Market Analysis

Beyond the Numbers

Mixed Reaction To Earnings News May Lead To Choppy Trading
7/18/2019 9:01 AM

The major U.S. index futures are pointing to a roughly flat opening on Thursday as traders digest the latest batch of earnings news.

Traders may be reluctant to make significant moves following the release of a mixed batch of earnings news from big-name companies like IBM Corp. (IBM), Morgan Stanley (MS), and UnitedHealth (UNH).

Shares of IBM are moving to the downside in pre-market trading after the tech giant reported second quarter earnings that beat analyst estimates but a continued decline in revenues.

Financial giant Morgan Stanley is also seeing notable pre-market weakness despite reporting second quarter results that beat analyst estimates on both the top and bottom lines.

On the other hand, shares of UnitedHealth are likely to see initial strength after reporting better than expected second quarter results and raising its full-year guidance.

Some traders may stick to the sidelines ahead of the release of quarterly results from software giant Microsoft (MSFT) after the close of today’s trading.

Stocks moved mostly lower over the course of the trading day on Wednesday, adding to the modest losses posted in the previous session. With the drop on the day, the major averages pulled back further off Monday's record closing highs.

The major averages saw further downside going into the close, hitting new lows for the session. The Dow fell 115.78 points or 0.4 percent to 27,219.85, the Nasdaq dropped 37.59 points or 0.5 percent to 8,185.21 and the S&P 500 slid 19.62 points or 0.7 percent to 2,984.42.

The weakness on Wall Street came following the release of a Commerce Department report showing a bigger than expected drop in housing starts as well as a nosedive in building permits.

The Commerce Department said housing starts slid by 0.9 percent to an annual rate of 1.253 million in June after slipping by 0.4 percent to a revised rate of 1.265 million in May.

Economists had expected housing starts to fall by 0.6 percent to a rate of 1.261 million from the 1.269 million originally reported for the previous month.

The report also unexpectedly showed a substantial pullback in building permits, an indicator of future housing demand.

Building permits plunged by 6.1 percent to an annual rate of 1.220 million in June after climbing by 0.7 percent to a revised rate of 1.299 million in May.

Economists had expected building permits to rise by 0.5 percent to a rate of 1.300 million from the 1.294 million originally reported for the previous month.

With the much steeper than expected drop, building permits fell to their lowest level since hitting a rate of 1.201 million in May of 2017.

Trading activity was somewhat subdued, however, as traders stuck to the sidelines as they wait for the earnings season to pick up steam being making more significant bets.

Traders may have been looking ahead to the release of results from companies like IBM Corp. (IBM), eBay (EBAY), and Netflix (NFLX) after the close of trading.

Honeywell (HON), Morgan Stanley (MS), UnitedHealth (UNH), Microsoft (MSFT), Capital One (COF), and American Express (AXP) are also among the companies due to report their quarterly results in the coming days.

After moving sharply higher in the previous session, transportation stocks showed a substantial move back to the downside. The Dow Jones Transportation Average plunged by 3.6 percent after jumping by 1.8 percent to a two-month closing high on Tuesday.

CSX Corp. (CSX) led the sector lower after the rail operator reported weaker than expected second quarter earnings and slashed its full-year revenue forecast.

Oil service stocks also saw considerable weakness on the day, dragging the Philadelphia Oil Service Index down by 3.3 percent.

The weakness among oil service stocks came as the price of crude oil slumped following the release of a report showing increases in gasoline and distillate fuel stockpiles.

Natural gas, chemical, and steel stocks also showed notable moves to the downside, while gold stocks moved significantly higher along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are rising $0.27 to $57.05 a barrel after slumping $0.84 to $56.78 a barrel a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,415.90, down $7.40 compared to the previous session’s close of $1,423.30. On Wednesday, gold jumped $12.10.

On the currency front, the U.S. dollar is trading at 107.94 yen compared to the 107.95 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1217 compared to yesterday’s $1.1224.


Asian stocks fell on Thursday as investors remained worried about a hit to corporate earnings from the prolonged U.S.-China trade war and a Japan-South Korea trade dispute.

Chinese shares fell on fears over slowing growth and the impact of the trade dispute with the United States. The benchmark Shanghai Composite Index tumbled 30.52 points or 1 percent to 2,901.18, while Hong Kong's Hang Seng Index fell 131.51 points or 0.5 percent to 28,461.66.

Japanese shares saw their worst single-day loss in nearly four months as weak exports data and disappointing U.S. corporate earnings raised fresh worries about the impact of the U.S.-China trade war.

Japanese exports fell 6.7 percent in June from a year earlier against a backdrop of slowing global growth, the Ministry of Finance said in a report. That missed forecasts for a drop of 5.4 percent following the 7.4 percent drop in May.

Exports to China, Japan's biggest trading partner, fell 10 percent from a year earlier, marking the sixth drop in the past seven months.

The Nikkei 225 Index plunged 422.94 points or 2 percent to 21,046.24, hitting a one-month low and marking its second biggest slide so far this year. The broader Topix closed 2.1 percent lower at 1,534.27.

Canon slumped 4 percent on a Nikkei report that its operating profit will likely fall by 40 percent this year. NOK Corp, a manufacturer of sealant products, plunged 6.4 percent after slashing its earnings outlook.

