Market Analysis

Beyond the Numbers

Optimism About Trade Deal, Earnings May Generate Buying Interest
10/21/2019 8:55 AM

The major U.S. index futures are currently pointing to a higher opening on Monday following the mixed performance seen last week.

The markets may benefit from renewed optimism about the completion of phase one of a U.S.-China trade deal following comments from President Donald Trump and Chinese Vice Premier Liu He.

Trump said he thought an agreement would be signed by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on November 16 and 17.

Meanwhile, Liu said that China and the United States would work to address each other's core concerns on the basis of equality and mutual respect.

“China and the U.S. have made substantial progress in many aspects, and laid an important foundation for a phase one agreement,” Liu said at a tech conference on Saturday, according to Bloomberg News.

The strong corporate results reported last week have also made traders hopeful as earnings season gets into full swing in the coming days.

McDonald’s (MCD), Procter & Gamble (PG), UPS (UPS), Caterpillar (CAT), eBay (EBAY), Ford (F), Microsoft (MSFT), Tesla (TSLA), Twitter (TWTR), Amazon (AMZN), and Intel (INTC) are just a few of the companies due to report their results this week.

Overall trading activity may remain somewhat subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.

Stocks moved mostly lower over the course of the trading day on Friday, more than offsetting the modest gains posted on Thursday. The major averages all finished the session firmly in negative territory.

The Dow saw further downside going into the close, ending the day down 255.68 points or 1 percent at 26,770.20. The Nasdaq climbed off its worst levels but still slid 67.31 points or 0.8 percent to 8,089.54 and the S&P 500 fell 11.75 points or 0.4 percent to 2,986.20.

The major averages turned in a mixed performance for the week. The Dow dipped by 0.2 percent, while the Nasdaq and the S&P 500 rose by 0.4 percent and 0.5 percent, respectively.

The weakness on Wall Street partly reflected concerns about the global economic outlook following the release of disappointing Chinese data.

Data from the National Bureau of Statistics showed China's economy grew at the slowest rate in nearly three decades in the third quarter, raising pressure on policymakers to roll out more stimulus.

China's GDP grew 6 percent year-on-year in the third quarter after rising 6.2 percent in the second quarter. This was the slowest growth since the early 1990s. Growth was forecast to slow marginally to 6.1 percent.

In U.S. economic news, the Conference Board released a report showing an unexpected drop by its reading on leading U.S. economic indicators in the month of September.

The Conference Board said its leading economic index edged down by 0.1 percent in September after dipping by a revised 0.2 percent in August.

Economists had expected the index to rise by 0.2 percent compared to the unchanged reading originally reported for the previous month.

Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board, said the drop by the index reflected weaknesses in the manufacturing sector and the interest rate spread, which were only partially offset by rising stock prices and a positive contribution from the Leading Credit Index.

"The LEI reflects uncertainty in the outlook and falling business expectations, brought on by the downturn in the industrial sector and trade disputes," said Ozyildirim.

He added, "Looking ahead, the LEI is consistent with an economy that is still growing, albeit more slowly, through the end of the year and into 2020."

Lingering uncertainty about a possible U.S.-China trade deal and questions about the Brexit deal getting through parliament also weighed on the markets.

Oil service stocks showed a notable downturn over the course of the trading session, dragging the Philadelphia Oil Service Index down by 1.8 percent.

The pullback by oil service stocks came as the price of crude oil turned lower, with crude for November edging down $0.15 to $53.78 a barrel after reaching a high of $54.62 a barrel.

Significant weakness was also visible among software stocks, as reflected by the 1.7 percent drop by the Dow Jones U.S. Software Index. The index continue to pull back after ending Tuesday's trading at its best closing level in well over two months.

Natural gas, semiconductor and tobacco stocks also saw considerable weakness on the day, while some strength emerged among banking and commercial real estate stocks.

Commodity, Currency Markets

Crude oil futures are sliding $0.34 to $53.44 a barrel after slipping $0.15 to $53.78 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,495.40, up $1.30 from the previous session’s close of $1,494.10. On Friday, gold fell $4.20.

On the currency front, the U.S. dollar is trading at 108.54 yen compared to the 108.45 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1164 compared to last Friday’s $1.1167.


Asian stocks saw modest strength on Monday after the British parliament delayed a vote on Prime Minister Boris Johnson's Brexit deal, forcing him to seek another postponement of Britain's departure from the European Union.

Hopes for a U.S.-China trade deal offered some support after U.S. President Donald Trump said he thought an agreement would be signed by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on November 16 and 17.

Separately, Chinese Vice Premier Liu He said that China would work with the United States to address each other's core concerns on the basis of equality and mutual respect.

