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Beyond the Number

Unexpected Drop In Retail Sales May Weigh On Wall Street
10/16/2019 9:00 AM

The major U.S. index futures are pointing to a lower opening on Wednesday, with stocks likely to give back ground following the rally seen in the previous session.

Lingering uncertainty about a potential U.S.-China trade deal may weigh on the markets, as new reports raised questions about the “phase one” deal announced by President Donald Trump last week.

A Wall Street Journal report noted questions remain about how much U.S. agricultural products China intends to buy and the time frame for the purchases, while a Bloomberg report said China wants tariffs rolled back before it moves forward.

Negative sentiment may also be generated in reaction to a Commerce Department report showing an unexpected decrease in U.S. retail sales in the month of September.

However, the weaker than expected data may reinforce expectations for another interest rate cut by the Federal Reserve at its next monetary policy meeting later this month.

The early selling pressure may also be offset by a positive reaction to the latest batch of earnings news, with Bank of America (BAC) moving notably higher in pre-market trading after reporting better than expected third quarter results.

Following the lackluster performance seen on Monday, stocks moved sharply higher over the course of the trading day on Tuesday. With the jump, the major averages extended the strong upward move seen in the latter half of last week.

The major averages ended the day firmly in positive territory but off their highs of the session. The Dow jumped 237.44 points or 0.9 percent to 27,024.80, the Nasdaq soared 100.06 points or 1.2 percent to 8,148.71 and the S&P 500 surged up 29.53 points or 1 percent to 2,995.68.

The rally on Wall Street came as the spotlight shifted to corporate earnings news, with upbeat results from some big-name companies generating considerable buying interest.

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) helped lead the advance on Wall Street after reporting third quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of UnitedHealth (UNH) also soared 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, Goldman Sachs (GS) reported earnings that missed expectations.

Semiconductor stocks showed a substantial move to the upside over the course of the session, driving the Philadelphia Semiconductor Index up by 2.2 percent to a new record closing high.

The upbeat earnings news from JPMorgan and Citigroup also contributed to a rally by financial stocks, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index surging up by 1.8 percent and 1.5 percent, respectively.

Healthcare, biotechnology, and transportation stocks also saw notable strength, moving higher along with most of the other major sectors.

Meanwhile, gold stocks were among the few groups to buck the uptrend, moving lower along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are inching up $0.15 to $52.96 a barrel after sliding $0.78 to $52.81 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,491, up $7.50 compared to the previous session’s close of $1,483.50. On Tuesday, gold tumbled $14.10.

On the currency front, the U.S. dollar is trading at 108.68 yen compared to the 108.86 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1039 compared to yesterday’s $1.1033.

Asia

Asian stocks moved mostly higher on Wednesday, with a solid start to the U.S. earnings season and expectations that Britain still has a chance of avoiding a messy exit from the European Union helping boost investor sentiment.

According to media reports, European Union and U.K. negotiators were closing in on a draft Brexit deal.

However, China's Shanghai Composite Index fell 12.33 points, or 0.4 percent, to 2,978.71 on worries that the phase one trade deal could be unraveling.

China's bank lending increased in September, data from the People's Bank of China said in a report. Bank lending increased to CNY 1.69 trillion in September from CNY 1.21 trillion in August. The expected level was CNY 1.4 trillion.

Meanwhile, Hong Kong's Hang Seng Index climbed 160.35 points, or 0.6 percent, to 26,664.28 despite signs of fresh U.S.-China tensions over Hong Kong.

Hong Kong Chief Executive Carrie Lam said the city has slipped into a technical recession since a series of protests began rocking the city in June.

Japanese shares hit over 10-month highs after the Bank of Japan's Regional Economic Report said that all nine regions across Japan had been either expanding or recovering,

The Nikkei 225 Index jumped 265.71 points, or 1.2 percent, to 22,472.92, as a weaker yen lift exporters. Chipmaking-related companies also followed their U.S. peers higher. The broader Topix closed 0.7 percent higher at 1,631.51, its highest level in more than 10 months.

Automakers Honda Motor, Toyota Motor and Nissan Motor rose around 1 percent as the yen hit a 2-1/2 month low of 108.90 yen against the greenback on hopes of an orderly British exit from the European Union.

Advantest jumped 2.7 percent and Screen Holdings added 2.9 percent after the U.S. Philadelphia Semiconductor Index hit a record high.

