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Beyond the Numbers

Hopes For De-Escalation Of Trade War May Generate Initial Buying Interest
8/29/2019 9:02 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks likely see further upside following the rebound seen over the course of the previous session.

Early buying interest may be generated amid indications China is seeking to de-escalate the trade war with the U.S.

Chinese Ministry of Commerce spokesman Gao Feng indicated that China does not currently intend to retaliate against President Donald Trump’s latest threat to raise the rate of tariffs on Chinese imports.

“We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with calm attitude,” Gao said, according to a CNBC translation.

Gao claimed China has plenty of countermeasures it could impose but will instead focus on removing Trump’s new tariffs, which were announced after China said it plans to impose tariffs on $75 billion worth of U.S. goods.

“The most important thing at the moment is to create necessary conditions for both sides to continue negotiations,” Gao told reporters during a weekly briefing.

After coming under pressure early in the session, stocks showed a significant turnaround over the course of the trading day on Wednesday. The rebound reflected a reversal from Tuesday, when stocks turned lower after seeing initial strength.

The major averages all climbed firmly into positive territory, with the Dow outperforming its counterparts. While the Dow jumped 258.20 points or 1 percent to 26,036.10, the Nasdaq rose 29.94 points or 0.4 percent to 7,856.88 and the S&P 500 climbed 18.78 points or 0.7 percent to 2,887.94.

Energy stocks helped to lead the markets back to the upside, benefiting from a notable increase by the price of crude oil.

Crude for October delivery pulled back off its highs of the session but still climbed $0.85 to $55.78 a barrel following the release of a report showing a steep weekly drop in crude oil inventories.

The report from the Energy Information Administration said crude oil inventories tumbled by 10.0 million barrels in the week ended August 23rd compared to estimates for a decrease of 2.1 million barrels.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 3.6 percent, the NYSE Arca Natural Gas Index surged up by 2.4 percent and the NYSE Arca Oil Index advanced by 1.7 percent.

Significant strength also emerged among transportation stocks, as reflected by the 1.8 percent jump by the Dow Jones Transportation Average.

Steel, financial, and networking stocks also showed notable moves to the upside on the day, moving higher along with most of the other major sectors.

The rebound on Wall Street also came as bond yields climbed off their worst levels of the session, although they remained negative.

Earlier in the day, the negative spread between the ten-year and two-year yields widened to its lowest level since 2007, with an inverted yield curve widely seen as an indicator that a U.S. recession is looming.

The White House has sought to downplay recession concerns, although the inverted yield curve combined with the escalating U.S.-China trade war have generated considerable uncertainty on Wall Street.

Commodity, Currency Markets

Crude oil futures are rising $0.48 to $56.26 a barrel after climbing $0.85 to $55.78 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,549.20, up $0.10 compared to the previous session’s close of $1,549.10. On Wednesday, gold fell $2.70.

On the currency front, the U.S. dollar is trading at 106.22 yen compared to the 106.12 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is unchanged compared to yesterday’s $1.1078.

Asia

Asian stocks ended Thursday's session on a muted note as U.S.-China trade worries persisted and British Prime Minister Boris Johnson suspended parliament till mid-October, curtailing any debate or moves on Brexit.

Chinese stocks fell, dragged down by banks and developers as the U.S. Trade Representative's office reaffirmed President Donald Trump's plans to impose an additional 5 percent tariff on $300 billion in Chinese imports starting on September 1st and December 15th.

The benchmark Shanghai Composite Index slipped 2.84 points or 0.1 percent to 2,890.92, while Hong Kong's Hang Seng Index rose 88.02 points or 0.3 percent to 25,703.50.

Japanese shares slipped into the red on concerns that trade conflicts and the U.K.'s political uncertainty will hurt the global economy. The Nikkei 225 Index and the broader Topix gave up early gains to end marginally lower at 20,460.93 and 1,490.17, respectively.

Staffing giant Recruit Holdings lost 4.8 percent after announcing a share sale. Suzuki Motor Corp advanced 1.5 percent and Toyota Motor ended roughly flat after they entered into an agreement regarding a capital alliance.

Australian markets ended largely unchanged amid a lack of major catalysts. The benchmark S&P/ASX 200 Index edged up 6.80 points or 0.1 percent to 6,507.40, while the broader All Ordinaries Index crept up by 5 points to 6,605.70.

