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Beyond the Numbers

Optimism About Further Stimulus May Generate Buying Interest
9/9/2019 9:01 AM

The major U.S. index futures are currently pointing to a higher opening on Monday, with stocks likely to add to the strong gains posted last week.

The markets may benefit from optimism about further stimulus from global central banks, with the European Central Bank expected to cut interest rates at a meeting on Thursday.

Expectations for another interest rate by the U.S. Federal Reserve next week were also bolstered by last Friday’s weaker than expected jobs data.

Data from China showing an unexpected drop in exports in August has also added to the hopes of more stimulus to stave off a global recession.

Official data showed Chinese exports in August unexpectedly fell by 1 percent compared to year ago, reflecting the ongoing trade dispute with the U.S.

Subsequently, the trade war also remains on investors’ minds, although traders seem optimistic about high-level trade talks scheduled for next month.

Some political observers have suggested President Donald Trump may soften his stance on China in order to reach an agreement and prevent a U.S. recession just before Election Day.

Following the strong upward move seen last Wednesday and Thursday, stocks showed a lack of direction during trading on Friday. The major averages spent much of the day bouncing back and forth across the unchanged line before closing mixed.

While the tech-heavy Nasdaq dipped 13.75 points or 0.2 percent to 8,103.07, the Dow and the S&P 500 reached their best closing levels in over a month. The Dow rose 69.31 points or 0.3 percent to 26,797.46 and the S&P 500 inched up 2.71 points or 0.1 percent to 2,978.71.

Despite the mixed performance on the day, the major averages all moved notably higher for the holiday-shortened week. The Dow jumped by 1.5 percent, while the Nasdaq and the S&P 500 both surged up by 1.8 percent.

The choppy trading on Wall Street came following the release of a closely watched report from the Labor Department showing weaker than expected job growth in the month of August.

The report said non-farm payroll employment rose by 130,000 jobs in August after climbing by a downwardly revised 159,000 jobs in July.

Economists had expected employment to increase by about 158,000 jobs compared to the addition of 164,000 jobs originally reported for the previous month.

The weaker than expected job growth came as notable increases in employment in healthcare and financial activities were partly offset by the loss of mining and retail jobs.

The report said government employment climbed by 34,000 jobs, largely reflecting the hiring of temporary workers for the 2020 Census.

Meanwhile, the Labor Department said the unemployment rate held at 3.7 percent in August, unchanged from July and in line with economist estimates.

The report also said average hourly employee earnings climbed by $0.11 to $28.11 in August following 9-cent gains in both June and July.

"Payrolls growth is slowing but wages are picking up, which underlines the difficult decision facing the Federal Reserve," said ING Chief International Economist James Knightley.

He added, "The risks from a deteriorating international backdrop and a manufacturing recession mean we still look for September and December rate cuts."

Meanwhile, traders largely shrugged off comments from Federal Reserve Chairman Jerome Powell, who argued the central has helped keep the economy on solid ground amid the uncertainty caused by President Donald Trump's trade war with China.

"The Fed has through the course of the year seen fit to lower the expected path of interest rates," Powell said during a forum in Zurich, Switzerland. "That has supported the economy. That is one of the reasons why the outlook is still a favorable one."

Powell argued that the uncertainty caused by the escalating trade dispute between the U.S. and China has caused some companies to hold back on investment

"We've been hearing quite a bit about uncertainty," Powell said. "So for businesses, to particularly make longer-term investments in plants or equipment or software, they want some certainty that the demand will be there."

Despite the uncertainty cause by the trade war, Powell noted the Fed does not currently anticipate a recession, noting the labor market and consumer spending remain strong.

"We're not forecasting or expecting a recession," the Fed chief said. "The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up."

Powell also reiterated his oft-repeated pledge that the Fed will "act as appropriate" to sustain the U.S. economic expansion.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Gold stocks showed a substantial move to the downside, however, with the NYSE Arca Gold Bugs Index plunging by 3.2 percent. The sell-off by gold stocks came as the price of the precious metal turned lower after seeing initial strength.

Natural gas stocks climbed off their worst levels but also saw notable weakness on the day, while some strength was visible among tobacco stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.45 to $56.97 a barrel after rising $0.22 to $56.52 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,521.60, up $6.10 from the previous session’s close of $1,515.50. On Friday, gold slid $10.

On the currency front, the U.S. dollar is trading at 107.00 yen compared to the 106.92 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1046 compared to last Friday’s $1.1029.

Asia

Asian stocks ended mostly higher on Monday as weak economic data from the U.S. and China raised hopes of further stimulus from global central banks.

Data released Friday showed weaker than expected U.S. jobs growth in the month of August, while data from China showed that the country's exports unexpectedly fell during the month.

Buoying market confidence were expectations that the European Central Bank would also cut interest rates on Thursday to boost growth.

Chinese stocks advanced as the country's central bank pumped 120 billion yuan (about $16.94 billion) into the financial system to shore up the flagging economy.

The benchmark Shanghai Composite Index gained 25.14 points, or 0.8 percent, to close at 3,024.74, although Hong Kong's Hang Seng Index ended marginally lower at 26,681.40.

Investors shrugged off official data showing that Chinese exports unexpectedly decreased in August amid the ongoing trade dispute with the U.S. administration.

In dollar terms, exports decreased 1 percent on a yearly basis in August, confounding expectations for an increase of 2.1 percent. At the same time, imports declined 5.6 percent, slower than the expected fall of 6.3 percent.

