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Beyond the Numbers

Upbeat Earnings News May Generate Early Buying Interest
10/15/2019 9:01 AM

The major U.S. index futures are pointing to a higher opening on Tuesday as the spotlight shifts to some upbeat corporate earnings news.

Corporate news has recently taken a backseat to developments on the trade front but is likely to attract attention as earnings season ramps up in the coming days.

Financial giant JPMorgan Chase (JPM) may help lead an early advance on Wall Street after reporting third quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of UnitedHealth (UNH) are also likely to see initial strength after the health insurer reported better than expected third quarter results and raised its full-year guidance.

Citigroup (C) and Johnson & Johnson (JNJ) also reported third quarter earnings that beat estimates, while Goldman Sachs (GS) may move to the downside after reporting earnings that missed expectations.

Following the rally seen to close out last week, stocks showed a lack of direction throughout the trading day on Monday. The major averages spent the day bouncing back and forth across the unchanged line.

Eventually, the major averages ended the session modestly lower. The Dow dipped 29.23 points or 0.1 percent to 26,787.36, the Nasdaq edged down 8.39 points or 0.1 percent to 8,048.65 and the S&P 500 slipped 4.12 points or 0.1 percent to 2,966.15.

The choppy trading on Wall Street came amid light volume due to the Columbus Day holiday as well as renewed uncertainty about a trade deal with China.

President Donald Trump announced on Friday that the U.S. and China have reached a "very substantial phase one deal," although reports suggest China wants another round of talks before signing the agreement.

A person familiar with the matter told Bloomberg News that China may send a delegation led by Vice Premier Liu He to finalize a written deal that could be signed at the Asia-Pacific Economic Cooperation summit next month in Chile.

Another person told Bloomberg that China wants Trump to also scrap a planned tariff hike in December in addition to the hike scheduled for this week.

Trump said the deal includes up to $40 to $50 billion in Chinese purchases of U.S. agricultural products as well as Chinese concessions on intellectual property and financial services.

In exchange for the concessions by China, the U.S. agreed to hold off on an increase in tariffs originally scheduled for this week.

Trump claimed in a tweet on Sunday that China has agreed to immediately start buying large quantities of U.S. agricultural products, but the Chinese have not followed through on similar pledges in the past.

A light day on the U.S. economic front also kept traders on the sidelines, although reports on retail sales, housing starts and industrial production are likely to attract attention in the coming days.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Renewed uncertainty about the U.S.-China trade deal contributed to a sharp pullback by steel stocks, however, with the NYSE Arca Steel Index slumping by 2 percent.

Significant weakness was also visible among natural gas stocks, as reflected by the 1.4 percent drop by the NYSE Arca Natural Gas Index.

Chemical, tobacco, and utilities stocks also moved to the downside on the day, while some strength was visible among computer hardware stocks.

Commodity, Currency Markets

Crude oil futures are edging down $0.13 to $53.46 a barrel after tumbling $1.11 to $53.59 a barrel on Monday. Meanwhile, after climbing $8.90 to $1,497.60 an ounce in the previous session, gold futures are inching up $0.30 to $1,497.90 an ounce.

On the currency front, the U.S. dollar is trading at 108.31 yen compared to the 108.40 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1006 compared to yesterday’s $1.1027.

Asia

Asian stocks ended mixed on Tuesday as scant details about the partial U.S.-China trade deal announced last week as well as renewed Brexit uncertainty dented sentiment. In addition, investors adopted a cautious stance ahead of earnings results from the big U.S. banks this week.

China's Shanghai Composite Index dropped 16.84 points, or 0.6 percent, to 2,991.05 after the release of inflation data. Hong Kong's Hang Seng Index finished marginally lower at 26,503.93.

Chinese consumer price inflation accelerated to the highest since 2013 on food prices, while factory gate prices eased further in September as trade disputes with the U.S. and subdued demand weighed on the manufacturing sector, separate reports showed today.

Consumer price inflation rose more than expected to 3 percent in September from 2.8 percent in August. The expected rate was 2.9 percent.

Producer prices declined for the third straight month in September. Prices decreased 1.2 percent annually after falling 0.8 percent in August.

Meanwhile, Japanese shares rose notably as traders returned to their desks after a long holiday weekend. The Nikkei 225 Index jumped 408.34 points, or 1.9 percent, to 22,207.21, as local markets played catch-up with the rally in other Asian markets the previous day. The broader Topix closed 1.6 percent higher at 1,620.20.

Exporters Sony, Canon and Panasonic rose 1-2 percent. In the tech sector, Advantest rallied 2 percent and Tokyo Electron added 1.4 percent. Market heavyweight SoftBank advanced 2.5 percent and Fast Retailing soared 3.5 percent.

