Market Analysis

Beyond the Numbers

Optimism About Trade Talks May Generate Buying Interest
10/1/2019 8:57 AM

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

The markets may continue to benefit from optimism about a potential U.S.-China trade deal ahead of high-level negotiations next week.

Recent comments from Trump officials downplaying reports about efforts to restrict U.S. investment in China have helped to ease concerns about trade tensions.

Buying interest may be somewhat subdued, however, as disappointing manufacturing data from overseas has added to worries about the global economy.

Shortly after the start of trading, the Institute for Supply Management is scheduled to release its report on U.S. manufacturing activity in the month of September.

After coming under pressure over the course of last Friday’s session, stocks moved back to the upside during trading on Monday. The major averages all climbed into positive territory, although buying interest was somewhat subdued.

The major averages pulled back off their best levels late in the session but held on to gains. The Dow rose 96.58 points or 0.4 percent to 26,916.83, the Nasdaq advanced 59.71 points or 0.8 percent to 7,999.34 and the S&P 500 climbed 14.95 points or 0.5 percent to 2,976.74.

The rebound on Wall Street came after a Treasury Department spokeswoman denied reports the Trump administration is considering delisting Chinese companies from U.S. stock exchanges.

"The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time. We welcome investment in the United States," Treasury spokeswoman Monica Crowley said in a statement.

Crowley's statement comes on the heels of reports suggesting the administration is contemplating ways to curb U.S. investments in China.

White House trade adviser Peter Navarro attacked the media reports in an interview with CNBC on Monday, claiming "over half" of a Bloomberg report about potential restrictions was "highly inaccurate or simply flat-out false."

"This story was just so full of inaccuracies and in terms of the truth of the matter, what the Treasury said I think was accurate," Navarro said.

Better than expected manufacturing data out of China also tempered some of the recent concerns about the impact of the U.S.-China trade war.

Meanwhile, MNI Indicators released a report showing Chicago-area business activity unexpectedly returned to contraction in the month of September.

MNI Indicators said its Chicago business barometer slumped to 47.1 in September after rebounding to 50.4 in August. A reading below 50 indicates a contraction in Chicago-area business activity.

The index indicated a contraction for the third time in four months, while economists had expected a much more modest decrease to a reading of 50.2.

MNI Indicators said its reading on prices at the factory gate rose 4.1 points to 57.7 in third quarter, with anecdotal evidence pointing to tariffs affecting prices and business activity.

Despite the advance by the broader markets, most of the major sectors finished the session showing only modest moves.

Semiconductor stocks showed a notable move to the upside, however, with the Philadelphia Semiconductor Index climbing by 1 percent.

Housing, software, chemical and healthcare stocks also saw some strength on the day, while gold stocks fell sharply along with the price of the precious metal.

With gold for December delivery plummeting $33.50 to $1,472.90 an ounce, the NYSE Arca Gold Bugs Index plunged by 3.5 percent to a two-month closing low.

Commodity, Currency Markets

Crude oil futures are climbing $0.55 to $54.62 a barrel after plunging $1.84 to $54.07 a barrel on Monday. Meanwhile, after plummeting $33.50 to $1,472.90 an ounce in the previous session, gold futures are slipping $2.60 to $1,470.30 an ounce.

On the currency front, the U.S. dollar is trading at 108.41 yen compared to the 108.08 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0898 compared to yesterday’s $1.0899.


Asian stocks rose on Tuesday as hopes grew of progress towards resolving the U.S.-China trade war and reports suggested British Prime Minister Boris Johnson has prepared a blueprint for a new Brexit deal.

Chinese and Hong Kong markets were closed for the 70th anniversary of the founding of the People's Republic of China.

Japanese shares advanced despite the release of weak economic data. The Nikkei average climbed 129.40 points, or 0.6 percent, to 21,885.24, while the broader Topix closed 1 percent higher at 1,603.

Japan's manufacturing sector contracted the most in seven months in September, as firms reduced production amid weak demand, survey data from IHS Markit showed. The corresponding index dropped to 48.9 from 49.3 in August.

Separately, the Bank of Japan's quarterly Tankan survey revealed the manufacturing sector in Japan continued to expand in the third quarter, albeit at a slower pace, with a large manufacturing diffusion index score of +5.

That beat forecasts for +1, although it was down from +7 in the three months prior. The outlook came in at +2, exceeding expectations for 0 but also down from +7.

