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Beyond the Number

Trade Talks News, Upbeat Jobs Data May Generate Buying Interest
9/5/2019 9:02 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks likely to extend the strong upward move seen over the course of the previous session.

Early buying interest is likely to be generated in reaction to news that the U.S. and China plan to hold high level trade talks in early October.

A statement from China’s Commerce Ministry said both sides agreed to the new round of talks during a phone call between Chinese Vice Premier and chief trade negotiator Liu He and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.

“Both sides agreed they should work together and take practical actions to create favorable conditions for the negotiations,” China’s Commerce Ministry said, according to a CNBC translation.

A spokesperson for the U.S. Trade Representative’s office confirmed the phone call and said the U.S. and China agreed to hold meetings “in the coming weeks.”

U.S. and Chinese officials will purportedly hold deputy-level talks later this month in preparation for the meeting in October.

A report from payroll processor ADP showing stronger than expected private sector job growth in August may also contribute to the positive sentiment.

“Businesses are holding firm on their payrolls despite the slowing economy,” said Mark Zandi, chief economist of Moody’s Analytics. “Hiring has moderated, but layoffs remain low. As long as this continues recession will remain at bay.”

After gapping open notably higher, stocks saw some further upside over the course of the trading session on Wednesday. The rally on the day came on the heels of the sharp pullback seen on Tuesday.

The major averages ended the session near their best levels of the day. The Dow advanced 237.45 points or 0.9 percent to 26,355.47, the Nasdaq soared 102.72 points or 1.3 percent to 7,976.88 and the S&P 500 jumped 31.51 points or 1.1 percent to 2,937.78.

The initial strength on Wall Street reflected a positive reaction to developments overseas, including news that Hong Kong leader Carrie Lam has withdrawn a controversial extradition bill.

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

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

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

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.

Stocks reached new highs following the release of the Federal Reserve's Beige Book, which said the U.S. economy expanded at a modest pace through the end of August.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, will be used by Fed officials to make their decision on interest rates at a two-meeting on September 17th and 18th.

The report noted continued concerns regarding tariffs and trade policy uncertainty but said the majority of businesses remain optimistic about the near-term outlook.

After turning in some of the market's worst performances in the previous session, steel stocks showed a strong move back to the upside on the day.

Reflecting the strength in the sector, the NYSE Arca Steel Index surged up by 3.2 percent after tumbling by 2.6 percent on Tuesday.

Considerable strength was also visible among semiconductors stocks, as reflected by the 2.8 percent jump by the Semiconductor Index.

Oil service stocks also saw substantial strength on the day, benefiting from a sharp increase by the price of crude oil.

Computer hardware, gold and banking stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are inching up $0.08 to $56.34 a barrel after spiking $2.32 to $56.26 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,543.80, down $16.60 compared to the previous session’s close of $1,560.40. On Wednesday, gold rose $4.50.

On the currency front, the U.S. dollar is trading at 106.85 yen compared to the 106.39 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is trading at $1.1057 compared to yesterday’s $1.1035.

Asia

Asian stocks rose broadly on Thursday as easing political tensions in Hong Kong and Britain helped improve investors' appetite for risk.

Investors also cheered news that the U.S. and China have agreed to hold ministerial-level trade talks in Washington in early October.

Chinese stocks closed higher on hopes that Beijing will cut lenders' reserve requirements again to shore up the economy.

The benchmark Shanghai Composite Index climbed 28.45 points, or 1 percent, to 2,985.86, although Hong Kong's Hang Seng Index edged slightly lower after yesterday’s rally.

Japanese shares hit a one-month high as the U.S. and China agreed to resume trade talks and Hong Kong withdrew the contentious extradition bill that sparked recent protests. The Nikkei 225 Index spiked 436.80 points, or 2.1 percent, to 21,085.94, the highest close since August 2.

The broader Topix closed 1.8 percent higher at 1,534.46, with precision machinery and sea transport stocks pacing the gainers.

Medical-related service provider M3 Inc. soared 10 percent, while baseball stadium operator Tokyo Dome Corp. slumped 8.4 percent as index provider Nikkei announced changes to the Nikkei 225 share average.

Tech stocks surged, with Advantest spiking 6.6 percent and Tokyo Electron jumping 4.2 percent. Nissan Motor advanced 2 percent as its President and CEO Hiroto Saikawa reportedly admitted to being overpaid by an equity-linked remuneration scheme designed by Chairman Carlos Ghosn.

Australian markets followed global peers higher amid easing worries over political risks in Britain, Italy and Hong Kong. The benchmark S&P/ASX 200 Index climbed 60.20 points, or 0.9 percent, to 6,613.20, while the broader All Ordinaries Index ended up 64.70 points, or 1 percent, at 6,720.80.

The big four banks rose between 0.7 percent and 1.1 percent, while mining giant Rio Tinto advanced 1.8 percent and smaller rival Fortescue Metals Group jumped 3.4 percent. Coal miner Whitehaven Coal plunged 9.4 percent on going ex-dividend.

CYBG shares slumped 20.3 percent after the British lender said it expected to bear a 'material' cost following a spike in claims for mis-sold payment protection insurance.

Woodside Petroleum, Santos, Origin Energy and Oil Search rose 1-2 percent after oil prices soared over 4 percent overnight on the back of positive economic data from China.

