Market Analysis

Beyond the Numbers

Positive Developments Overseas May Lead To Initial Strength On Wall Street
9/4/2019 8:54 AM

The major U.S. index futures are currently pointing to a higher opening on Wednesday, with stocks likely to move back to the upside following the sharp pullback in the previous session.

News that Hong Kong leader Carrie Lam has withdrawn a controversial extradition bill may contribute to initial strength on Wall Street.

The bill, which would have allowed people in Hong Kong to be extradited to mainland China, sparked widespread protests across Hong Kong.

Positive sentiment may also be generated in reaction to a report showing growth in China’s service sector accelerated in August despite broader economic headwinds.

Stocks showed a notable move to the downside during trading on Tuesday as traders returned to their desks following the long holiday weekend. With the pullback on the day, the major averages partly offset the strong gains posted last week.

The major averages climbed off their worst levels of the day but still closed firmly in negative territory. The Dow slumped 285.26 points or 1.1 percent to 26,118.02, the Nasdaq tumbled 88.72 points or 1.1 percent to 7,874.16 and the S&P 500 slid 20.19 points or 0.7 percent to 2,906.27.

Initial selling pressure was generated in reaction to new tariffs taking effect over the Labor Day weekend in the escalating U.S.-China trade.

The U.S. officially imposed a 15 percent tariff on approximately $112 billion worth of Chinese imports, leading to Chinese retaliatory tariffs on billions of dollars worth of U.S. goods.

President Donald Trump repeated his claim in remarks to reporters on Sunday that China is paying for the tariffs by devaluing their currency.

Trump indicated U.S. and Chinese officials still plan to meet for trade talks this month but argued the U.S. "can't allow China to rip us off anymore as a country."

In a series of tweets this morning, Trump threatened to get tougher on China if he wins re-election and dismissed suggestions that he work with the European Union to go after Chinese trade practices.

Stocks saw further downside following the release of a report from the Institute for Supply Management showing U.S. manufacturing activity contracted for the first time in three years.

The ISM said its purchasing managers index fell to 49.1 in August after dipping to 51.2 in July, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to edge down to 51.0.

With the bigger than expected decrease, the PMI dropped below 50 for the first time since August of 2016 and hit its lowest level since January of 2016.

"Comments from the panel reflect a notable decrease in business confidence," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, "August saw the end of the PMI expansion that spanned 35 months, with steady expansion softening over the last four months."

A separate report from the Commerce Department showed construction spending inched up by less than expected in the month of July.

Steel stocks showed a significant move to the downside on the day, giving back ground following the substantial rebound seen over the three previous sessions.

The NYSE Arca Steel Index tumbled by 2.6 percent, pulling back toward the nearly three-year closing low set a week ago.

Substantial weakness also emerged among biotechnology stocks, as reflected by the 2.5 percent slump by the NYSE Arca Biotechnology Index. The index ended the session at an eight-month closing low.

Banking, semiconductor, and oil service stocks also saw considerable weakness on the day, while utilities and gold stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are surging up $1.18 to $55.12 a barrel after slumping $1.16 to $53.94 a barrel on Tuesday. Meanwhile, after spiking $26.50 to $1,555.90 an ounce in the previous session, gold futures are sliding $8.60 to $1,547.30 an ounce.

On the currency front, the U.S. dollar is trading at 106.23 yen compared to the 105.94 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1012 compared to yesterday’s $1.0974.


Asian stocks ended mostly higher on Wednesday as investors cheered encouraging data from China as well as news that Hong Kong leader Carrie Lam will officially withdraw a controversial extradition bill that triggered months of unrest.

Investors kept a close eye on international trade developments after U.S. President Donald Trump warned he would be "tougher" on Beijing if negotiations extended beyond the 2020 U.S. presidential election and he is re-elected.

Chinese shares rose sharply after a report showed growth in China's service sector accelerated in August despite broader economic headwinds. The benchmark Shanghai Composite Index climbed 27.26 points, or 0.9 percent, to 2,957.41.

China's private sector logged its fastest growth in four months in August as both manufacturers and service providers saw improved rates of activity growth, survey data from IHS Markit showed. The Caixin composite output index climbed to 51.6 from 50.9 in July.

Activity across the service sector advanced at a faster pace than in the manufacturing sector. The services Purchasing Managers' Index came in at a three-month high of 52.1, up from 51.6 in July.

Hong Kong's Hang Seng Index soared 3.9 percent to finish at 26,523.23 after reports the embattled leader of Hong Kong, Chief Executive Carrie Lam, will formally withdraw a controversial bill that would have allowed extraditions to China.

Japanese shares finished marginally higher as a weak yen and encouraging service sector activity data prompted some late bargain hunting.

Service sector growth in Japan accelerated in August, the latest survey from Jibun Bank revealed with a PMI score of 53.3, up from 51.8 in July.

The Nikkei 225 Index inched up 23.98 points, or 0.1 percent, to 20,649.14, but the broader Topix closed 0.3 percent lower at 1,506.81.

Gaming company Nintendo jumped 2.6 percent after announcing a new Nintendo Direct broadcast. Clothing chain operator Fast Retailing rose 0.9 percent as it announced a 9.9 percent rise in same-store sales at its Uniqlo outlets in Japan in August.

