 billion.

Indian IT services company Infosys (INFY) is also likely to see initial strength after reporting better than expected fiscal first quarter results and raising its full-year guidance.

On the other hand, shares of Illumina (ILMN) are moving sharply lower in pre-market trading after the biotechnology company lowered its second quarter revenue forecast.
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