Australian markets extended their winning streak to a fifth day, with heavyweight bank stocks leading the surge. The benchmark S&P/ASX 200 Index spiked 84.50 points, or 1.3 percent, to 6,736.50, while the broader All Ordinaries Index surged up 79.90 points, or 1.2 percent, to 6,843.20.

The big four banks rose between 1 percent and 1.5 percent, while energy stocks such as Woodside Petroleum, Santos, Origin Energy and Oil Search gained between 0.7 percent and 1.3 percent.

Industrial engineering company WorleyParsons jumped 4 percent after it asked the Foreign Investment Review Board to look at "possible creeping acquisitions" by its biggest shareholder, Dubai-based Dar Group.

On the other hand, miners closed lower as higher third quarter output from Brazilian miner Vale SA pulled down Chinese iron ore prices to an over two-week low.

Rio Tinto shed 0.9 percent despite the company affirming its outlook for full-year Pilbara shipments. Gold miner Evolution lost 3 percent as risk aversion ebbed.

South Korea's Kospi rose 0.7 percent as the country's central bank lowered its key interest rate, as expected, and left the door open for further easing due to the continued U.S.-China trade dispute and escalating geopolitical risks.

Europe

European stocks are turning in a lackluster performance on Wednesday as doubts grow over the prospects of a Brexit deal. Brexit talks are at an impasse as EU and U.K. officials resume Brexit negotiations later today ahead of a summit of EU leaders on Thursday.

"The fate of Brexit negotiations depend on London moving with technical negotiations having now reached an impasse," Bloomberg reported today, citing sources familiar with talks. The report claims that the negotiations could collapse amid Democratic Unionist Party pushback to the proposed deal.

While the German DAX Index has edged up by 0.2 percent, the French CAC 40 Index is down by 0.1 percent and the U.K.’s FTSE 100 Index is down by 0.3 percent.

In economic news, Eurozone inflation eased more than initially estimated in September, the latest data from Eurostat showed.

Inflation slowed to 0.8 percent in September from 1 percent in August. Price growth was initially estimated at 0.9 percent. This was the lowest inflation since November 2016, when the rate of price growth was 0.6 percent.

The euro area trade surplus increased in August on falling imports, data from Eurostat revealed. The trade surplus rose to a seasonally adjusted 20.3 billion euros in August from 17.5 billion euros in July.

Separate reports from the Office for National Statistics showed U.K. consumer price inflation held steady in September, while factory gate price inflation was the weakest in three years,.

U.S. Economic Reports

Retail sales in the U.S. unexpectedly decreased in the month of September, according to a report released by the Commerce Department.

The Commerce Department said retail sales fell by 0.3 percent in September after climbing by an upwardly revised 0.6 percent in August.

The drop came as a surprise to economists, who had expected sales to rise by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Excluding a notable pullback in auto sales, retail sales still edged down by 0.1 percent in September after rising by a revised 0.2 percent in August.

Economists had expected ex-auto sales to rise by 0.2 percent compared to the unchanged reading originally reported for the previous month.

Chicago Federal Reserve President Charles Evans is scheduled to speak about current economic conditions and monetary policy in a moderated discussion at the Greater Peoria Development Council in Peoria, Illinois, at 9 am ET.

At 10 am ET, the National Association of Home Builders is due to release its report on homebuilder confidence in the month of October. The housing market index is expected to come in unchanged after inching up to 68 in September.

The Commerce Department is also scheduled to release its report on business inventories in the month of August at 10 am ET. Business inventories are expected to rise by 0.2 percent.

At 2 pm ET, the Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts released shortly before the central bank makes it decision on monetary policy.

Fed Governor Lael Brainard is scheduled to speak about current developments in digital currency and policy implications in her keynote address at the "Future of Money in the Digital Age" conference held at the Peterson Institute for International Economics in Washington, D.C., at 3 pm ET.

Stocks In Focus

Shares of Abbot Labs (ABT) are moving notably lower in pre-market trading after the medical devices and health care company reported third quarter earnings that matched analyst estimates but on weaker than expected revenues.

Trucking and transportation company J.B. Hunt Transport Services (JBHT) could also see initial weakness after reporting weaker than expected third quarter earnings.

Meanwhile, shares of McKesson (MCK), AmerisourceBergen (ABC), and Cardinal Health (CAH) are likely to open higher after a report from the Wall Street Journal said the drug distributors are nearing an $18 billion deal to settle thousands of opioid-related lawsuits.

Achillion Pharmaceuticals (ACHN) is spiking in pre-market trading after the biopharmaceutical company agreed to be acquired by Alexion Pharmaceuticals (ALXN) for an initial $930 million.
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