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Beyond the Numbers

Brexit Deal May Generate Early Buying Interest
10/17/2019 9:02 AM

The major U.S. index futures are pointing to a pointing to a higher opening on Thursday, with stocks likely to move back to the upside after ending the previous session modestly lower.

Early buying interest may be generated in reaction to news that the U.K. and EU negotiators have reached a last-minute Brexit deal.

European Commission President Jean-Claude Juncker described the deal as “fair and balanced” for the EU and the U.K. and urged member nations to back the agreement.

The deal could eliminate some of the Brexit uncertainty hanging over the global markets, although it remains to be seen if the agreement will be approved by U.K. lawmakers.

A positive reaction to the latest batch of earnings news may also contribute to some early strength on Wall Street.

Following the rally seen on Tuesday, stocks showed a lack of direction over the course of the trading day on Wednesday. The major averages spent the day bouncing back and forth across the unchanged line.

Eventually, the major averages finished the day modestly lower. The Dow edged down 22.82 points or 0.1 percent to 27,001.98, the Nasdaq dipped 24.52 points or 0.3 percent to 8,124.18 and the S&P 500 slipped 5.99 points or 0.2 percent to 2,989.69.

The choppy trading on Wall Street came as traders digested mixed U.S. economic data as well as the latest batch of earnings news.

Before the start of trading, the Commerce Department released a report showing an unexpected decrease in U.S. retail sales in the month of September.

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.

The drop in retail sales raised some concerns about the economic outlook but also added to optimism about further interest rate cuts by the Federal Reserve.

Meanwhile, the National Association of Home Builders released a separate report showing homebuilder confidence unexpectedly climbed to its highest level in well over a year in the month of October.

The report said the NAHB/Wells Fargo Housing Market Index jumped to 71 in October after inching up to 68 in September. Economists had expected the index to come in unchanged from the previous month.

With the unexpected increase, the housing market index rose for the fourth straight month and reached its highest level since hitting a matching reading in February of 2018.

Later in the day, the Federal Reserve released its Beige Book, which said the U.S. economy expanded at only a slight to modest pace over the past month.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, noted business activity varied across the country.

Traders were also reacting to the latest batch of earnings news, with Bank of America (BAC) moving notably higher after reporting better than expected third quarter results.

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

Steel stocks showed a significant move to the downside, however, with the NYSE Arca Steel Index slumping by 2 percent amid renewed uncertainty about a U.S.-China trade deal.

Software and semiconductor stocks also saw considerable weakness, dragging the Dow Jones U.S. Software Index and the Philadelphia Semiconductor Index down by 1.7 percent and 1.5 percent, respectively.

On the other hand, gold stocks moved sharply higher over the course of the session, resulting in a 1.8 percent jump by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid a notable increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are slipping $0.23 to $53.13 a barrel after rising $0.55 to $53.36 a barrel on Wednesday. Meanwhile, after climbing $10.50 to $1,494 an ounce in the previous session, gold futures are dipping $1.20 to $1,492.80 an ounce.

On the currency front, the U.S. dollar is trading at 108.73 yen compared to the 108.76 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1112 compared to yesterday’s $1.1072.

Asia

Asian stocks fell on Thursday after data showed an unexpected decrease in U.S. retail sales in September and a final breakthrough on a Brexit deal failed to emerge ahead of an EU summit in Brussels.

Chinese shares ended roughly flat as investors had a muted reaction to the Hong Kong protests and reports suggesting that China would remove business restrictions on foreign banks, brokerages and fund management firms.

Meanwhile, U.S. Treasury Secretary Steven Mnuchin said on Wednesday that U.S. and Chinese trade negotiators are working on nailing down phase one trade deal text for their presidents to sign in November.

The benchmark Shanghai Composite index edged down 31.38 points, or 0.1 percent, to 2,977.33, while Hong Kong's Hang Seng Index climbed 184.21 points, or 0.7 percent, to 26,848.49.

Japanese shares fell from ten-month highs as investors awaited more clarity on U.S.-China trade talks and Brexit negotiations. The Nikkei 225 Index finished marginally lower at 22,451.86, while the broader Topix closed 0.5 percent lower at 1,624.16.

Chip-related stocks fell after ASML Holding NV said its net profit fell 7.9 percent in the third quarter. Tokyo Electron shed 9.6 percent and Screen Holdings dropped 1.4 percent.

Meanwhile, Murata Manufacturing rose over 1 percent after its chief executive Tsuneo Murata told the Nikkei business daily that the electronic components market is bottoming out.

Australian markets ended lower to snap a five-session winning streak, with miners pacing the declines as iron ore prices continued to slide on worries over Chinese demand.

The benchmark S&P ASX 200 Index dropped 51.80 points, or 0.8 percent, to 6,684.70, while the broader All Ordinaries Index ended down 51.70 points, or 0.8 percent, at 6,791.50.

Mining heavyweights BHP and Rio lost around 3 percent, while smaller rival Fortescue Metals Group slumped 4 percent.

Banks ANZ, Commonwealth and Westpac fell between 0.4 percent and 0.8 percent. Bank of Queensland declined 2.4 percent after posting lower full-year earnings and trimming dividend.