As a result, the trade balance showed a surplus of $34.8 billion in August versus the $42.8 billion surplus forecast by economists.

Japanese shares hit a 5-1/2-week high on hopes that central banks in some of the world's largest economies would deploy new monetary stimulus to stave off a brewing global recession.

The Nikkei 225 Index rose 118.85 points, or 0.6 percent, to 21,318.42, its highest closing level since August 2, while the broader Topix Index closed 0.9 percent higher at 1,551.11.

Nissan Motor shares edged down slightly on a Nikkei report that Nissan CEO Hiroto Saikawa has expressed his intention to step down.

On the economic front, the Ministry of Finance said that Japan had a current account surplus of 1,999.9 billion yen in July, down 1.3 percent from last year. That was shy of expectations for a surplus of 2,046 billion yen and up from 1,211.2 billion yen in June.

The trade balance showed a deficit of 74.5 billion yen, shy of expectations for a deficit of 24.0 billion yen and down from the 759.3-billion-yen surplus in the previous month.

Japan's economy grew an annualized 1.3 percent in the April-June quarter, weaker than the preliminary reading for 1.8 percent annualized growth on the back of softer capital spending, Cabinet Office data showed.

Australian markets fluctuated before ending roughly flat. Both the benchmark S&P/ASX 200 Index and the broader All Ordinaries Index closed marginally higher at 6,648 and 6,760.10, respectively.

The big four banks rose between 0.3 percent and 1 percent on expectations of further policy easing by the U.S. Federal Reserve and the European Central Bank. Investors are also betting that Australia's central bank will cut interest rates more steeply than previously thought.

Mining and energy stocks ended on a subdued note as investors digested new data out of China showing that exports unexpectedly fell in August with a large contraction for shipments to the United States. Gold miners Evolution and Newcrest Mining dropped 2-3 percent as gold prices fell on improved risk appetite.

Australia's mortgage approvals increased more-than-expected in July, figures from the Australian Bureau of Statistics showed today. The number of owner occupier loans increased 4.2 percent, much larger than the expected growth of 1.5 percent.

Seoul stocks extended gains for the fourth straight session on hopes the European Central Bank will announce new stimulus measures during its meeting slated for Thursday. Traders also remained optimistic about the upcoming U.S.-China trade talks.

The benchmark Kospi climbed 10.42 points, or 0.5 percent, to finish at 2,019.55. Market heavyweight Samsung Electronics rose 1.3 percent, while chipmaker SK Hynix rallied 2.9 percent.

Meanwhile, logistics firm Hyundai Glovis declined 1.6 percent on reports its ship accidentally tilted sideways off the east coast of the United States.

Europe

European stocks are mixed in cautious trading on Monday after data showed that Chinese exports unexpectedly fell in August amid the ongoing trade dispute with the U.S.

Hopes of further stimulus from global central banks have helped to limit the downside to some extent ahead of a European Central Bank meeting slated for Thursday.

While the German DAX Index has risen by 0.4 percent, the French CAC 40 Index is down by 0.1 percent and the U.K.’s FTSE 100 Index is down by 0.7 percent.

German exports increased in July, while imports decreased from the previous month, data from Destatis showed. Exports advanced 0.7 percent month-on-month in July, reversing a 0.1 percent dip in June.

Meanwhile, imports tumbled 1.5 percent after rising 0.7 percent a month ago. Exports were forecast to fall 0.5 percent and imports were expected to drop 0.3 percent.

Elsewhere, the Bank of France retained its growth forecast for the third quarter amid an improvement in confidence in the manufacturing sector.

Telefonica Deutschland Holding has advanced after it signed the German mobile network pact for LTE expansion in return for improved payment terms for 5G spectrum.

Sika has also moved higher on news it is expanding the company's Target Markets Industry and Sealing & Bonding presence in China and the Asia Pacific region with the acquisition of Crevo-Hengxin.

Novartis has edged up as it reported positive results from a 4.5-year, interim analysis of a 5-year, open-label treatment period to evaluate Aimovig in patients with episodic migraine.

Shopping centre-owner Intu Properties has jumped on reports of bid interest from private equity firm Orion Capital.

On the other hand, Air France-KLM Group has slumped after posting disappointing passenger traffic figures for August.

Shares of Associated British Foods have also fallen after a disappointing pre-close trading update for the 12 months to mid-September.

Lloyds Banking Group has also dropped after saying it would incur a further charge of up to £1.8 billion to cover claims relating to mis-sold payment protection insurance.

U.S. Economic Reports

The Federal Reserve is scheduled to release its report on consumer credit in the month of July at 3 pm ET. Consumer credit is expected to increase by $16.0 billion in July after climbing by $14.6 billion in June.

Stocks In Focus

Shares of AT&T (T) are moving sharply higher in pre-market trading after activist investor Elliott Management disclosed a $3.2 billion stake in the telecom giant and shared thoughts on how the company can “improve its business and realize a historic increase in value for its shareholders.”

Drug maker Eli Lilly (LLY) may also move to the upside after revealing positive trial results for its experimental cancer drug Selpercatinib, which it acquired as part of its $8 billion takeover of Loxo Oncology.

On the other hand, shares of Amgen (AMGN) are likely to see initial weakness after data from a study of the biotech giant’s lung cancer treatment missed Wall Street estimates.
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