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Beyond the Numbers

Optimism About Stimulus, Trade Talks May Lead To Higher Open
9/20/2019 9:07 AM

The major U.S. index futures are currently pointing to a modestly higher opening on Friday after the major averages closed mixed for two straight sessions.

The markets may benefit from optimism that stimulus packages by central banks around the world will help bolster slowing economic growth.

Traders also remain hopeful about an eventual end to the U.S.-China trade war, with deputy U.S. and Chinese trade negotiators resuming talks for the first time in almost two months on Thursday.

The deputy-level talks this week are expected to help pave the way for more productive high-level U.S.-China trade talks next month.

On the trade front, a report from Politico says the Trump administration is exempting hundreds of Chinese products from tariffs imposed last year.

The report, confirmed by CNBC, says the list of exemptions includes products such as Christmas tree lights, plastic straws, and pet supplies.

Politico said the exemptions are less about placating China than they are an effort to provide relief to some U.S. companies who say they have been harmed by the tariffs.

Meanwhile, on a quiet day on the U.S. economic front, St. Louis Federal Reserve President James Bullard released a statement explaining his preference for cutting interest rates by 50 basis points at the Fed meeting earlier this week.

Bullard cited signs that U.S. economic growth is expected to slow in the near horizon as well as continued indications of low inflation.

“In light of these developments, I believe that lowering the target range for the federal funds rate by 50 basis points at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks,” Bullard wrote.

He added, “It is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize.”

Stocks saw moderate strength throughout morning trading on Thursday before giving back ground over the course of the afternoon. The major averages pulled back well off their highs before eventually closing mixed for the second straight day.

While the Dow dipped 52.29 points or 0.2 percent to 27,094.79, the Nasdaq inched up 5.49 points or 0.1 percent to 8,182.88 and the S&P 500 crept up 0.06 points or less than a tenth of a percent to 3,006.79.

The lackluster close on Wall Street came amid continued uncertainty about the outlook for interest rates following the Federal Reserve's monetary policy announcement on Wednesday.

The Fed lowered interest by 25 basis points as expected but indicated officials are mixed about whether the central bank should cut rates again before the end of the year.

While seven participants expect another rate cut before the end of year, five expect rates to remain unchanged and another five expect rates to be raised back to 2 to 2-1/4 percent.

The central bank reiterated that it will "act as appropriate" to sustain the economic expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

CME Group's FedWatch Tool currently indicates a mixed outlook for rate cuts at the Fed's next meetings in October and December.

On the U.S. economic front, the Labor Department released a report showing a modest rebound in initial jobless claims in the week ended September 14th.

The report said initial jobless claims inched up to 208,000, an increase of 2,000 from the previous week's revised level of 206,000. Economists had expected jobless claims to climb to 213,000.

A separate report from the Philadelphia Federal Reserve showed a modest slowdown in the pace of growth in regional manufacturing activity in the month of September.

The Philly Fed said its diffusion index for current general activity fell to 12.0 in September from 16.8 in August, although a positive reading still indicates growth in regional manufacturing activity. The index had been expected to drop to 11.0.

Looking ahead, the survey's future general activity index moderated but continues to suggest growth over the next six months.

The National Association of Realtors also released a report showing an unexpected jump in existing home sales in the month of August.

NAR said existing home sales surged up by 1.3 percent to an annual rate of 5.49 million in August after spiking by 2.5 percent to a rate of 5.42 million in July.

The continued increase came as a surprise to economists, who had expected existing home sales to pull back by about 0.4 percent.

"Buyers are finding it hard to resist the current rates," said NAR chief economist Lawrence Yun. "The desire to take advantage of these promising conditions is leading more buyers to the market."

Tobacco stocks moved sharply lower over the course of the trading session, dragging the NYSE Arca Tobacco Index down by 2.7 percent. The index tumbled to its lowest closing level in over seven months.

Significant weakness was also visible among steel stocks, as reflected by the 1.6 percent drop by the NYSE Arca Steel Index.

U.S. Steel (X) plunged by 11.1 percent after lowering its third quarter guidance due to a drop in steel prices and deteriorating market conditions in Europe.

Energy stocks also came under pressure as the price of crude oil pulled back off its early highs, while gold stocks showed a significant move to the upside.

The NYSE Arca Gold Bugs Index surged up by 2.3 percent even though the price of gold for December delivery moved lower on the day.

Notable strength also remained visible among software stocks, with the Dow Jones U.S. Software Index climbing by 1.3 percent.

Microsoft (MSFT) posted a strong gain after raising its quarterly dividend by $0.05 to $0.51 per share and announcing plans to buy back up to $40 billion worth of stock.

Commodity, Currency Markets

Crude oil futures are climbing $0.43 to $58.56 a barrel after inching up $0.02 to $58.13 a barrel on Thursday. Meanwhile, after sliding $9.60 to $1,506.20 an ounce in the previous session, gold futures are rising $1.60 to $1,507.80 an ounce.

On the currency front, the U.S. dollar is trading at 107.91 yen versus the 108.02 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1022 compared to yesterday’s $1.1041.

Asia

Asian stock markets ended mostly higher on Friday amid optimism that the stimulus packages by central banks around the world will help bolster slowing economic growth.

The focus also shifted to the U.S.-China trade war as investors digested news that U.S. and Chinese deputy trade negotiators resumed trade talks for the first time in almost two months on Thursday.