Australian shares edged up slightly, even as miners succumbed to selling pressure after the release of weak trade data from top consumer China. The benchmark S&P/ASX 200 Index inched up 9.40 points, or 0.1 percent, to 6,652, while the broader All Ordinaries Index ended up 5.40 points at 6,763.30.

The big four banks rose between 0.1 percent and 0.6 percent as the country's prudential regulator outlined proposals to increase the amount of equity banks need to support investments in large subsidiaries.

On the other hand, mining heavyweights BHP Group and Rio Tinto fell over 1 percent, while smaller rival Fortescue Metals Group lost 3.5 percent.

Gold producer Newcrest Mining shed 0.7 percent after its board approved a A$685-million investment for Stage 1 of the Cadia expansion project, in New South Wales. Woodside Petroleum and Santos fell 1-2 percent after crude oil prices lost almost 2 percent overnight.

In economic news, members of the Reserve Bank of Australia's monetary policy board said that lower interest rates would be required for an extended period in order to achieve employment and inflation goals, minutes from the central bank's October 1 meeting revealed.

Seoul stocks edged higher, led by technology stocks. The benchmark Kospi rose 0.77 point to 2,068.17 ahead of the Bank of Korea's policy meeting slated for Wednesday.

Europe

European stocks have moved mostly higher on Tuesday, with renewed optimism over U.S.-China trade relations and expectations that a Brexit deal could be reached this week helping underpin investor sentiment.

The pound held near recent multi-month highs against the euro and dollar after EU Brexit negotiator Michel Barnier said that securing a Brexit deal at this week's EU summit would be difficult but “still possible.”

According to Irish broadcaster RTE, the United Kingdom will make new Brexit proposals today in a last-ditch bid to secure a Brexit deal.

The German DAX Index and the French CAC 40 Index are up by 0.4 percent and 0.5 percent, respectively, although the U.K.’s FTSE 100 Index has bucked the uptrend and slipped by 0.3 percent.

German cloud and ICT provider QSC has rallied after it reported a sequential rise in third quarter revenue following the sale of its telecommunications subsidiary Plusnet.

Shares of Hays have also jumped after the leading specialist recruitment firm delivered a "solid" third quarter of modest growth.

ASML has also advanced after reports that Samsung will agree to buy high-end lithography machines from the Dutch semiconductor equipment manufacturer.

On the other hand, Wirecard shares have plunged. According to the Financial Times, the financial services provider appeared to fraudulently inflate sales and profits at businesses in Dubai and Ireland.

British brewer and pub operator Marston has also slumped as it forecast lower annual pretax profits due to a drop in food sales at some of its pubs.

Homebuilder Bellway has also moved sharply lower as it warned of more pronounced pressure on profit margins in its new financial year.

In economic releases, the German ZEW economic sentiment index for October came in at -22.8 as compared to the -27.0 expected. The Euro-zone ZEW economic sentiment indicator for October arrived at -23.5 vs. -33.0 expected.

French consumer price inflation slowed to 0.9 percent in September from 1 percent in August, final data from the statistical office Insee revealed. The rate came in line with expectations.

U.K. unemployment unexpectedly ticked higher in the three months to August, data from the Office for National Statistics showed.

The number of people in work fell by 56,000 to 32.69 million, while the level of unemployment increased by 22,000 to 1.31 million in three months to August. The jobless rate rose to 3.9 percent, while it was expected to remain unchanged at 3.8 percent.

U.S. Economic Reports

The Federal Reserve Bank of New York released a report unexpectedly showing a modest acceleration in the pace of growth in regional manufacturing activity in the month of October.

The New York Fed said its headline general business conditions index edged up to 4.0 in October after dipping to 2.0 in September, with a positive reading indicating an increase in regional manufacturing activity.

The modest uptick came as a surprise to economists, who had expected the general business conditions index to slip to 0.8.

At 9 am ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to participate in moderated Q&A on community development at a Purpose Built Communities conference in Atlanta, Georgia.

Kansas City Fed President Esther George is due to speak on the U.S. payments system at the Chicago Payments Symposium in Chicago, Illinois, at 12:45 pm ET.

At 3:30 pm ET, San Francisco Fed President Mary Daly is scheduled to speak at the Los Angeles World Affairs Council and Town Hall in Los Angeles, California.

Stocks In Focus

Shares of Lowe’s (LOW) are moving notably higher in pre-market trading after Piper Jaffray upgraded its rating on the home improvement retailer’s stock to Overweight from Neutral.

Asset management firm BlackRock (BLK) is also likely to be in focus after reporting third quarter earnings that exceeded analyst estimates.

Meanwhile, shares of Bloomin’ Brands (BLMN) may come under pressure after Deutsche Bank downgraded its rating on the restaurant chain operator to Hold from Buy.
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