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Beyond the Numbers

ECB Stimulus, Tariff Delay May Generate Early Buying Interest
9/12/2019 9:05 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.

A positive reaction to the European Central Bank’s monetary policy decision is likely to contribute to initial strength on Wall Street, with the ECB cutting rates and announcing a massive new bond-buying program.

The ECB lowered its main deposit rate by 10 basis points to 0.50 percent and announced plans to restart its quantitative easing program by purchasing assets at a pace of 20 billion euros per month beginning November 1st.

The central bank said it expects to keep interest rates at their present or lower levels until it has seen a sufficient increase in the inflation outlook.

The asset purchase program is expected to run for as long as necessary to reinforce the accommodative impact of the ECB’s policy rates.

Following the ECB announcement, President Donald Trump took another shot at the Federal Reserve, which is due to announce its latest monetary policy decision next week.

“European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports,” Trump tweeted. “And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!”

Early buying interest is also likely to be generated in reaction to news that Trump is temporarily delaying raising tariffs on $250 billion worth of Chinese imports.

Calling the move a “gesture of good will,” Trump delayed raising the tariffs rate from 25 percent to 30 percent from October 1st to October 15th.

After moving modestly higher early in the session, stocks saw further upside over the course of the trading day on Wednesday. With the advance on the day, the major averages ended the session at their best closing levels in over a month.

The major averages reached new highs going into the close, ending the session at their best levels of the day. The Dow advanced 227.61 points or 0.9 percent to 27,137.04, the Nasdaq jumped 85.52 points or 1.1 percent to 8,169.68 and the S&P 500 climbed 21.54 points or 0.7 percent to 3,000.93.

The strength on Wall Street came following news that China is granting tariff exemptions for 16 types of American-made products as a sign of goodwill ahead of the next round of trade talks.

The list included varieties of animal feed such as alfalfa and fish meal, cancer drugs gefitinib and capecitabine, base oil for lubricants and lubricating grease, and some farm chemicals.

The Chinese Customs Tariff Commission said the tariff suspension would take effect next Tuesday and remain in place for a year.

Stocks also benefited from optimism about new global stimulus ahead of the European Central Bank's monetary policy decision as well as next week's Federal Reserve meeting.

On the U.S. economic front, the Labor Department released a report showing a modest uptick in producer prices in the month of August.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in August after rising by 0.2 percent in July. Economists had expected prices to come in unchanged.

Excluding food and energy prices, core producer prices rose by 0.3 percent in August after edging down by 0.1 percent in July. Core prices had been expected to increase by 0.2 percent.

Computer hardware stocks showed a substantial move to the upside over the course of the trading session, driving the NYSE Arca Computer Hardware Index up by 2.3 percent to its best closing level in a year.

Significant strength also emerged among networking stocks, as reflected by the 2.3 percent jump by the NYSE Arca Networking Index. The index ended the session at a one-month closing high.

Steel stocks also turned in a particularly strong performance on the day, resulting in a 2 percent advance by the NYSE Arca Steel Index.

Telecom, brokerage, and housing stocks also saw considerable strength, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slumping $0.92 to $54.83 a barrel after plunging $1.65 to $55.75 a barrel on Wednesday. Meanwhile, after rising $4 to $1,503.20 an ounce in the previous session, gold futures are soaring $26.30 to $1,529.50 an ounce.

On the currency front, the U.S. dollar is trading at 107.69 yen compared to the 107.82 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.0948 compared to yesterday’s $1.1010.

Asia

Asian stocks turned in a mixed performance on Thursday ahead of an impending ECB policy decision later in the day, with new easing measures expected.

Investors also looked ahead to the U.S. Federal Reserve's two-day Federal Open Market Committee policy meeting next week, when the central bank is expected to continue cutting interest rates.

Chinese shares ended on a firmer note as U.S. President Donald Trump announced a short delay to scheduled tariff hikes on billions of dollars worth of Chinese goods in response to China's decision to exempt some U.S. anti-cancer drugs and other goods from its tariffs.

The benchmark Shanghai Composite Index climbed 22.42 points, or 0.8 percent, to 3,031.24 ahead of a holiday on Friday for the Mid-Autumn festival. Hong Kong's Hang Seng Index ended down 0.3 percent at 27,087.63.

Japanese shares hit a four-month high as the yen continued to weaken amid signs of a thaw in trade tensions between the United States and China.

Investors also welcomed data showing that core machine orders in Japan fell a seasonally adjusted 6.6 percent sequentially in July. That beat expectations for a drop of 8.1 percent following the 13.9 percent surge in June.

The Nikkei 225 Index climbed 161.85 points, or 0.8 percent, to close at 21,759.61, its highest level since May 7. The broader Topix closed 0.7 percent higher at 1,595.10.

