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Beyond the Numbers

Bargain Hunting May Lead To Rebound On Wall Street
8/6/2019 8:59 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with stocks likely to regain some ground following the sell-off seen in the previous session.

Bargain hunting is likely to contribute to initial strength on Wall Street, as traders pick up stocks at reduced levels after the major averages ended Monday’s trading at their lowest closing levels in two months.

News the People’s Bank of China set the midpoint for the Chinese currency at a stronger than expected level may also ease investor jitters.

A recent drop in the value of the Chinese yuan further fueled speculation Beijing is devaluing its currency to counter President Donald Trump's latest tariff threat.

After refusing to do so several times in the past, Treasury Secretary Steven Mnuchin officially declared China a currency manipulator on Monday.

The Treasury Department said Mnuchin will subsequently engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.

In a tweet this morning seemingly aimed at calming the markets, Trump claimed, “Massive amounts of money from China and other parts of the world is pouring into the United States for reasons of safety, investment, and interest rates!”

“We are in a very strong position. Companies are also coming to the U.S. in big numbers. A beautiful thing to watch!” he added.

Extending the sell-off seen over the past few sessions, stocks moved sharply lower over the course of the trading day on Monday. With the steep drop on the day, the major averages tumble to their lowest closing levels in two months.

The major averages climbed off their worst levels going into the close but remained substantially negative. The Dow plunged 767.27 points or 2.9 percent to 25,717.74, the Nasdaq plummeted 278.03 points or 3.5 percent to 7,726.04 and the S&P 500 dove 87.31 points or 3 percent to 2,844.74.

Concerns about the escalating U.S.-China trade war weighed on Wall Street, with a drop in the value of the Chinese yuan further fueling speculation Beijing is devaluing its currency to counter President Donald Trump's latest tariff threat.

Trump accused China of "currency manipulation" in a post on Twitter this morning even though his administration has repeatedly declined to officially label China a currency manipulator.

"China dropped the price of their currency to an almost a historic low. It's called 'currency manipulation.' Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!" Trump tweeted.

Trump claimed in a subsequent series of tweets that he would stop China from taking hundreds of billions of dollars from the U.S. with unfair trade practices and currency manipulation.

"China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers' wages and harm our farmers' prices. Not anymore!" Trump tweeted.

A report from Bloomberg News indicating China has asked state-owned companies to suspend purchases of U.S. agricultural products also raised concerns about the impact of the escalating trade dispute.

Trump announced plans to impose a 10 percent tariff on the remaining $300 billion worth of Chinese imports last week, accusing China of failing to follow through on its promises.

In typical fashion, China responded to Trump's announcement by threatening to take necessary countermeasures to protect the country's interests.

Stocks saw continued weakness following the release of a report from the Institute for Supply Management showing growth in U.S. service sector activity unexpectedly slowed in the month of July.

The ISM said its non-manufacturing index fell to 53.7 in July after dropping to 55.1 in June. A reading above 50 still indicates service sector growth, although economists had expected the index to inch up to 55.5.

With the unexpected decrease, the non-manufacturing index slid to its lowest level since hitting 51.8 in August of 2016.

"The non-manufacturing sector's rate of growth continued to cool off," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

"Respondents indicated ongoing concerns related to tariffs and employment resources," he added. "Comments remained mixed about business conditions and the overall economy."

Energy stocks turned in some of the market's worst performances amid the broad based sell-off, with a pullback by the price of crude oil weighing on the sector along with concerns about the outlook for global demand.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Natural Gas Index plummeted by 4.8 percent and 4.1 percent, respectively.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 4.4 percent nosedive by the Philadelphia Semiconductor Index. The index tumbled to its lowest closing level in over a month.

Steel, banking and computer hardware stocks also saw considerable weakness, while gold stocks were among the few groups to buck the downtrend amid another sharp increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are rising $0.20 to $54.89 barrel after tumbling $0.97 to $54.69 a barrel on Monday. Meanwhile, after soaring $19 to $1,476.50 ounce in the previous session, gold futures are inching up $0.90 to $1,477.40 an ounce.

On the currency front, the U.S. dollar is trading at 106.44 yen compared to the 105.95 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1181 compared to yesterday’s $1.1203.

Asia

Asian stocks fell sharply on Tuesday, though markets ended well off their day’s lows after China set the midpoint for its currency at a stronger than expected level.

Underlying sentiment remained cautious after the U.S. Treasury Department designated China a currency manipulator and China confirmed it has halted purchases of U.S. farm products.

Chinese markets ended off their day's lows as the yuan stabilized to hold above 7.00 per dollar, suggesting the People's Bank of China is not ready to let the currency slip further just yet.

The benchmark Shanghai Composite Index ended down 43.94 points or 1.6 percent at 2,777.56, while Hong Kong's Hang Seng Index dropped 175.08 points or 0.7 percent to 25,976.24.