Australian markets ended lower after the release of mixed domestic data, with GDP expanding at its slowest pace in a decade last quarter.

In seasonally adjusted terms, GDP grew 0.5 percent over the June quarter, or 1.4 percent for the year — marking the worst annual growth recorded since the global financial crisis in the September quarter of 2009, the Australian Bureau of Statistics said.

Meanwhile, the latest survey from the Australian Industry Group revealed that the service sector in Australia moved into expansion territory in August with a Performance of Services Index score of 51.4, up sharply from 43.9.

The benchmark S&P/ASX 200 Index dropped 20.40 points, or 0.3 percent, to 6,553, while the broader All Ordinaries Index ended down 17.40 points, or 0.3 percent, at 6,656.10.

The big four banks ended down between 0.1 percent and 0.4 percent. Mining and energy stocks turned in a mixed performance.

Bendigo and Adelaide Bank edged up 0.3 percent and Bank of Queensland shed 0.9 percent after the country's corporate regulator sued the two regional banks over 'unfair' contracts.

Export-driven healthcare stocks lost ground, with biotech major CSL declining 1.5 percent and Ramsay Health Care losing 1.1 percent.

Papua New Guinea-based Oil Search rallied 3.3 percent after the government said it would allow the Papua LNG project to go ahead in accordance with the terms of the gas agreement.

Gold miners Newcrest Mining and Evolution Mining jumped around 3 percent after gold prices surged overnight.

Seoul stocks rallied on renewed hopes of a U.S.-China trade deal. The benchmark Kospi jumped 22.84 points, or 1.2 percent, to 1,988.53 after falling sharply in the previous session.

Market heavyweight Samsung Electronics surged up 2 percent, while chipmaker SK Hynix soared 3.9 percent. Asiana Airlines slumped 4.5 percent after preliminary bids to acquire the carrier closed Tuesday with a three-way race.


European stocks rallied on Wednesday as investors cheered positive political developments in Italy, Britain and Hong Kong.

Italian bonds climbed for a third day after Prime Minister-designate Giuseppe Conte won backing to form a new government.

British lawmakers will now move to pass a bill that will make a no-deal Brexit illegal after British Prime Minister Boris Johnson suffered a humiliating defeat over his Brexit strategy.

Elsewhere, Hong Kong leader Carrie Lam has announced the formal withdrawal of a controversial extradition bill that triggered months of unrest.

On the economic front, separate reports showed eurozone business growth has improved slightly since July, while the region's retail sales declined at the fastest pace seen so far this year in July.

Data released earlier in the day showed that activity in China's services sector expanded at the fastest pace in three months in August.

The focus now shifts to a European Central Bank meeting next week, with investors expecting a stimulus package including a rate cut.

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 jumping by 1.1 percent and 1.2 percent, respectively.

Shares of Assa Abloy AB have climbed in Sweden after the Swedish conglomerate announced that it has acquired U.S.-based LifeSafety Power.

Defense electronics group Thales has also shown a substantial move to the upside after reporting higher first-half profits.

Royal Bank of Scotland Group has also advanced. The bank said that it expects to book an unexpected charge of 600 million to 900 million pounds ($722.9 million-$1.08 billion) in its third-quarter accounts.

U.S. Economic Reports

Reflecting an increase in exports and a modest decrease in imports, the Commerce Department released a report showing the U.S. trade deficit narrowed in the month of July.

The Commerce Department said the trade deficit narrowed to $54.0 billion in July from a revised $55.5 billion in June.

Economists had expected the deficit to narrow to $53.5 billion from the $55.2 billion originally reported for the previous month.

The narrower trade deficit came as the value of exports climbed by 0.6 percent to $207.4 billion, while the value of imports edged down by 0.1 percent to $261.4 billion.

At 9:30 am ET, New York Federal Reserve President John Williams is due to give keynote remarks at the “Real Return XIII: The Inflation-Linked Products Conference” held by Euromoney and Global Capital in New York.

Dallas Fed President Robert Kaplan is scheduled to a participate in a moderated Q&A on monetary policy at the Toronto Global Forum hosted by the International Economic Forum of the Americas in Toronto, Canada, at 10 am ET.

At 12:30 pm ET, St. Louis Fed President James Bullard is due to host a Fed Listens event with Fed Governor Michelle Bowman in St. Louis, Missouri.

The Fed is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, at 1 pm ET.

At 3:15 pm ET, Chicago Fed President Charles Evans is slated to speak about “North American Trade: The Auto Sector” at the Detroit Branch of the Chicago Fed in Detroit, Michigan.

Stocks In Focus

Shares of The Michaels Companies (MIK) are soaring in pre-market trading after the arts and crafts retail reported fiscal second quarter results that exceeded analyst estimates on both the top and bottom lines.

Truck and diesel engine maker Navistar (NAV) is also seeing significant pre-market strength after reporting better than expected fiscal third quarter results.

On the other hand, shares of Tyson Foods (TSN) are likely to come under pressure after the beef and poultry producer lowered its full-year earnings guidance.

Coffee giant Starbucks (SBUX) may also see initial weakness after providing disappointing fiscal 2020 earnings guidance.
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