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Beyond the Numbers

Uncertainty About Trade Talks May Lead To Choppy Trading
10/10/2019 9:06 AM

The major U.S. index futures are pointing to a pointing to a modestly lower opening on Thursday, although stocks may show a lack of direction following the rally in the previous session.

Uncertainty about U.S.-China trade talks may lead to choppy trading on Wall Street as traders digest conflicting reports about the high-level negotiations set to get underway today.

A report from the South China Morning Post said deputy-level talks aimed at laying the groundwork for the high-level negotiations failed to make any progress on critical issues.

“They have made no progress,” a source familiar with the talks told the SCMP, adding that the Chinese side had not made headway in persuading U.S. negotiators to consider a freeze on tariff increases.

The source also told the SCMP the Chinese delegation may leave Washington earlier than expected, with Chinese Vice Premier Liu He heading to the airport on Friday rather than Saturday as previously planned.

However, a White House spokesman told CNBC’s Kayla Tausche the SCMP’s report was inaccurate, saying, “We are not aware of a change in the Vice Premier’s travel plans at this time.”

A principal in the negotiations later told CNBC the schedule has become “fluid” and suggested Liu could leave early while Vice Minister Liao Min stays in Washington to continue negotiations.

Stocks moved mostly higher over the course of the trading day on Wednesday, as traders expressed renewed optimism about upcoming U.S.-China trade talks. With the advance, the major averages partly offset the steep losses posted on Tuesday.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow climbed 181.97 points or 0.7 percent to 26,346.01, the Nasdaq surged up 79.96 points or 1 percent to 7,903.74 and the S&P 500 jumped 26.34 points or 0.9 percent to 2,919.40.

The strength on Wall Street came 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.

News the Trump administration imposed visa restrictions on Chinese officials over abuses of Muslim minorities contributed to a late-day sell-off on Tuesday amid concerns about the move's impact on the talks.

Meanwhile, traders largely shrugged off the minutes of the Federal Reserve's September monetary policy meeting, which revealed a few participants expressed concerns that the markets expect more interest rate cuts than are appropriate.

The minutes said those participants felt it might become necessary for the Fed to seek a better alignment of market expectations regarding the path of rates with policymakers' own expectations.

"Several participants suggested that the Committee's postmeeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end," the Fed said.

CME Group's FedWatch Tool currently indicates markets widely expect a 25 basis point rate cut at the Fed's next meeting later this month and a 45.3 percent chance for yet another 25 basis point rate cut at the December meeting.

The Fed minutes noted that most participants believed that the 25 basis point rate cut announced after the September meeting was appropriate, although there was notable dissent.

Semiconductor stocks showed a strong move back to the upside on the day, rebounding after turning in some of the market's worst performances in the previous session.

After tumbling by 3.1 percent to its lowest closing level in over a month on Tuesday, the Philadelphia Semiconductor Index advanced by 1.7 percent

Significant strength was also visible among software stocks, as reflected by the 1.6 percent gain posted by the Dow Jones U.S. Software Index.

Computer hardware, oil, and transportation stocks also saw notable strength, while gold stocks pulled back after moving sharply higher on Tuesday.

Commodity, Currency Markets

Crude oil futures are rising $0.51 to $53.10 a barrel after edging down $0.04 to $52.59 a barrel on Wednesday. Meanwhile, after climbing $8.90 to $1,512.80 an ounce in the previous session, gold futures are sliding $5.10 to $1,507.70 an ounce.

On the currency front, the U.S. dollar is trading at 107.60 yen compared to the 107.48 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1024 compared to yesterday’s $1.0971.

Asia

Asian stocks turned in a mixed performance on Thursday as investors reacted cautiously to conflicting reports on the progress in U.S.-China trade talks.

After news suggested U.S.-China trade talks could be cut short, the White House dismissed reports of an apparent collapse of its trade talks with Beijing.

Chinese shares gained ground on hopes that Beijing will roll out more stimulus measures to prop up growth. The benchmark Shanghai Composite Index rose 22.85 points, or 0.8 percent, to 2,947.71, while Hong Kong's Hang Seng Index crept up 25.12 points or 0.1 percent, to 25,707.93.

Japanese shares inched higher after reports emerged that the Trump administration will soon issue licenses allowing some U.S companies to supply non-sensitive goods to Chinese telecommunications equipment maker Huawei Technologies in a bid to resolve the trade war.

The Nikkei 225 Index climbed 95.60 points, or 0.5 percent, to 21,551.98, while the broader Topix ended marginally lower at 1,581.42.

Investors shrugged off official data showing that core machine orders in Japan fell a seasonally adjusted 2.4 percent month-on-month in August. That missed expectations for a flat reading following the 6.6 percent decline in July.

On a yearly basis, core machine orders plummeted 14.5 percent - again missing forecasts for a decline of 8.4 percent following the 0.3 percent gain in the previous month.