Department store operator Myer Holdings jumped 10.5 percent after it swung to an annual profit versus a loss last year.

On the other hand, retail pharmacy group Sigma Healthcare dropped 1.6 percent after reporting an 81 percent slump in half-year profits.

Australia's trade surplus declined in July as exports logged only marginal growth, data from the Australian Bureau of Statistics showed today. The trade surplus declined to A$7.26 billion in July from June's record A$7.97 billion.

Seoul stocks advanced after reports that negotiating teams from China and the U.S. will meet in Washington in early October to look for a solution to their year-long trade dispute.

The benchmark Kospi rose 16.22 points, or 0.8 percent, to close at 2,004.75, breaching the psychologically significant 2,000 level for the first time since August 1.

Market bellwether Samsung Electronics climbed 3.6 percent, while chipmaker SK Hynix jumped 3.8 percent.

Europe

European stocks are extending gains to hover near one-month highs on Thursday, with easing political concerns and expectations of further easing measures by central banks helping underpin investor sentiment.

The European Central Bank is expected to cut its deposit rate and restart its asset purchase program when it meets next week.

Earlier today, Sweden's central bank left its key interest rate unchanged, as expected, and signaled that it will hike rates in the future at a slower pace.

On the trade front, the United States and China have agreed to hold trade talks in Washington early next month in a bid to ease tensions in their rapidly escalating trade war.

The French CAC 40 Index has jumped by 1.1 percent and the German DAX Index has climbed by 0.8 percent, although the U.K.’s FTSE 100 Index has bucked the uptrend and slid by 0.7 percent.

Turnaround specialist Melrose Industries has soared after company said the three main divisions of GKN remain on track to meet targets.

Industrial giants BAE Systems and Rolls-Royce have also risen after French engine maker Safran raised its 2019 guidance for revenue and operating income. Safran shares have also spiked in Paris.

Shares of Dixons Carphone have jumped after the consumer electrical and mobile retailer reported that its Electricals revenue in the first quarter increased 3 percent on a reported and like-for-like basis.

German industrial and technology group ThyssenKrupp has also surged higher after it started a structured bidding process for its elevator unit.

Switzerland's biggest bank UBS has also advanced. According to the Financial Times, the lender is planning a revamp of its investment bank amid falling profits over the last few quarters.

On the other hand, William Hill Plc., a betting and gaming company, has slumped after it appointed Ulrik Bengtsson as Chief Executive Officer Designate and a Director of the Company with immediate effect.

Vodafone Group has also moved lower after it announced a strategic partnership agreement with Oman Future Telecommunications in the Sultanate of Oman as part of Vodafone's Partner Markets program.

Meanwhile, investors have shrugged off data from Destatis showing that German factory orders decreased more than expected in July on weak demand from abroad.

Factory orders tumbled 2.7 percent in July, in contrast to a revised 2.7 increase in June. Economists had forecast orders to drop 1.4 percent after June's initially estimated growth of 2.5 percent.

U.S. Economic Reports

Private sector employment in the U.S. jumped by much more than expected in the month of August, according to a report released by payroll processor ADP on Thursday.

The report said private sector employment surged up by 195,000 jobs in August after climbing by a downwardly revised 142,000 jobs in July.

Economists had expected employment to increase by about 149,000 jobs compared to the addition of 156,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department released a report showing a slight uptick in first-time claims for U.S. unemployment benefits in the week ended August 31st.

The report said initial jobless claims inched up to 217,000, an increase of 1,000 from the previous week’s revised level of 216,000.

Economists had expected jobless claims to come in unchanged compared to the 215,000 originally reported for the previous week.

A separate Labor Department report showed labor productivity growth in the second quarter was unrevised from the initial estimate, although the report also showed an upward revision to labor cost growth.

The Labor Department said productivity increased by 2.3 percent in the second quarter, unchanged from the preliminary estimate. Economists had expected the pace of productivity growth to be downwardly revised to 2.2 percent.

Meanwhile, the report said the increase in unit labor costs in the second quarter was upwardly revised to 2.6 percent from 2.4 percent. Labor cost growth had been expected to be upwardly revised to 2.5 percent.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of August.

The ISM’s non-manufacturing index is expected to inch up to 54.0 in August after dipping to 53.7 in July, with a reading above 50 indicating growth in the service sector.

The Commerce Department is also due to release its report on factory orders in the month of July at 10 am ET. Factory orders are expected to jump by 1.0 percent in July after climbing by 0.6 percent in June.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended August 30th.

Crude oil inventories are expected to drop by 2.6 million barrels after plunging by 10.0 million barrels in the previous week.

The Treasury Department is also due to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds at 11 am ET.

Stocks In Focus

Shares of Signet Jewelers (SIG) are soaring in pre-market trading after the jewelry retailer reported fiscal second quarter earnings that came in well above analyst estimates on better than expected sales.

Networking company Ciena (CIEN) is also likely to see initial strength after reporting better than expected fiscal third quarter results and saying it expects substantial revenue growth and increased profitability in fiscal 2019.

Shares of Lands’ End (LE) may also move to the upside after the apparel retailer reported a narrower than expected fiscal second quarter loss on revenues that exceeded estimates.

On the other hand, shares of Slack Technologies (WORK) may come under pressure after the workplace messaging service reported better than expected fiscal second quarter results but provided disappointing guidance.
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