logo

Market Analysis

mail
Share
Beyond the Numbers

Traders Intensely Focused On U.S.-China Trade Talks
10/9/2019 8:58 AM

The major U.S. index futures are pointing to a higher opening on Wednesday following the sharp pullback seen late in the previous session.

Renewed optimism about upcoming U.S.-China trade talks may generate initial buying interest after a report from Bloomberg News said China is still open to reaching a partial trade deal with the U.S.

An official with direct knowledge of the talks told Bloomberg that negotiators aren’t optimistic about securing a broad agreement to end the U.S.-China war but said China would accept a limited deal as long as President Donald Trump does not impose any more tariffs.

In return, the official told Bloomberg, Beijing would offer non-core concessions like purchases of agricultural products without giving in on major sticking points.

The positive reaction to the report reflects the intense focus on the next round of high-level trade talks set to begin on Thursday.

Nonetheless, overall trading activity may be somewhat subdued as traders look ahead to the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

The minutes may shed additional light on the Fed’s decision to cut interest by 25 basis points in September and provide clues about the outlook for future rate cuts.

After coming under pressure early in the session, stocks regained some ground over the course of the trading day on Tuesday before pulling back sharply going into the close. The major averages ended the day firmly in negative territory.

The Nasdaq and the S&P 500 fell to new lows in late-day trading, while the Dow remained off its worst levels. The Dow still slumped 313.98 points or 1.2 percent to 26,164.04, the Nasdaq plunged 132.52 points or 1.7 percent to 7,823.78 and the S&P 500 tumbled 45.73 points or 1.6 percent to 2,893.06.

Selling pressure re-emerged late in the session following news the Trump administration imposed visa restrictions on Chinese officials over abuses of Muslim minorities in the Xinjiang region.

The new visa restrictions come just two days before the U.S. and China are scheduled to resume high-level trade talks in Washington.

Optimism about the trade talks had already waned after a report from the South China Morning Post said China is subtly toning down expectations ahead of this week's high-level negotiations.

The SCMP said Chinese Vice Premier Liu He is leading China's delegation to Washington but will not carry the title of "special envoy" for President Xi Jinping, an early indication that Liu has not been given any particular instructions from China's leader.

A source briefed on preparations for the trade talks also told the SCMP that the Chinese delegation may cut short their stay in Washington.

News the U.S. has expanded its trade blacklist to include some of China's top artificial intelligence firms has also cast a shadow over the talks along with a Bloomberg report the White House is discussing blocking government pension funds from investing in China.

Meanwhile, traders largely shrugged off a Labor Department report showing an unexpected decrease in U.S. producer prices in the month of September.

The Labor Department said its producer price index for final demand fell by 0.3 percent in September after inching up by 0.1 percent in August. The drop surprised economists, who had expected another 0.1 percent uptick.

Excluding food and energy prices, core producer prices also slid by 0.3 percent in September after climbing by 0.3 percent in August. Economists had expected core prices to rise by 0.2 percent.

The tame inflation data may clear the way for the Federal Reserve to continue cutting interest rates amid signs of slowing economic growth.

In remarks at the National Association for Business Economics annual meeting in Denver, Colorado, Fed Chairman Jerome Powell reiterated his pledge to "act as appropriate" to support continued growth, a strong job market, and inflation moving back to the Fed's symmetric 2 percent objective.

Powell also indicated that the central bank intends to resume increasing the size of its balance sheet following recent, unexpectedly intense volatility in wholesale funding markets.

Semiconductor stocks showed a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 3.1 percent to its lowest closing level in over a month.

Chipmaker Ambarella (AMBA) posted a particularly steep loss after one of its Chinese customers was blacklisted by the U.S. government.

Significant weakness was also visible among natural gas stocks, as reflected by the 3 percent nosedive by the NYSE Arca Natural Gas Index. The index ended the session at a nearly fifteen-year closing low.

Biotechnology, computer hardware, and banking stocks also saw considerable weakness on the day, reflecting broad based selling pressure on Wall Street.

Meanwhile, gold stocks were among the few groups to buck the downtrend, with the NYSE Arca Gold Bugs Index surging up by 3 percent.

The rally by gold stocks came as the price of the precious metal moved to the upside in electronic trading after ending the regular session slightly lower.

Commodity, Currency Markets

Crude oil futures are climbing $0.56 to $53.19 a barrel after slipping $0.12 to $52.63 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,512.20, up $8.30 compared to the previous session’s close of $1,503.90. On Tuesday, gold edged down $0.50.

On the currency front, the U.S. dollar is trading at 107.33 yen compared to the 107.09 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0975 compared to yesterday’s $1.0957.

Asia

Asian stocks fell broadly on Wednesday as hopes for a resolution to the U.S.-China trade dispute faded, offsetting comments by Fed Chairman Jerome Powell about expanding the central bank’s balance sheet.

Trade optimism waned after the Trump administration imposed visa restrictions on Chinese officials and expanded its trade blacklist to include some of China's top artificial intelligence startups.