The unemployment rate in Japan came in at a seasonally adjusted 2.2 percent in August, beneath expectations for 2.3 percent and unchanged from the previous month.

Honda motor, Nissan Motor and Panasonic climbed around 3 percent as the yen weakened amid easing U.S.-China trade tensions.

Apple-related companies gained ground as JP Morgan raised its iPhone volume forecasts for the September and December quarters. Murata Manufacturing advanced 2.8 percent and TDK Corp gained 2.7 percent.

Australian markets rose sharply as the Reserve Bank of Australia reduced its interest rates further as widely expected.

The board of the Reserve Bank of Australia, governed by Philip Lowe, decided to reduce the cash rate by 25 basis points to 0.75 percent, saying an extended period of low interest rates will be required to reach full employment and achieve the inflation target.

Meanwhile, investors shrugged off survey results from IHS Markit showing that Australia's manufacturing sector expanded at a slower pace in September.

The benchmark S&P/ASX 200 Index jumped 54.50 points, or 0.8 percent, to 6,742.80 while the broader All Ordinaries Index ended the session up 52.40 points, or 0.8 percent, at 6,853.

Adelaide Brighton, a manufacturer of cement, lime and dry blended products, rallied 2.3 percent after home prices in the country posted their biggest monthly jump in 2-1/2 years in September.

Retailers Wesfarmers and Woolworths Group rose around 1 percent. Airline Qantas Airways surged up 2.4 percent after oil futures plunged overnight, sending U.S. prices to their lowest settlement in a month.

Seoul stocks rose for the second straight day as the country's consumer prices declined for the first time on record in September and exports continued to fall, adding pressure on the central bank to ease monetary policy.

Consumer prices fell 0.4 percent year-on-year in September after staying flat in August, a government report showed. The benchmark Kospi gained 9.37 points, or 0.5 percent, to finish at 2,072.42, led by bio and chemical stocks.

Samsung BioLogics soared 5 percent as it won a patent lawsuit against Switzerland-based pharmaceutical giant Lonza.


European stocks have moved modestly lower on Tuesday as weak PMI surveys from the eurozone raised fresh worries about the outlook for global growth.

The euro area manufacturing sector contracted at the fastest pace in nearly seven years as output, new orders and purchasing fell sharply in September, final data from IHS Markit showed. The final manufacturing Purchasing Managers' Index dropped to 45.7 in September from 47.0 in August.

Germany's manufacturing sector contracted the most since the global financial crisis in 2009, while French manufacturing activity remained broadly stable. The U.K. manufacturing purchasing managers index rose to a four-month high in the month.

While the U.K.’s FTSE 100 Index is just below the unchanged line, the German DAX Index and the French CAC 40 Index are both down by 0.1 percent.

AstraZeneca has fallen after it agreed to sell the global commercial rights, excluding China, Japan, the U.S. and Mexico, for Losec (omeprazole) and associated brands to Cheplapharm.

Alcoholic beverages company Diageo has also moved to the downside after launching a SEC-registered bond offering.

On the other hand, automaker Renault and car parts maker Faurecia have moved higher after French car manufacturers' body CCFA said the decline in its domestic market should slow down this year and end 2019 at stable levels.

Tech stocks are also moving higher as JP Morgan raised its iPhone volume forecasts for the September and December quarters.

U.S. Economic Reports

St. Louis Federal Reserve President James Bullard is due to make welcoming remarks at the 2019 Community Banking in the 21st Century Research and Policy Conference, in St. Louis, Missouri, at 9:15 am ET, followed by Fed Governor Michelle Bowman’s opening keynote at 9:30 am ET.

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

The purchasing managers index is expected to inch up to 50.1 in September after falling to 49.1 in August, with 50 serving as the dividing line between contraction and expansion in manufacturing activity.

The Commerce Department is also due to release its report on construction spending in August at 10 am ET. Construction spending is expected to rise by 0.4 percent in August after inching up by 0.1 percent in July.

Stocks In Focus

Shares of McCormick & Co. (MKC) may move to the upside in early trading after the spices company reported better than expected fiscal third quarter earnings and raised its full-year earnings guidance.

Cigarette maker Philip Morris (MO) may also see initial strength after Bank of America/Merrill Lynch upgraded its rating on the company’s stock to Buy from Neutral.

On the other hand, shares of McDonald’s (MCD) may open lower after JPMorgan lowered its forecast for third quarter same-store sales growth by the fast food giant.
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