Online fashion retailer Zozo soared 13.4 percent after Yahoo Japan Corp. agreed to take a majority stake in the company. Yahoo Japan shares surged 2.4 percent. Tech stocks such as Tokyo Electron, Advantest and Screen Holdings climbed 3-5 percent.

Australian markets eked out modest gains, with financials and miners leading the gains on expectations the ECB will announce a new quantitative easing program later in the day.

The benchmark S&P/ASX 200 Index rose 16.90 points, or 0.3 percent, to 6,654.90, while the broader All Ordinaries Index edged up 13.50 points, or 0.2 percent, to 6,765.70.

Commonwealth Bank advanced 0.9 percent after it issued $2.5 billion worth of subordinated notes to bolster capital. The other big banks rose between 0.2 percent and 0.6 percent.

Higher iron ore prices boosted miners, with BHP edging up 0.1 percent and Rio Tinto adding 0.6 percent. Diversified miner South32 shed 0.7 percent on going ex-dividend. Whitehaven Coal tumbled 3.4 percent.

Santos, Beach Energy and Woodside Petroleum dropped 1-2 percent after oil prices plunged nearly 3 percent overnight following a downward revision in OPEC's oil demand forecast and speculation that the U.S. may ease sanctions on Iran.

Europe

European stocks have moved mostly higher on Thursday as the European Central Bank kicked off another wave of monetary easing.

The ECB lowered its main deposit rate by 10 basis points to 0.50 percent and announced plans to restart its quantitative easing program by purchasing assets at a pace of 20 billion euros per month beginning November 1st.

The central bank said it expects to keep interest rates at their present or lower levels until it has seen a sufficient increase in the inflation outlook.

The asset purchase program is expected to run for as long as necessary to reinforce the accommodative impact of the ECB’s policy rates.

U.S. President Donald Trump also announced a short delay to scheduled tariff hikes on billions of fodllar worth of Chinese goods after China decided to exempt some U.S. anti-cancer drugs and other goods from its tariffs.

While the U.K.’s FTSE 100 Index has inched up by 0.1 percent, the German DAX Index and the French CAC 40 Index are up by 0.6 percent and 0.7 percent, respectively.

Anheuser-Busch InBev has rallied after company said it is continuing to explore an initial public offering in Hong Kong of its Asia Pacific unit, Budweiser Brewing Company APAC.

Inkjet printer components specialist XAAR has also surged higher after it agreed to sell 20 percent of its holding in Xaar 3D to U.S. company Stratasys for $10 million.

Miners Anglo American, Antofagasta and Glencore have climbed on hopes of a breakthrough in negotiations between the world's two largest economies.

Tobacco giant BAT has also shown a notable move to the upside on news it plans to lay off 2,300 employees globally by January.

Morrisons has also jumped on the day after the grocer said it had seen "robust progress" in sales and profit in its first half.

On the other hand, German specialty chemicals maker Wacker Chemie is moving lower after it acquired a stake in Nexeon, a U.K. headquartered battery material and licensing company.

In economic news, Eurozone industrial production continued to decline in July, albeit at a slower pace compared to the previous month, preliminary figures from Eurostat showed.

Industrial production dropped 2 percent year-on-year in July following a 2.4 percent slump in June, which was revised from 2.6 percent. Economists had forecast a 1.3 percent decrease.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits dropped by much more than expected in the week ended September 7th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims fell to 204,000, a decrease of 15,000 from the previous week’s revised level of 219,000.

Economists had expected jobless claims to edge down to 215,000 from the 217,000 originally reported for the previous week.

A separate Labor Department report showed a modest increase in U.S. consumer prices in the month of August, with higher prices for shelter and medical care partly offset by a steep drop in energy prices.

The Labor Department said its consumer price index inched up by 0.1 percent in August after rising by 0.3 percent in July. The uptick in prices matched economist estimates.

Excluding food and energy prices, core consumer prices rose by 0.3 percent in August, matching the increases seen in the two previous months. Economists had expected core prices to rise by 0.2 percent.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $16 billion worth of thirty-year bonds.

Stocks In Focus

Shares of LKQ Corp. (LKQ) are moving significantly higher in pre-market trading on news activist investor ValueAct Capital has acquired a 5.2 percent stake in the auto parts company.

Video game maker Activision Blizzard (ATVI) may also see initial strength after Nomura Instinet upgraded its rating on the company’s stock to Buy from Neutral.

On the other hand, shares of Oracle (ORCL) may move to the downside after the business software giant reported weaker than expected fiscal first quarter revenues and said CEO Mark Hurd is taking a health-related leave of absence.

IT services company DXC Technology (DXC) is also seeing pre-market weakness after announcing the retirement of its Chairman, President and CEO Mike Lawrie.
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