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Beyond the Numbers

Futures Pointing To Initial Weakness On Wall Street
9/17/2019 8:57 AM

The major U.S. index futures are pointing to a lower opening on Tuesday, with stocks likely to add to the losses posted in the previous session.

Geopolitical concerns may continue to weigh on the markets amid uncertainty about the U.S. response to the attacks on Saudi Arabian oil facilities.

President Donald Trump has indicated the U.S. is prepared to respond militarily but has stopped short of definitively blaming Iran for the attacks.

Trump told reporters diplomacy has not been exhausted when it comes to Iran and would not rule out meeting with Iranian President Hassan Rouhani on the sidelines of the United Nations General Assembly next week.

Overall trading activity is likely to remain somewhat subdued, however, as traders await the Federal Reserve’s monetary policy decision on Wednesday.

The Fed is widely expected to lower interest rates by another 25 basis points, with CME Group’s FedWatch Tool currently indicating a 65.8 percent chance of a quarter-point rate cut.

Traders are likely to pay close attention to the Fed’s accompanying statement for clues about the long-term outlook for rates.

Reflecting concerns about the impact of skyrocketing oil prices, stocks saw moderate weakness during trading on Monday. The major averages all moved to the downside, partly offsetting the strong gains posted last week.

The major averages climbed off their worst levels of the day but still closed in negative territory. The Dow slid 142.70 points or 0.5 percent to 27,076.82, the Nasdaq fell 23.17 points or 0.3 percent to 8,153.54 and the S&P 500 dropped 9.43 points or 0.3 percent to 2,997.96.

The weakness on Wall Street came amid a spike by the price of crude oil, with brent crude futures showing the biggest intraday jump on record after a coordinated drone attack on Saudi Arabia's oil industry.

Crude for October delivery soared $8.05 to $62.90 a barrel, raising concerns about the impact higher energy prices could have on the already fragile global economy.

The jump in oil prices comes as attacks on an oil processing facility at Abqaiq and the nearby Khurais oil field cut Saudi Arabia's daily crude oil output in half.

Responding to the news, President Trump said he has authorized the release of oil from the Strategic Petroleum Reserve if necessary to keep the markets well supplied.

Trump also tweeted the U.S. is "locked and loaded" to the respond to the attacks, with Secretary of State Mike Pompeo pointing the finger at Iran.

A potential military conflict between the U.S. and Iran would weigh on a global economy that is already being dragged down by the U.S.-China trade war.

On the U.S. economic front, the Federal Reserve Bank of New York released a report showing New York-area manufacturing activity was little changed in the month of September.

The New York Fed said its general business conditions index dipped to 2.0 in September from 4.8 in August, although a positive reading still indicates an increase in regional manufacturing activity. Economists had expected the index to edge down to 4.0.

Chemical stocks showed a significant move to the downside on the day, dragging the S&P Chemical Sector Index down by 1.6 percent. The index pulled back after ending last Friday's trading at its best closing level in well over a month.

Retail and tobacco stocks also saw considerable weakness, with the Dow Jones U.S. Retail Index and the NYSE Arca Tobacco Index both falling by 1.3 percent.

On the other hand, energy stocks saw substantial strength on the day, benefiting from the sharp increase by the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index surged up by 8.8 percent, the NYSE Arca Natural Gas Index spiked by 6.5 percent and the NYSE Arca Oil Index jumped by 3.8 percent.

Commodity, Currency Markets

Crude oil futures are sliding $0.76 to $62.14 barrel after soaring $8.05 to $62.90 a barrel on Monday. Meanwhile, after jumping $12 to $1,511.50 ounce in the previous session, gold futures are inching up $0.10 to $1,511.60 an ounce.

On the currency front, the U.S. dollar is trading at 108.15 yen compared to the 108.12 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1029 compared to yesterday’s $1.1001.

Asia

Asian stocks ended mixed on Tuesday as investors assessed the impact of surging oil prices on global growth. Investors also preferred to remain on the sidelines ahead of key central bank meetings this week in the U.S. and Japan.

Chinese shares fell sharply ahead of the next round of U.S.-China trade talks scheduled to start in Washington on Thursday.