The Trump administration is also moving ahead with discussions around possible restrictions on capital flows into China, with a focus on investments made by U.S. government pension funds, Bloomberg reported.

Chinese stocks shrugged off weak global cues to end higher as investors remained optimistic about the prospects of more fiscal stimulus.

The benchmark Shanghai Composite index rose 11.29 points, or 0.4 percent, to 2,924.86, while Hong Kong's Hang Seng Index shed 0.8 percent to close at 25,682.81.

Japanese shares declined as the latest U.S.-China tension soured investors' mood. The Nikkei 225 Index slid 131.40 points, or 0.6 percent, to 21,456.38, while the broader Topix closed 0.3 percent lower at 1,581.70.

China-linked shares fell, with Fanuc down 1.6 percent and Komatsu losing 1 percent. Chip-related shares such as Screen Holdings, Advantest and Sumo lost 1-3 percent.

Nissan Motor gave up 1.1 percent after picking Senior Vice President Makoto Uchida as its next chief executive.

Australian shares retreated as heightened tensions between the United States and China sapped investors' appetite for risk.

The benchmark S&P/ASX 200 Index ended the session down 46.70 points, or 0.7 percent, at 6,546.70, while the broader All Ordinaries Index dropped 46.70 points, or 0.7 percent to 6,667.

Banks ANZ, Commonwealth and Westpac fell between half a percent and 1.2 percent, while mining heavyweights BHP and Rio Tinto declined 1.4 percent and 0.9 percent, respectively.

Gold miners surged amid rising uncertainty surrounding the U.S.-China trade war and gloomy Brexit headlines. Evolution Mining advanced 1.5 percent and Newcrest added 1 percent.

Woodside Petroleum, Origin Energy, Oil Search and Santos dropped 1-2 percent as oil prices slipped for a third consecutive session on escalating tensions between the United States and China.

Meanwhile, telecom giant Telstra gained 0.9 percent on news it will shut down its 3G network in June 2024 to make room for its 4G and 5G coverage.

Shares of Clinuvel Pharmaceuticals spiked 60 percent after the U.S. FDA approved the use of the biopharmaceutical company's drug Scenesse to treat a rare genetic disorder that induces skin damage from exposure to light.

Australia's consumer confidence weakened to the lowest level in more than four years in October despite interest rate reductions, survey results from Westpac showed today.

The Westpac-Melbourne Institute Index of Consumer Sentiment dropped to 92.8 in October from 98.2 in September. This was the lowest score since July 2015.

Europe

European stocks have rebounded on Wednesday as the focus shifts to earnings and the British government signaled that it intends to bring a revised Brexit deal back to Parliament.

According to a report in The Times, the EU is ready to make a major concession on a Brexit deal by providing a mechanism for the Northern Irish assembly to leave a new Irish backstop after a set number of years.

Meanwhile, the Bank of France today retained its growth forecast for the third quarter. According to the monthly survey, the economy is set to expand 0.3 percent in the third quarter, unchanged from the previous estimate.

While the German DAX Index has jumped by 1.2 percent, the French CAC 40 Index is up by 0.8 percent and the U.K.’s FTSE 100 Index is up by 0.7 percent.

Shares of Pressure Technologies have soared after the specialist engineering group announced a major contract win from EDF Energy.

GVC Holdings has also jumped after the global sports-betting and gaming group raised its full-year core earnings forecast.

AMG Advanced Metallurgical Group N.V., a global critical materials company, has surged almost 4 percent after it signed an agreement to acquire the assets of International Specialty Alloys from Kennametal, Inc.

Dutch online food delivery company Takeaway.com has also moved to the upside after reporting a surge in quarterly orders.

U.S. Economic Reports

At 10 am ET, the Labor Department is scheduled to release its Job Openings and Labor Turnover Survey for the month of August. Job openings are expected to dip to 7.19 million in August after edging down to 7.22 million in July.

The Commerce Department is also due to release its report on wholesale inventories in the month of August at 10 am ET. Wholesale inventories are expected to rise by 0.4 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended October 4th.

Crude oil inventories are expected to increase by 2.6 million barrels after climbing by 3.1 million barrels in the previous week.

Federal Reserve Chairman Jerome Powell is due to co-host a roundtable session with Kansas City Fed President Esther George at a Fed Listens event in Kansas City, Missouri, at 11 am ET.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $24 billion worth of ten-year notes.

The Fed is due to release the minutes of its September monetary policy meeting at 2 pm ET. The minutes may provide additional insight into the Fed’s decision to cut interest rates by 25 basis points.

Stocks In Focus

Shares of FireEye (FEYE) are moving significantly higher in pre-market trading after the cybersecurity company raised its third quarter revenue guidance.

Apparel company Levi Strauss & Co. (LEVI) may also move to the upside after reporting better than expected fiscal third quarter earnings.

On the other hand, shares of Johnson & Johnson (JNJ) may see initial weakness after the healthcare giant was ordered to pay $8 billion in punitive damages in a case related to side effects from its anti-psychotic drug Risperdal.
Follow RTT
Todays Potential Movers
Company
Symbol
Name
Up
Down
News





>