Lithium miner Altura Mining plunged 13 percent, Orocobre tumbled 4.5 percent and Galaxy Resources lost 2.9 percent after China's biggest lithium producer Ganfeng Lithium Co. saw its first-half profits plummet 59 percent.

Tech stocks declined, with data centre operator NEXTDC losing 6.7 percent after it swung to an annual loss. Infant formula maker Bellamy's Australia tumbled 5 percent to extend losses from the previous session after reporting disappointing annual results.

On the other hand, mining services company Ausdrill soared 7.7 percent and investment services provider Link Administration jumped 9.4 percent on solid earnings results.

Supermarket chain Woolworths rose half a percent as it pushes ahead with plans to close 30 unprofitable Big W stores.

Australia's capital spending unexpectedly declined in the second quarter as robust growth in machinery and equipment investment was offset by weaker spending on buildings, the Australian Bureau of Statistics said in a report today.

Seoul stocks ended lower, with an uncertain outlook for U.S.-China trade talks and heightened prospects of a no-deal Brexit weighing on the markets. The Kospi dropped 7.68 points or 0.4 percent to close at 1,933.41. Market heavyweight Samsung Electronics declined 1.7 percent.

Europe

European stocks have moved sharply higher on Thursday, with some easing of trade worries and optimism over the formation of a new government in Italy helping underpin investor sentiment.

China's Commerce Ministry reportedly said during a weekly briefing that both sides "should create necessary conditions" to continue negotiations and that China was against escalating the trade war.

Elsewhere in Italy, 5-Star Movement and the opposition Democratic Party said they would try to form a coalition and avoid snap elections

While the French CAC 40 Index has surged up by 1.3 percent, the U.K.’s FTSE 100 Index is up by 1.1 percent and the German DAX Index is up by 1 percent.

Bouygues shares have jumped in Paris after the company confirmed its full-year guidance after posting a better than expected first-half core operating profit.

Beverage company Pernod Ricard has also moved notably higher after it launched a €1 billion share buyback.

AstraZeneca has also advanced after the pharmaceutical company said its lupus drug had met its primary goal in a clinical trial.

Energy services group Hunting has also climbed after its profit rose in the first half of 2019 despite the uncertainty in the oil and gas industry.

On the other hand, Micro Focus International shares have fallen sharply. The British software product group cut its outlook for full-year revenue, citing lower spending by clients amid a worsening macro environment.

Recruiter Hays has also shown a notable move to the downside after flagging tough conditions in Germany and Britain.

In economic news, the number of unemployed in Germany grew by a seasonally adjusted 4,000 persons in August after a 1,000 increase in July, preliminary data from the Federal Employment Agency showed. The rise was in line with economists' expectations.

Separately, survey data from the European Commission revealed Eurozone economic confidence unexpectedly improved in August.

The economic sentiment index rose to 103.1 in August from 102.7 in July, while the reading was forecast to fall to 102.3.

U.S. Economic Reports

The Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended August 24th.

The report said initial jobless claims inched up to 215,000, an increase of 4,000 from the previous week’s revised level of 211,000.

Economists had expected jobless claims to climb to 215,000 from the 209,000 originally reported for the previous week.

A separate report released by the Commerce Department showed the pace of growth in U.S. economic activity slowed by slightly more than initially estimated in the second quarter.

The Commerce Department said gross domestic product increased by 2.0 percent in the second quarter compared to the previously reported 2.1 percent growth. The downward revision came in line with economist estimates.

The downwardly revised GDP growth seen in the second quarter compares to the 3.1 percent jump in GDP reported for the first quarter.

At 10 am ET, the National Association of Realtors is due to release its report on pending home sales in the month of July. Pending home sales are expected to come in unchanged in July after jumping by 2.8 percent in June.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

The Treasury Department is scheduled to announce the results of its auction of $32 billion worth of seven-year notes at 1 pm ET.

Stocks In Focus

Shares of Dollar General (DG) are moving sharply higher in pre-market trading after the discount retailer reported better than expected second quarter results and raised its full-year guidance.

Fellow discount retailer Dollar Tree (DLTR) may also see initial strength after reporting second quarter sales that beat analyst estimates.

On the other hand, shares of Best Buy (BBY) are seeing pre-market weakness after the consumer electronics retailer reported better than expected second quarter earnings but weaker than expected sales.

Apparel retailer Abercrombie & Fitch (ANF) may also come under pressure after reporting second quarter sales that missed estimates and cutting its full-year sales forecast.
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