Chinese shares advanced after China's central bank reduced its one-year loan prime rate marginally but retained its five-year lending rate.

The benchmark Shanghai Composite Index edged up 7.17 points, or 0.2 percent, to 3,006.45, although Hong Kong's Hang Seng Index dipped 33.28 points, or 0.1 percent, to 26,435.67.

The Japanese market rose for a second straight day as investors digested data showing Japan's core consumer inflation slowed to a two-year low in August. The data raised expectations that the Bank of Japan will roll out additional easing measures to boost economic growth.

The benchmark Nikkei 225 Index rose 34.64 points, or 0.2 percent, to 22,079.09 after touching a high of 22,204.75 earlier. The broader Topix added 0.57 points, or less than 0.1 percent, to finish at 1,616.23.

Market heavyweight SoftBank rose 0.2 percent and Fast Retailing advanced 0.8 percent. Among the market's best performers, Rakuten gained 3.9 percent, while Suzuki Motor advanced 3.7 percent and DeNA Co. rose 2.8 percent.

The major exporters also closed mostly higher. Sony added 0.5 percent, while Panasonic and Canon rose 0.2 percent each. Mitsubishi Electric declined almost 1 percent.

In the tech space, Advantest ended unchanged, while Tokyo Electron edged down 0.1 percent. In the auto sector, Honda Motor rose 0.7 percent and Toyota Motor gained 0.5 percent.

Shares of Akebono Brake Industry Co. dipped 0.5 percent after the auto parts maker announced plans to close six plants in Japan and abroad to rebuild its business.

The Australian market pared early gains but still closed higher for a second straight day. The benchmark S&P/ASX 200 Index added 13.30 points, or 0.2 percent, to close at a new one-month high of 6,730.80, while the broader All Ordinaries Index rose 13.80 points, or 0.2 percent, to finish at 6,839.00.

In the banking space, ANZ Banking and Westpac added 0.3 percent each, while National Australia Bank advanced 1.6 percent.

IOOF Holdings' shares surged up 7.9 percent after the Federal Court dismissed the Australian Prudential Regulation Authority's lawsuit against the wealth manager and granted it court costs.

Among the major miners, Fortescue Metals declined 1.3 percent and Rio Tinto dipped 0.6 percent, while BHP Billiton rose 0.2 percent.

Shares of Premier Investments jumped 15.3 percent after the conglomerate reported a nearly 28 percent increase in full-year profit and raised its final dividend.

Pushpay Holdings advanced almost 1 percent after the New Zealand-based mobile app payments developer raised its earnings outlook for the year to March 31 on cost efficiency improvements.

Seoul stocks ended higher for the eleventh straight day amid expectations of progress in the U.S.-China trade talks. The benchmark Korea Composite Stock Price Index, or KOSPI, added 11.17 points, or 0.5 percent, to finish at 2,091.52.

Market heavyweight Samsung Electronics edged up 0.1 percent, while automaker Hyundai rose 0.4 percent and steelmaker POSCO added 0.2 percent.

Europe

European markets have edged higher on Friday, staging a modest recovery after a subdued start. Investors are keenly following the developments on the trade front and hoping the latest round of stimulus measures announced by central banks will help revive economic growth.

While the French CAC 40 Index has risen by 0.4 percent, the U.K.’s FTSE 100 Index and the German DAX Index are up by 0.2 percent and 0.1 percent, respectively.

Shares of French IT services company Alten have shown a significant move to the upside following a rating upgrade by SocGen.

In economic news, German producer price inflation eased more than expected in August, data from Destatis revealed. Producer prices grew only 0.3 percent year-on-year, slower than the 1.1 percent increase in July. Prices were forecast to rise 0.6 percent.

On a monthly basis, producer prices decreased 0.5 percent, in contrast to a 0.1 percent rise in the previous month. Economists had expected prices to fall 0.2 percent.

Data released by French statistical office Insee showed wages in the non-farm business sector decreased 1.2 percent in the second quarter, reversing a 1.8 percent jump in the first quarter.

Without the special bonus for purchasing power, or PEPA, wages and salaries would have risen by 0.7 percent in the second quarter.

On a yearly basis, wages and salaries increased 1.5 percent, which was slower than the 3.1 percent rise in the previous quarter.

On the Brexit front, Britain's Brexit minister Secretary Stephen Barclay is scheduled to meet the EU's chief Brexit negotiator in Brussels today.

On Thursday, European Commission President Jean-Claude Juncker said "we can have a deal" before the Halloween deadline.

U.S. Economic Reports

At 11:20 am ET, Boston Federal Reserve President Eric Rosengren is due to speak at a conference on credit markets at New York University's Stern School of Business in New York.

Dallas Fed President Robert Kaplan is scheduled to participate in moderated Q&A session with an audience and members of the media at a community forum in Corpus Christi, Texas, at 1 pm ET.

Stocks In Focus

Shares of Scholastic (SCHL) are moving sharply higher in pre-market trading after the children's publishing, education and media company reported a narrower than expected fiscal first quarter loss on better than expected revenues ,

Office furniture maker Steelcase (SCS) is likely to see initial strength after reporting fiscal second quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Xilinx (XLNX) are moving to the downside in pre-market trading after the chipmaker said its CFO Lorenzo Flores is stepping down from his position to pursue another executive opportunity.

Streaming device maker Roku (ROKU) may also come under pressure after Pivotal Research initiated coverage of the company’s stock with a Sell rating.
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