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Beyond the Numbers

Optimism About Potential Trade Talks May Lead To Higher Open On Wall Street
8/30/2019 9:02 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, as traders express continued optimism about a potential de-escalation of the U.S.-China trade war.

The upward momentum on Wall Street comes as traders cling to hopes the U.S. and China will resume trade talks next month and finally reach an elusive trade deal.

President Donald Trump has repeatedly claimed the Chinese are desperate to reach an agreement, arguing the U.S. tariffs on Chinese goods are doing significant damage to the world’s second largest economy.

Trump told Fox News on Thursday that the U.S. and China were scheduled to hold talks at a “different level,” although he did not clarify what that means.

Meanwhile, China has signaled that they do not currently intend to retaliate against Trump’s latest threat to raise the rate of tariffs on Chinese imports.

Chinese officials have expressed interest in negotiating an end to the escalating trade dispute but argued the U.S. has to create conditions for the two sides to resume talks on the basis of mutual respect.

After moving sharply higher early in the session, stocks saw some further upside over the course of the trading day on Thursday. The major averages managed to remain firmly positive after reversing direction from their initial moves in each of the two previous sessions.

The major averages pulled back off their best levels in late-day trading but held on to strong gains. The Dow surged up 326.15 points or 1.3 percent to 26,362.25, the Nasdaq soared 116.51 points or 1.5 percent to 7,973.39 and the S&P 500 jumped 36.64 points or 1.3 percent at 2,924.58.

The initial strength on Wall Street came on the heels of indications China is seeking to de-escalate the trade war with the U.S.

Chinese Ministry of Commerce spokesman Gao Feng indicated 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.

On the U.S. economic front, 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.

Meanwhile, the National Association of Realtors also released a report showing a sharp pullback in pending home sales in the month of July.

NAR said its pending home sales index tumbled by 2.5 percent to 105.6 in July after surging up by 2.8 percent to 108.3 in June. The steep drop came as a surprise to economists, who had expected pending sales to come in unchanged.

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.

Reflecting the optimism about a potential de-escalation of the U.S.-China trade war, steel stocks showed a significant move to the upside on the day.

The NYSE Arca Steel Index surged up by 2.4 percent, climbing further off the nearly three-year closing low set on Tuesday.

Significant strength was also visible among natural gas stocks, as reflected by the 2.6 percent jump by the NYSE Arca Natural Gas Index. The strength in the sector came as natural gas for October delivery climbed $0.067 to $2.289 per million BTUs.

Computer hardware, semiconductor, and transportation stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Meanwhile, gold stocks were among the few groups to buck the uptrend, dragging the NYSE Arca Gold Bugs Index down by 3.2 percent. The index ended the previous session at a nearly three-year closing high.

Commodity, Currency Markets

Crude oil futures are falling $0.62 to $56.09 a barrel after climbing $0.93 to $56.71 a barrel on Thursday. Meanwhile, after tumbling $12.20 to $1,536.90 an ounce in the previous session, gold futures are rising $1.20 to $1,538.10 an ounce.

On the currency front, the U.S. dollar is trading at 106.22 yen versus the 106.52 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1041 compared to yesterday’s $1.1057.

Asia

Asian stocks ended mostly higher on Friday, even as Chinese and Hong Kong markets ended on a muted note amid the ongoing mass protests in Hong Kong calling for political freedom and self-determination for the semi-autonomous territory.

Underlying sentiment remained supported by signs that the U.S. and China are set to resume trade talks in September.

Chinese shares slipped into the red as investors awaited manufacturing data for directional cues. The benchmark Shanghai Composite Index edged down 4.68 points, or 0.2 percent, to 2,886.24, while Hong Kong's Hang Seng Index gave up early gains to end roughly flat.

Meanwhile, Japanese shares rose as the yen moved lower following positive developments in the U.S.-China trade war and investors digested a raft of mixed local economic data.

Industrial production in Japan rose a seasonally adjusted 1.3 percent sequentially in July, a preliminary reading showed. That beat forecasts for a 0.3 percent gain following the 3.3 percent drop in June.

Japan's retail trade declined 2.3 percent in the month, and the jobless rate dipped to its lowest level in 27 years, while overall consumer prices in the Tokyo region were up 0.6 percent year-on-year in August, separate reports showed.

The Nikkei 225 Index surged up 243.44 points, or 1.2 percent, to 20,704.37, while the broader Topix closed 1.5 percent higher at 1,511.86.

Exporters Canon, Honda Motor, Toyota Motor and Honda Motor rose 1-2 percent. In the tech sector, Advantest soared 4.4 percent and Tokyo Electron advanced 1.7 percent. Market heavyweight SoftBank climbed 2.9 percent.

Australian markets ended sharply higher, with banks, miners and technology stocks leading the surge on hopes of easing U.S.-China trade tensions.