Sony shed 0.6 percent after saying its highly anticipated gaming console PlayStation 5 will go on sale in time for the next year's holiday season. Market heavyweight SoftBank gained 0.8 percent and Fast Retailing added 0.9 percent.

Australian markets fluctuated before finishing on a flat note. Banks as well as mining heavyweights BHP and Rio Tinto ended narrowly mixed. Gold miner Resolute Mining tumbled 11.2 percent after it said a roaster at its Syama gold mine in Mali has been taken offline.

Pallets maker Brambles rallied 3.5 percent after a solid first-quarter update. Packaging company Orora soared 14 percent after it agreed to sell its Australasian fibre business to Japan's Nippon Paper Industries for $1.72 billion.

On the economic front, the total number of home loans in Australia was up a seasonally adjusted 3.2 percent sequentially in August, the Australian Bureau of Statistics said. That exceeded expectations for an increase of 2.3 percent following the upwardly revised 4.3 percent increase in July.

Seoul stocks fell sharply as hopes faded for any significant progress in U.S.-China trade talks. The Kospi slid 18.10 points, or 0.9 percent, to 2,028.15. Among the prominent decliners, SK Hynix, Hyundai Motor and Kia Motors lost 2-3 percent.

Europe

European stocks are turning in a mixed performance in cautious trading on Thursday as investors await the resumption of U.S.-China trade talks.

While prospects for progress in trade talks dimmed, media reports suggest that both sides are considering an "interim" deal that could see a tariff increase next week suspended.

In economic news, the latest report from Germany showed exports fell by more than expected in August, reinforcing expectations that a manufacturing slump is pushing Europe's largest economy into recession.

A separate report showed French industrial production declined unexpectedly in August on weak manufacturing and mining.

The Office for National Statistics said British economy shrank by 0.1 percent in August, marking the first monthly contraction since April.

However, estimated GDP grew 0.3 percent in the last three months, helping ease fears of a Brexit-fueled recession in the immediate future.

While the German DAX Index is just below the unchanged line, the U.K’.s FTSE 100 Index is up by 0.1 percent and the French CAC 40 Index is up by 0.3 percent.

Luxury goods makers LVMH has spiked in Paris after the Louis Vuitton owner posted higher than expected third quarter sales, despite the negative impact of protests in Hong Kong.

Shares of PNE AG have also jumped. The developer of wind farms is being targeted by Photon Management GmbH for a takeover.

On the other hand, German sugar producer Suedzucker has slumped after its first-half operating result declined 46.6 percent to 74 million euros from last year's 139 million euros, driven by sugar segment losses.

Shares of Avacta Group have also plunged after the biotechnology company announced it has entered into a collaboration and option agreement with ADC Therapeutics SA, a Swiss clinical-stage oncology-focused biotechnology company.

Packaging and paper group Mondi has also shown a notable move to the downside after its third quarter core earnings fell 18 percent from last year.

U.S. Economic Reports

Consumer prices in the U.S. were essentially flat in the month of September, according to a report released by the Labor Department on Thursday, with higher prices for shelter and food offset by declines in prices for energy and used cars and trucks.

The Labor Department said its consumer price index was unchanged in September after inching up by 0.1 percent in August. Economists had expected another 0.1 percent uptick.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent in September after rising by 0.3 percent for three straight months. Core prices had been expected to rise by 0.2 percent.

A separate report released by the Labor Department showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended October 5th.

The report said initial jobless claims dropped to 210,000, a decrease of 10,000 from the previous week's revised level of 220,000.

Economists had expected jobless claims to come in unchanged compared to the 219,000 originally reported for the previous week.

At 12:15 pm ET, Minneapolis Fed President Neel Kashkari is scheduled to participate in a fireside chat on the Federal Reserve, the economy and markets at the Yahoo Finance 2019 All Markets Summit in New York.

San Francisco Fed President Mary Daly is due to speak in a fireside chat at the Preuss School in La Jolla, California, at 12:30 pm ET.

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

Daly is also slated to speak at a San Diego Business and Community Leaders Luncheon in San Diego, California, at 3:30 pm ET.

At 5:30 pm ET, Cleveland Fed President Loretta Mester is due to participate in a fireside chat at John Carroll University in University Heights, Ohio.

Stocks In Focus

Shares of NetApp (NTAP) are moving significantly lower in pre-market trading after Goldman Sachs slashed its rating on the data management company to Sell from Buy.

Delta Air Lines (DAL) is also seeing notable pre-market weakness after reporting better than expected third quarter earnings but providing disappointing fourth quarter guidance.

On the other hand, shares of Qorvo (QRVO) and Skyworks Solutions (SWKS) are likely to see initial strength after Cowen upgraded its ratings on both chipmakers to Outperform from Market Perform.
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