Chinese shares ended slightly higher on hopes that Beijing would continue its policy support for the economy. The benchmark Shanghai Composite Index edged up 1.48 points, or 0.1 percent, to 2,939.62, while Hong Kong's Hang Seng Index crept up by 6.10 points, or less than 0.1 percent, to 26,725.68.

Japanese shares hit more than 10-month highs despite lingering economic uncertainties and data showing that Japanese exports fell an annual 5.2 percent in September, shy of forecasts for a drop of 3.6 percent following the 8.2 percent slide in the previous month.

The Nikkei 225 Index rose 56.22 points, or 0.3 percent, to 22,548.90, its highest level since December 3 ahead of a public holiday on Tuesday for the enthronement of Emperor Naruhito. The broader Topix closed 0.4 percent higher at 1,628.60.

Brokerages paced the gainers, with Daiwa Securities climbing 2.5 percent and Matsui Securities adding 2.1 percent. Chip-related shares closed broadly lower on profit taking after recent gains.

Australian markets spent most of the day in the red before ending the session roughly flat. The benchmark S&P ASX 200 Inched up 2.80 points to finish at 6,652.50, led by realty, material and industrial stocks. The broader All Ordinaries Index ended down 0.70 points at 6,757.70.

Stockland shares surged up 6.5 percent after an improved residential property market paid off for the property developer in the first quarter of fiscal 2020.

Seven West Media soared 11.7 percent after it agreed to sell its Pacific magazines, including Men's Health, New Idea, and Marie Claire, to Germany's Bauer Media for A$40 million by the end of calendar year 2019.

On the other hand, Wisetech Global slumped 12.3 percent after U.S.-based short seller J Capital made further allegations against the logistics software company, saying that the company's several acquisitions in recent years were poorly integrated. The company has rejected the allegations.

Treasury Wine Estates plunged 11.8 percent on news its chief executive Michael Clarke will retire next year and be replaced by chief operating officer Tim Ford.

Seoul stocks rose on expectations that corporate earnings will improve on the back of a recovery in the memory chip industry. The benchmark Kospi ended up 4.15 points, or 0.2 percent, at 2,064.84.


European stocks have moved higher on Monday, with hopes of a U.S.-China trade deal and easing Brexit-related anxiety helping support sentiment on a light day on the economic front.

Investors remained hopeful that Britain would be able to avoid a disorderly exit from the European Union despite a cross-party group of politicians voting to postpone a "meaningful vote" on Prime Minister Boris Johnson's new divorce deal.

While the German DAX Index has advanced by 0.9 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are up by 0.3 percent and 0.2 percent, respectively.

UBS Group AG shares has rallied on a Bloomberg report that the Swiss banking giant is cutting about 40 jobs in the Asia-Pacific as part of its efforts to cut costs and combine its trading units.

Norwegian recycling technology firm Tomra Systems has also moved sharply higher after posting strong quarterly results.

Wirecard has also soared. The German payments company has decided to commission audit firm KPMG to conduct an additional independent audit to clarify fully and independently all accusations raised by the Financial Times.

Sartorius shares have also jumped after Danaher Corp., a science and technology company, signed an agreement to sell certain of its businesses in the Life Sciences segment to the German pharmaceutical and laboratory equipment supplier for approximately $750 million.

On the other hand, Austrian sensor maker AMS has fallen after it launched a new takeover offer to acquire Osram Licht AG at an enterprise value about 4.6 billion euros.

Deutsche Wohnen and Vonovia have also shown notable moves to the downside as the Berlin government moved to freeze rents.

Shares of Prudential have also slumped after the life insurance and financial services firm completed the demerger of M&G plc.

Medical technology business Smith+Nephew has fallen sharply on news its Chief Executive Officer Namal Nawana will step down from the company, effective October 31 2019, to pursue other opportunities outside of the U.K.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today, although reports on new and existing home sales, durable goods orders and consumer sentiment are likely to attract attention in the coming days.

At 11:40 am ET, Federal Reserve Governor Michelle Bowman is due to give closing remarks at the Gender and Career Progression conference in Frankfurt, Germany.

Stocks In Focus

Shares of Coty (COTY) are moving notably higher in pre-market trading after the beauty products maker said it will explore strategic alternatives for its Professional Beauty business and associated hair brands as part of its ongoing transformation.

Old National Bancorp (ONB) is also likely to see initial strength after the regional bank reported third quarter results that exceeded analyst estimates on both the top and bottom lines

On the other hand, shares of Boeing (BA) may see further downside the aerospace giant expressed regret over the concern caused by leaked messages from a former test pilot revealing he unintentionally misled safety regulators about the grounded 737 MAX jet’s control system.
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