On the other hand, Car parts maker Akebono Brake Industry soared 7.8 percent after saying it would receive an investment from a corporate turnaround fund.

Australian shares ended lower as iron ore prices retreated from record levels and Woodside Petroleum reported a 32 percent drop in second-quarter revenue. The benchmark S&P/ASX 200 Index dropped 24.20 points or 0.4 percent to 6,649.10, while the broader All Ordinaries Index ended down 28.60 points or 0.4 percent at 6,735.40.

Woodside Petroleum tumbled 2.7 percent as it suffered its first drop in revenue in six quarters. Santos fell 1.7 percent, Oil Search slumped 4.5 percent and Beach Energy declined 5.4 percent.

Westpac Banking Corp slid 0.4 percent and Australia and New Zealand Banking Group eased 0.3 percent as Fitch Ratings lowered their outlook to "negative" from "stable."

Miners BHP, Fortescue Metals Group and Rio Tinto fell between 0.8 percent and 1.7 percent after iron ore futures in China dropped more than 1 percent on Wednesday.

South32 declined 1.7 percent after saying it has received bids for its South Africa Energy Coal assets.

Meanwhile, gold miner Evolution Mining jumped 5.2 percent and Northern Star climbed 4.4 percent after gold prices rose to a six-year high overnight.

Property giant Lendlease Group soared 4.8 percent after it signed a A$20 billion deal with Google to develop 15 million square feet of residential, retail, hospitality and community space across three neighborhoods in the San Francisco Bay Area.

On the economic front, the unemployment rate in Australia came in at a seasonally adjusted 5.2 percent in June, unchanged and in line with expectations. The economy added 500 jobs last month - well shy of expectations for an increase of 9,000 jobs following the increase of 42,300 jobs in May.

South Korea's Kospi ended down 6.37 points or 0.3 percent at 2,066.55 after the Bank of Korea unexpectedly cut its policy interest rate for the first time in three years, citing ongoing weakness in exports amid trade disputes.


European stocks have fallen in cautious trading on Thursday as investors fret about the outlook for corporate earnings in a slowing growth environment.

Meanwhile, on a light day on the economic front, a government report showed that U.K. retail sales unexpectedly recovered in June.

Retail sales volume increased 1 percent month-on-month in June, largely driven by non-food product sales. Sales were forecast to fall 0.3 percent after easing 0.6 percent in May.

While the French CAC 40 Index is down by 0.1 percent, the U.K.’s FTSE 100 Index and the German DAX Index are down by 0.5 percent and 0.6 percent, respectively.

Industrial firm Indutrade AB has shown a substantial move to the downside on the day after unveiling its second-quarter results.

Givaudan, a Swiss manufacturer of fragrance and flavor products, has also tumbled after reporting lower margins from recently acquired Naturex.

Volvo Group shares have also fallen after the company said market conditions would put continued pressure on its margins.

Shares of ASOS have slumped in London after the online fashion retailer trimmed its fiscal 2019 profit view, citing problems with the rollout of its new automated warehouses.

German business software maker SAP has also plummeted. After reporting a 21 percent decline in second-quarter operating profit, the company said it doesn't expect a major improvement in margins before next year.

On the other hand, low-cost airline easyJet has soared after its third-quarter total revenue increased 11.4 percent from the year-ago period to 1.76 billion pounds.

Swedish home appliances giant Electrolux has also advanced after posting in-line second-quarter net profit. Swiss drug major Novartis has also jumped after raising its full-year outlook.

U.S. Economic Reports

After reporting nearly stagnant Philadelphia-area manufacturing activity in the previous month, the Federal Reserve Bank of Philadelphia released a report showing its reading on regional manufacturing activity jumped much more than expected in the month of July.

The Philly Fed said its diffusion index for current general activity surged up to 21.8 in July after tumbling to 0.3 in June, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to rise to 5.0.

A separate report released by the Labor Department showed first-time claims for U.S. unemployment benefits increased in line with economist estimates in the week ended July 13th.

The report said initial jobless claims inched up to 216,000, an increase of 8,000 from the previous week’s revised level of 208,000.

Economists had expected jobless claims to creep up to 216,000 from the 209,000 originally reported for the previous week.

Meanwhile, the Labor Department said the less volatile four-week moving average edged down to 218,750, a decrease of 250 from the previous week’s revised average of 219,000.

At 10 am ET, the Conference Board is due to release its report on leading economic indicators in the month of June. The leading economic index is expected to inch up by 0.1 percent in June after showing no change in May.

The Treasury Department is scheduled to announce the details of this month’s auctions of two-year, five-year, and seven-year notes at 11 am ET.

At 2:15 pm ET, New York Federal Reserve President John Williams is due to give the Keynote Address on Monetary Policy at the 2019 Annual Meeting of the Central Bank Research Association in New York.

Stocks In Focus

Shares of Netflix (NFLX) are moving sharply lower in pre-market trading after the video streaming giant reported better than expected second quarter earnings but weaker than expected international subscriber growth.

Equipment rental company United Rentals (URI) is also likely to come under pressure after reporting second quarter results that exceeded estimates but lowered the top-end of its full-year guidance.

On the other hand, shares of eBay (EBAY) are likely to see initial strength after the eCommerce giant reported second quarter results that beat expectations and raised its profit forecast.
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