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Beyond the Numbers

Traders Focus On Currency Markets Amid Escalating Trade War
8/7/2019 8:58 AM

The major U.S. index futures are currently pointing to a lower opening on Wednesday, with stocks likely to move back to the downside following yesterday’s notable rebound.

The downward momentum on Wall Street comes as the escalating U.S.-China trade war has investors paying close attention to daily developments on the currency front.

The People’s Bank of China set the midpoint for onshore yuan trading at 6.9996 per dollar, slightly stronger than the key 7.00 per dollar level but 0.4 percent weaker than 6.9683 on Tuesday.

The Chinese central bank setting the midpoint for the Chinese currency at a stronger than expected level contributed yesterday’s rally.

Negative sentiment may also be generated in reaction to disappointing earnings from Disney (DIS), with the entertainment giant slumping by nearly 5 percent in pre-market trading.

After the close of trading on Tuesday, Disney reported fiscal third quarter results that missed analyst estimates on both the top and bottom lines.

Overall trading activity may be somewhat subdued, however, as another light day on the U.S. economic front may keep some traders on the sidelines.

The economic calendar remains relatively sparse throughout the week, although a report on producer price inflation may attract attention on Friday.

Following the sell-off seen on Monday, stocks showed a strong move back to the upside during trading on Tuesday. The major averages fluctuated after an early upward move but maintained a positive bias throughout the session.

The major averages finished the session near their best levels of the day. The Dow jumped 311.78 points or 1.2 percent to 26,029.52, the Nasdaq soared 107.23 points or 1.4 percent to 7,833.27 and the S&P 500 surged up 37.03 points or 1.3 percent to 2,881.77.

The strength on Wall Street was partly due to bargain hunting, with traders picking 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 also helped 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.

Telecom stocks showed a significant move to the upside after falling sharply over the past few sessions, with the NYSE Arca North American Telecom Index jumping by 2 percent after ending Monday's trading at its lowest closing level in well over two months.

Significant strength also emerged among biotechnology stocks, as reflected by the 1.7 percent gain posted by the NYSE Arca Biotechnology Index. The index bounced off a two-month closing low.

Software, healthcare, retail and utilities stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Meanwhile, energy stocks bucked the uptrend, as the price of crude oil showed another steep drop amid concerns about the outlook for global energy demand.

Commodity, Currency Markets

Crude oil futures are tumbling $0.96 to $52.67 a barrel after plunging $1.06 to $53.63 a barrel on Tuesday. Meanwhile, after climbing $7.70 to $1,484.20 an ounce in the previous session, gold futures are spiking $22.80 to $1,507 an ounce.

On the currency front, the U.S. dollar is trading at 105.95 yen compared to the 106.47 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1201 compared to yesterday’s $1.1199.

Asia

Asian stocks turned in a mixed performance on Wednesday as investors were cautious after the People's Bank of China set the official daily midpoint reference for the yuan at a slightly weaker than expected level. The yuan eased against the U.S. dollar in offshore trading after the currency's daily fixing.

Chinese stocks extended a recent downward move amid concerns about the escalating U.S.-China trade war. The Shanghai Composite Index fell 8.88 points or 0.3 percent to 2,768.68, although Hong Kong’s Hang Seng Index inched up 20.79 points or 0.1 percent to 25,997.03.

The Japanese market also extended losses from the previous session despite the overnight rebound on Wall Street. The benchmark Nikkei 225 Index regained ground after hitting a seven-month intraday low but still closed down 68.75 points or 0.3 percent 20,516.56

Kirin Holdings came under pressure after reporting a net loss for the first half of the year and lowering its full-year profit outlook.

Meanwhile, Australian stocks showed a notable move to the upside on the day, with the S&P/ASX 200 Index climbing 41.40 points or 0.6 percent to 6,519.50.

Gold miners moved higher after gold prices rose for a third straight session overnight, while energy stocks moved lower along with the price of crude oil.

Suncorp Group posted a notable gain after announcing it is abandoning its so-called marketplace strategy to refocus on banking and insurance.

Elsewhere in the region, South Korea’s Kospi slid 7.79 points or 0.4 percent to 1,909.71, while New Zealand’s S&P/NZX 50 Index jumped 199.09 points or 1.9 percent to 10,786.26.

Europe

European stocks are mostly higher on Wednesday, with traders indulging in some bargain hunting after recent losses. A fairly steady Chinese currency and higher U.S. futures appeared to be supporting the uptick in European markets.

Investors were also reacting to economic data from the region in addition to tracking quarterly earnings reports and other corporate news.

While the U.K.’s FTSE 100 Index has risen by 0.4 percent, the German DAX Index and the French CAC 40 Index are up by 0.7 percent and 0.8 percent, respectively.

On the economic front, data released by Destatis showed Germany industrial output fell by a larger than expected 1.5 percent in June. Economists had forecast industrial production to fall 0.5 percent, reversing a 0.3 percent rise in May.

Year-on-year, industrial production declined at a faster pace of 5.2 percent after easing 4.4 percent a month ago. Economists had forecast 3.1 percent decrease.

According to preliminary data from French Customs, France's merchandise trade deficit widened in June after narrowing in the previous two months, amid a slump in exports.

The trade deficit rose to 5.18 billion euros in June from 3.27 billion euros in May. The trade deficit was forecast to rise to 4.11 billion euros.

In the U.K., house prices decreased for the second straight month in July, figures from the Lloyds Bank subsidiary Halifax and IHS Markit showed.

The report said house prices unexpectedly dipped by 0.2 percent in July after falling 0.4 percent in June. Economists had forecast a 0.3 percent increase.

U.S. Economic Reports

Chicago Federal Reserve Bank President Charles Evans is scheduled to speak at a media breakfast event in Chicago, Illinois, at 9:30 am ET.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended August 2.

Crude oil inventories are expected to decrease by 3.3 million barrels after tumbling by 8.5 million barrels in the previous week.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $27 billion worth of ten-year notes.

The Federal Reserve is due to release its report on consumer credit in the month of June at 3 pm ET. Consumer credit is expected to increase by $16.0 billion.

Stocks In Focus

Shares of CVS Health (CVS) are moving notably higher in pre-market trading after the drugstore chain reported better than expected second quarter earnings.

Online dating service operator Match Group (MTCH) is also likely to see initial strength after reporting second quarter results that beat estimates and raising its full-year growth forecast.

Shares of LendingClub (LC) may also move to the upside after the online lender reported a narrower second quarter loss.
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