On the other hand, South32 advanced 1.6 percent as it reported a 9 percent increase in coking coal production for the first quarter and affirmed its fiscal 2020 production outlook across all of its operations.

IOOF Holdings soared 10.9 percent after the wealth manager provided an update on its acquisition of ANZ Wealth Pension and Investments business from Australia and New Zealand Banking Group.

Energy firms Woodside Petroleum and Santos rose 0.7 percent and half a percent, respectively after unveiling their third-quarter results.

In economic news, the unemployment rate in Australia came in at a seasonally adjusted 5.2 percent in September. That was shy of expectations for 5.3 percent, which would have been unchanged from the August reading.

The Australian economy added 14,700 jobs last month, below forecasts for 15,000 following the increase of 34,700 jobs in the previous month.

Seoul stocks fell as investors booked some profits after recent gains. The benchmark Kospi slipped 4.89 points, or 0.2 percent, to 2,077.94, as caution prevailed ahead of crucial Brexit talks.

Europe

European stocks have recovered from a lackluster start to edge higher on Thursday after the U.K. and EU announced they have agreed on a deal for Britain's exit from the EU.

EU Commission President Jean-Claude Juncker said in a letter that member nations should back the Brexit deal and that the 27 member states are "best served by an orderly and amicable withdrawal of the United Kingdom from our Union."

The U.K.’s FTSE 100 Index has advanced by 0.9 percent and the German DAX Index has risen by 0.3 percent, although the French CAC 40 Index has edged down by 0.1 percent.

Swedish telecoms gear maker Ericsson has moved sharply higher after its quarterly core earnings came in well ahead of expectations.

Shares of Unilever have also rallied despite the consumer products company delivering weaker than expected third quarter sales.

WH Smith has also soared after it reached an agreement to acquire Marshall Retail Group, a U.S. travel retailer, for $400 million on a cash and debt-free basis.

On the other hand, spirits maker Pernod Ricard has tumbled after its quarterly organic sales missed expectations.

Rathbone Brothers shares have also slumped. The provider of investment and wealth management services reported that total net inflows were 0.1 billion pounds in the third quarter, down from last year's 7.0 billion pounds, largely reflecting the acquisition of Speirs & Jeffrey.

Moneysupermarket.com Group has also shown a substantial move to the downside after revenue growth in the third quarter slowed.

In economic news, U.K. retail sales remained flat in September, data from the Office for National Statistics showed.

Retail sales volume, including auto fuel, was unchanged from the previous month following a 0.3 percent drop in August. Sales were forecast to fall 0.2 percent.

U.S. Economic Reports

After reporting a substantial increase in new residential construction in the previous month, the Commerce Department released a report on Thursday showing a sharp pullback in U.S. housing starts in the month of September.

The Commerce Department said housing starts plunged by 9.4 percent to an annual rate of 1.256 million in September after soaring by 15.1 percent to a revised 1.386 million in August.

Economists had expected housing starts to drop by 3.2 percent to an annual rate of 1.320 million from the 1.364 million originally reported for the previous month.

The report said building permits also slumped by 2.7 percent to an annual rate of 1.387 million in September after jumping by 8.2 percent to a revised 1.425 million in August.

Building permits, an indicator of future housing demand, had been expected to tumble by 4.9 percent to a rate of 1.350 million from the 1.419 million originally reported for the previous month.

A separate report from the Labor Department showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended October 12th.

The Labor Department said initial jobless claims edged up to 214,000, an increase of 4,000 from the previous week’s unrevised level of 210,000. Economists had expected jobless claims to inch up to 215,000.

Meanwhile, the Philadelphia Federal Reserve said its index of regional manufacturing activity dropped to 5.6 in October from 12.0 in September, although a positive reading still indicates growth. The index has been expected to dip to 7.1.

The Federal Reserve is due to release its report on industrial production in the month of September at 9:15 am ET. Industrial production is expected to edge down by 0.1 percent in September after climbing by 0.6 percent in August.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended October 11th.

Crude oil inventories are expected to increase by 2.8 million barrels after climbing by 2.9 million barrels in the previous week.

The Treasury Department is also due to announce the details of this month’s auctions of two-year, five-year, and seven-year notes at 11 am ET.

At 2 pm ET, Chicago Fed President Charles Evans and Fed Governor Michelle Bowman are scheduled to speak at a “Fed Listens: Monetary Policy's Impact on Workers and Their Communities” event in Chicago, Illinois.

New York Fed President John Williams is due to deliver the keynote address and participate in a moderated discussion at the Managed Funds Association Outlook 2019 Conference in New York at 4:20 pm ET.

Stocks In Focus

Shares of Netflix (NFLX) are moving sharply higher in pre-market trading after the video streaming giant reported third quarter results that exceeded analyst estimates on both the top and bottom lines.

Financial giant Morgan Stanley (MS) may also see initial strength after reporting better than expected third quarter results.

On the other hand, shares of IBM Corp. (IBM) may come under pressure after the tech giant reported third quarter earnings just above analyst estimates but on weaker than expected revenues.

Industrial conglomerate Textron (TXT) is also seeing pre-market weakness after reporting better than expected third quarter earnings but on revenues that missed estimates.
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