Market Analysis

Beyond the Numbers

Futures Pointing To Initial Strength On Wall Street
8/16/2019 8:58 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, with stocks likely to see initial strength following the lackluster performance in the previous session.

The markets may benefit from rising optimism about the world’s central banks providing aggressive stimulus in order to prevent a global recession.

European Central Bank official Olli Rehn helped spark confidence after expressing the need for a significant easing package in September to support the flagging eurozone economy.

The expectations for more stimulus have contributed to a pullback by U.S. treasuries and a subsequent increase in bond yields.

The yield on the benchmark ten-year note dropped below the two-year yield on Wednesday, sparking fears of an impending recession and a sell-off on Wall Street.

Following the sell-off seen on Wednesday, stocks showed a lack of direction throughout the trading day on Thursday. The major averages spent the day bouncing back and forth across the unchanged line before eventually closing mixed.

While the tech-heavy Nasdaq edged down 7.32 points or 0.1 percent to 7,766.62, the Dow climbed 99.97 points or 0.4 percent to 25,579.39 and the S&P 500 rose 7.00 points or 0.3 percent to 2,847.60.

The choppy trading on Wall Street came as traders digested an avalanche of U.S. economic data, including mixed reports on retail sales and industrial production.

The Commerce Department released a report before the start of trading showing U.S. retail sales climbed by much more than expected in July, partly reflecting the impact of online retail giant Amazon's (AMZN) Prime Day promotion.

The report said retail sales climbed by 0.7 percent in July after rising by a revised 0.3 percent in June. Economists had expected retail sales to rise by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Excluding a drop in auto sales, retail sales surged up by 1.0 percent in July following a revised 0.3 percent increase in June. Ex-auto sales had been expected to climb by 0.4 percent, matching the growth originally reported for the previous month.

The jump in ex-auto sales partly reflected a 2.8 percent spike in sales by non-store retailers amid Amazon's Prime Day sales.

Adding to the positive sentiment about retail, Walmart (WMT) reported second quarter results that beat analyst estimates on both the top and bottom lines and raised its full-year guidance.

However, the Federal Reserve released a separate report just before the open unexpectedly showing a modest decrease in industrial production in July.

The Fed said industrial production edged down by 0.2 percent in July following a revised 0.2 percent increase in June.

Economists had expected industrial production to rise by 0.2 percent compared to the unchanged reading originally reported for the previous month.

The unexpected drop in production was partly due to a pullback in manufacturing output, which fell by 0.4 percent in July after climbing by 0.6 percent in June.

"The soft July industrial production data show that the manufacturing recession continued into the third quarter," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "But the latest surveys provide some reason for optimism and, as the retail sales data released earlier today highlight, there is still little evidence that this malaise is spreading to the wider economy."

Separate reports from the New York and Philadelphia Federal Reserves showed continued growth in regional manufacturing activity in August, although the pace of growth in the Philadelphia region slowed from last month.

Meanwhile, the Labor Department released a report showing a bigger than expected increase in first-time claims for U.S. unemployment benefits in the week ended August 10th.

Most of the major sectors showed only modest moves during the day, contributing to the lackluster performance by the broader markets.

Interest rate-sensitive utilities stocks showed a strong move to the upside, however, with the Dow Jones Utility Average climbing by 1.3 percent.

Gold and commercial real estate also saw notable strength, driving the NYSE Arca Gold Bugs Index and the Dow Jones U.S. Real Estate Index up by 1.2 percent and 1.1 percent, respectively.

On the other hand, significant weakness was visible among networking stocks, as reflected by the 1.8 percent slump by the NYSE Arca Networking Index.

Networking giant Cisco Systems (CSCO) posted a steep loss after reporting better than expected fiscal fourth quarter earnings but providing disappointing guidance.

Oil service stocks also extended a recent sell-off amid a drop by the price of crude oil, with the Philadelphia Oil Service Index falling by 1.6 percent to an eighteen-year closing low.

Commodity, Currency Markets

Crude oil futures are rising $0.41 to $54.88 a barrel after falling $0.76 to $54.47 a barrel on Thursday. Meanwhile, after climbing $3.40 to $1,531.20 an ounce in the previous session, gold futures are tumbling $9.30 to $1,521.90 an ounce.

On the currency front, the U.S. dollar is trading at 106.36 yen versus the 106.12 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1072 compared to yesterday’s $1.1107.


Asian stocks ended mixed on Friday as U.S. Treasury yields declined further and investors digested conflicting messages on the U.S.-China trade war.

U.S. President Donald Trump said the U.S. is having very good discussions with China and the trade dispute will be fairly short.

On the other hand, Beijing vowed to counter the latest tariffs on $300 billion of Chinese goods but called on the United States to meet it halfway on a potential trade deal.