Japan's Nikkei 225 Index briefly hit a seven-month low before regaining ground to end the session down 134.98 points or 0.7 percent at 20,585.31. The broader Topix closed 0.4 percent lower at 1,499.23.

The Nikkei sank more than 600 points, or nearly 3 percent, earlier in the session on concerns over escalating U.S.-China trade tensions.

China-exposed companies and automakers paced the declines. Toyota Motor, Taiyo Yuden and Isuzu Motor dropped 2-3 percent.

On the data front, average household spending in Japan was up 2.7 percent year-on-year in June, the Ministry of Communications and Internal Affairs said - coming in at 276,882 yen. That beat expectations for an increase of 1.2 percent following the 4.0 percent gain in May.

Australian stocks tumbled amid selling across the board. The benchmark S&P/ASX 200 Index plunged 162.20 points or 2.4 percent to 6,478.10, while the broader All Ordinaries Index ended down 164.10 points or 2.5 percent at 6,546.50.

Mining heavyweight BHP shed 0.8 percent, but smaller rival Fortescue Metals Group rallied 2.8 percent. Rare earths miner Lynas Corp. soared 7.9 percent after reports that its Malaysian rare earths processing plant's license is set to be extended. Gold miners also ended on a mixed note.

In the oil & gas sector, Santos tumbled 3.6 percent, Origin Energy slumped 4.7 percent and Oil Search declined 3.1 percent.

The big four banks fell 2-3 percent as the Reserve Bank of Australia left rates on hold after cutting the rate by 25 basis points at each of the previous two meetings.

Tech stocks were among the biggest losers, with Appen losing 3.6 percent and WiseTech Global falling 8 percent.

Australia posted a merchandise trade surplus of A$8.036 billion in June, the Australian Bureau of Statistics said in a report. That beat expectations for a surplus of A$6.0 billion and was up from the upwardly revised A$6.173 billion surplus in May (originally A$5.745 billion).

Seoul stocks fell for the fifth straight session after Washington labeled Beijing a currency manipulator. U.S. Treasury Secretary Steven Mnuchin said Washington would engage the International Monetary Fund to eliminate unfair competition from Beijing. The Kospi ended down 29.48 points or 1.5 percent at 1,917.50.

South Korea saw a current account surplus of $6.38 billion in June, the Bank of Korea said - up from $4.95 billion in May. For the first half of 2019, South Korea had a current account surplus of $21.77 billion.

Europe

European stocks are rebounding from the sell-off seen in the previous session after China set the midpoint for its currency at a stronger than expected level.

The yuan stabilized to hold above 7.00 per dollar, suggesting the People's Bank of China is not ready to let the currency slip further just yet.

There was also some cheer on the data front, as a report from Destatis showed German factory orders rebounded at a faster than expected pace in June.

Factory orders grew 2.5 percent month-on-month in June, reversing a revised 2 percent drop in May. The pace of growth also exceeded the expected rate of 0.5 percent.

While the U.K.’s FTSE 100 Index is bucking the uptrend and posting a modest loss, the German DAX Index is up by 0.3 percent and the French CAC 40 Index is up by 0.7 percent.

Sports Direct International has rallied after the British retailing group said that it had acquired the business and assets of the clothing retailer Jack Wills from Jack Wills Limited.

Industrial group Rotork has also moved sharply higher despite the company cutting its 2019 sales forecast. Postal giant Deutsche Post has also moved to the upside after raising its 2019 forecast.

Content, media and communications group Vivendi SA has advanced on saying it has entered into preliminary negotiations with Tencent Holdings Limited regarding a stake in Universal Music Group.

Meanwhile, Metro AG shares have slumped after Czech billionaire Daniel Kretinsky's investment vehicle denied media reports it was exploring raising its takeover offer for the German retailer and wholesaler.

Rolls Royce Holdings has also dropped as it posted a pre-tax loss of 791 million pounds for the first half of the year.

U.S. Economic Reports

The Labor Department is due to release its report on job openings in the month of June at 10 am ET. Job openings are expected to dip to 7.293 million in June from 7.323 million in May.

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

St. Louis Federal Reserve President James Bullard is due to speak about the U.S. economy and monetary policy at the National Economists Club annual Summer Signature event at the National Press Club in Washington, D.C. at 1:05 pm ET.

Stocks In Focus

Shares of Take-Two Interactive (TTWO) are moving sharply higher in pre-market trading after the video game publisher reporter fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.

Animal health company Zoetis (ZTS) may also see initial strength after reporting better than expected second quarter earnings and raised its full-year guidance.

On the other hand, shares of International Flavors & Fragrances (IFF) are likely to come under pressure after the cosmetics ingredients maker cut its full-year outlook.

Fertilizer producer Mosaic (MOS) may also move to the downside after reporting weaker than expected second quarter earnings.
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