The benchmark S&P/ASX 200 Index jumped 96.80 points, or 1.5 percent, to 6,604.20, extending gains for the fourth straight session. The broader All Ordinaries Index ended up 92.50 points, or 1.4 percent, at 6,698.20.

The big four banks rose 1-2 percent in reaction to soothing comments on trade by the Chinese Commerce Ministry.

Miners BHP, Rio Tinto, South32 and Fortescue Metals Group jumped 2-4 percent, while Afterpay Touch Group, a technology-driven payments company, soared 4.6 percent. In the oil sector, Woodside Petroleum, Oil Search and Santos climbed 2-3 percent.

Shipbuilder Austal surged up by 14.4 percent as it reported a 64 percent spike in full-year profit on strong revenue growth.

On the other hand, lithium miner Galaxy Resources lost 2.2 percent after reporting a huge half-year loss, primarily due to an impairment charge related to its flagship Mt Cattlin project.

Gold miners Evolution, Northern Star and Regis Resources dropped 1-2 percent as gold prices edged lower on positive signs for trade talks.

Shares of Slater and Gordon were placed in a trading halt as the law firm taps shareholders to raise A$75.6 million to pay down its debt and bolster its balance sheet.

Seoul stocks posted strong gains, with tech, auto and steel companies leading the surge, as the government finalized the most aggressive spending plan since the 2008/09 global financial crisis for next year and the country's central bank maintained its key interest rate, as widely expected. The benchmark Kospi rallied 34.38 points, or 1.8 percent, to close at 1,967.79.

Europe

European stocks have moved mostly higher on Friday, extending gains from the previous session as Giuseppe Conte returned as Prime Minister to form a new government in Italy and new signs of U.S.-China trade talks emerged. Investors also cheered media reports suggesting that Germany is seeking to cap its corporate tax burden at 25 percent.

While the German DAX Index has jumped by 1.2 percent, the French CAC 40 Index is up by 0.9 percent and the U.K.’s FTSE 100 Index is up by 0.7 percent.

Swiss drugmaker Novartis has advanced after announcing positive sturdy results for its prospective multiple sclerosis drug ofatumumab.

Banks Commerzbank, Credit Agricole and Societe Generale have also risen after U.S. Treasury Secretary Steven Mnuchin said issuing ultra-long U.S. bonds is "under very serious consideration" in a bid to steepen the yield curve.

Tariff-sensitive automakers BMW, Daimler, Volkswagen, Renault and Peugeot have climbed on hopes that new talks between the United States and China in September can lead to progress.

German real estate companies have also advanced on buzz that a rent freeze in Berlin could be watered down. Builders merchant and DIY group Grafton has also surged higher after it posted an uptick in half-yearly profits.

On the other hand, footwear retailer Shoe Zone has slumped to a record low after a warning that its annual results would be below expectations.

In economic news, German retail sales declined at the fastest pace seen so far this year in July, signaling weak household spending at the start of the third quarter.

Retail turnover decreased a faster-than-expected 2.2 percent month-on-month, reversing a 3 percent rise in June, official data showed.

However, on a yearly basis, retail sales rebounded 4.4 percent after falling 1.6 percent in June. This was the fastest increase in three months.

An indicator reflecting the current economic situation in the euro area fell in August after rising in the previous month, survey data from the Bank of Italy and the Centre for Economic Policy Research showed. The Eurocoin indicator dropped to 0.18 from 0.21 in July. In June, the reading was 0.14.

U.K. house prices increased 0.6 percent year-on-year in August, following a 0.3 percent rise in July, data from Nationwide Building Society showed.

U.S. Economic Reports

While the Commerce Department released a report showing U.S. personal income crept up by less than expected in the month of July, the report still showed a bigger than expected increase in personal spending during the month.

The Commerce Department said personal income inched up by 0.1 percent in July after climbing by an upwardly revised 0.5 percent in June.

Economists had expected personal income to rise by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Meanwhile, the report said personal spending grew by 0.6 percent in July after rising by an unrevised 0.3 percent in June. Personal spending had been expected to climb by 0.5 percent.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of August.

The Chicago business barometer is expected to rise to 47.5 in August after tumbling to 44.4 in July, although a reading below 50 would still indicate a contraction in regional business activity.

The University of Michigan is due to release its revised report on consumer sentiment in the month of August at 10 am ET.

The consumer sentiment index is expected to be unrevised from the preliminary reading of 92.1, which was down sharply from 98.4 in July.

Stocks In Focus

Shares of Big Lots (BIG) are moving sharply higher in pre-market trading after the discount retailer reported second quarter results that beat analyst estimates on both the top and bottom lines.

Computer maker Dell Technologies (DELL) is also seeing significant pre-market strength after reporting second quarter results that exceeded expectations.

Shares of Campbell Soup (CPB) may also move to the upside after the soup company reported better than expected fiscal fourth quarter earnings.

On the other hand, shares of Ulta Beauty (ULTA) are likely to come under pressure after the cosmetics retailer reported second quarter earnings that missed estimates and lowered its profit forecast.
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