The benchmark Shanghai Composite Index gave up 52.64 points, or 1.7 percent, to finish at 2,978.12, while Hong Kong's Hang Seng Index tumbled 334.31 points, or 1.2 percent, to 26,790.24.

Japanese shares finished marginally higher, led by energy-related stocks as oil prices soared after the recent attacks on Saudi oil facilities.

The Nikkei 225 Index inched up 13.03 points, or 0.1 percent, to 22,001.32, extending gains for the tenth straight session as traders returned to their desks after a national holiday on Monday. The broader Topix closed 0.3 percent higher at 1,614.58.

Inpex, Japan's top oil and gas company, soared 9.7 percent, JXTG Holdings jumped 4.6 percent and energy plant builder JGC advanced 5.6 percent. Exporters finished broadly higher as the dollar/yen touched its highest since August 1st.

Automakers ended mixed despite reports the United States will make a commitment not to hike tariffs on Japanese cars or introduce quotas on the number of cars imported to the country.

Australian shares ended modestly higher even as underlying sentiment remained cautious ahead of the Federal Reserve's policy meeting this week. The benchmark S&P ASX 200 Index rose 21.80 points, or 0.3 percent, to 6,695.30, while the broader All Ordinaries Index ended up 19.70 points, or 0.3 percent, at 6,801.70.

Lower iron ore prices weighed on the mining sector, with BHP and Rio Tinto ending down 1.1 percent and 1.6 percent, respectively.

The big four banks rose between 0.3 percent and 0.7 percent, while energy stocks such as Woodside Petroleum and Santos climbed 1-2 percent.

New Hope Corp. fell 2.4 percent after the company said coal markets would likely remain volatile in the near term.

In economic news, minutes of the RBA's September 3rd policy meeting showed that the board would consider further policy easing if needed to support growth.

House prices in Australia were down 0.7 percent sequentially in the second quarter of 2019, the Australian Bureau of Statistics said. That exceeded expectations for a decline of 1.1 percent following the 3.0 percent drop in the three months prior.

Seoul stocks ended roughly flat as worries over spiking oil prices offset easing concerns over the U.S.-China trade dispute.

Europe

European stocks are mixed on Tuesday as investors await the latest developments in U.S.-China trade talks and look ahead to the outcome of central bank meetings this week in the U.S and Japan.

In economic news, a survey showed that the mood among German investors improved more than expected in September.

The ZEW institute's economic sentiment index rose to -22.5 from -44.1 in August. Economists had expected a slight improvement to -37.0.

While the U.K.’s FTSE 100 Index is just above the unchanged line, the French CAC 40 Index is down by 0.2 percent and the German DAX Index is down by 0.5 percent.

Hikma Pharmaceuticals has moved notably higher on the day. The company, though its affiliate, Hikma Pharmaceuticals USA Inc., has launched a new prefilled syringe capability in the U.S.

Energy stocks such as BP Plc, Royal Dutch Shell and Total SA have also advanced despite oil prices falling after the United States hinted at the possible release of crude reserves.

Osram Licht AG has edged up slightly after the company recommended its shareholders accept a 4.3 billion euro bid from ams AG.

On the other hand, Zalando shares have slumped after a share placement by Kinnevik, a top investor in the e-commerce company.

U.S. Economic Reports

The Federal Reserve is scheduled to release its report on industrial production in the month of August at 9:15 am ET. Industrial production is expected to rise by 0.2 percent in August after dipping by 0.2 percent in July.

At 10 am ET, the National Association of Home Builders is due to release its report on homebuilder confidence in the month of September. The housing market index is expected to come in unchanged after inching up to 66 in August.

Stocks In Focus

Shares of Corning (GLW) are moving sharply lower in pre-market trading after the materials company reduced expectations for its Display Technologies and Optical Communications segments.

Food producer Kraft Heinz (KHC) may also see initial weakness on news 3G Capital sold 25.1 million shares of the company’s stock.

On the other hand, shares of Anheuser-Busch InBev (BUD) may move to the upside after the brewer revived plans for an initial public offering for its Asian business.
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