China's Shanghai Composite Index rose 8.03 points or 0.3 percent to 2,823.82, aided by gains by consumer stocks after China's state planner said it would roll out a plan to boost disposable income this year and in 2020. Hong Kong's Hang Seng Index advanced 238.76 points or 0.9 percent to end at 25,734.22.

Japanese shares ended largely unchanged in cautious trading. Both the Nikkei 225 Index and the broader Topix finished marginally higher at 20,418.81 and 1,485.29, respectively. Both the benchmarks fell over 1 percent for the week.

Chipmakers gained ground, with Tokyo Electron rising 2 percent and Screen Holdings jumping 4.2 percent.

Uniqlo casual wear operator Fast Retailing ended marginally lower amid reports that some South Korean consumers were boycotting its products.

Australian markets fluctuated before finishing little changed with a negative bias as U.S. bond yields hit fresh record lows amid simmering U.S.-China trade tensions.

Shares of Ooh!Media plunged 27.5 percent after the outdoor advertising company cut its profit forecasts. Casino operator Star Entertainment Group jumped 5.9 percent despite the company reporting a fall in underlying full-year profit.

Energy stocks ended mixed as oil prices rebounded from two days of declines. The big four banks rose between 0.6 percent and 1 percent.

Mining heavyweights BHP and Rio Tinto shed 0.6 percent and 1 percent, respectively, while smaller rival Fortescue Metals Group climbed 2.1 percent.

Telstra fell 2.6 percent after the telecom giant sold its 49 percent stake in a newly established property trust to a consortium led by Charter Hall for A$700 million.

Seven West Media soared 6.7 percent as its chief executive Tim Worner resigned. Hearing implant maker Cochlear rallied 3.9 percent after reporting a 13 percent increase in full-year profit.

Seoul stocks drifted lower on global growth worries after the yields on U.S. Treasury notes declined further. The Kospi ended down 11.20 points or 0.6 percent at 1,927.17.


European stocks are rebounding from recent weakness on Friday, benefiting from rising expectations of further stimulus by central banks.

The euro extended losses on the back of dovish remarks from the European Central Bank Olli Rehn expressing the need for a significant easing package in September to support the flagging euro zone economy.

As global growth falters amid the simmering U.S.-China trade war, there is now talk of aggressive stimulus from all the major central banks.

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 0.8 percent and 0.9 percent, respectively.

Shares of semiconductor companies are rising after U.S. chipmaker Nvidia reported earnings and revenues that beat analysts' expectations.

Freenet AG shares have also climbed. The telecommunications and web content provider has decided to vote against the proposed capital increase of Sunrise in relation to the acquisition of UPC Switzerland.

Miners have rebounded from recent losses on expectations that central banks worldwide will unleash some of the most aggressive monetary stimulus since the financial crisis a decade ago.

Aerospace and defense engineering company Ultra Electronics has also moved higher after it won a contract worth up to $1 billion in partnership with U.S. manufacturing firm Sparton DeLeon Springs LLC.

On the other hand, Ted Baker has moved to the downside after the luxury clothing retailer said it reached a new product license agreement with Next Plc to accelerate the expansion of Ted Baker's childrenswear collections.

U.S. Economic Reports

While the Commerce Department released a report showing an unexpected slump in housing starts in the month of July, the report also showed a much bigger than expected increase in building permits.

The report said housing starts tumbled by 4.0 percent to an annual rate of 1.191 million from the revised June estimate of 1.241 million.

The drop surprised economists, who had expected housing starts to edge up by 0.3 percent to a rate of 1.257 million from the 1.253 million originally reported for the previous month.

Meanwhile, the Commerce Department said building permits spiked by 8.4 percent to a rate of 1.336 million in July from a revised 1.232 million in June.

Building permits, an indicator of future housing demand, had been expected to jump by 4.1 percent to 1.270 million from the 1.220 million originally reported for the previous month.

At 10 am ET, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of August. The consumer sentiment index is expected to drop to 97.2 in August after inching up to 98.4 in July.

Stocks In Focus

Shares of Nvidia (NVDA) are moving significantly higher in pre-market trading after the graphics chipmaker reported second quarter results that exceeded analyst estimates on both the top and bottom lines.

General Electric (GE) may regain ground after falling sharply on Thursday following news CEO Larry Culp bought 252,200 more shares of the conglomerate for about $7.93 each.

On the other hand, shares of Dillard’s (DDS) may come under pressure after the retailer reported a much wider than expected second quarter loss on revenues that missed estimates.

Heavy equipment maker Deere (DE) could also see initial weakness after reporting weaker than expected fiscal third quarter results and cutting its full-year guidance.
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