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Beyond the Numbers

Futures Pointing To Initial Weakness On Wall Street
11/14/2019 8:59 AM

The major U.S. index futures are pointing to a lower opening on Thursday following the lackluster performance seen over the past several sessions.

Some traders may look to cash in on recent strength in the markets amid concerns U.S.-China talks could drag on despite previous indications the signing of a phase trade deal was imminent.

Any early selling pressure is likely to remain subdued, however, as trades will be wary of missing out on any further upside.

The markets have recently shown intense reactions to reports about the trade talks, and an upbeat report could send stocks surging to record highs once again.

Traders may also stick to the sidelines ahead of the release of closely watched reports on U.S. retail sales and industrial production on Friday.

Extending the lackluster performance seen over the past few sessions, stocks showed a lack of direction during trading on Wednesday. Despite the choppy trading, the Dow and the S&P 500 ended the session at new record closing highs.

The major averages bounced back and forth across the unchanged line before closing mixed. While the Nasdaq edged down 3.99 points or 0.1 percent to 8,482.10, the Dow rose 92.10 points or 0.3 percent to 27,783.59 and the S&P 500 inched up 2.20 points or 0.1 percent to 3,094.04.

Stocks saw initial weakness amid renewed uncertainty about a potential U.S.-China trade deal after President Donald Trump failed to offer many details about the trade talks in a speech on Tuesday.

In remarks at the Economic Club of New York, Trump claimed the Chinese are "dying to make a deal" and an agreement is "close," although investors had been hoping for more substantive comments.

Trump later denied that his trade war with China is hurting industry or causing uncertainty and threatened further increases in tariffs if a deal is not reached.

However, selling pressure waned as Federal Reserve Chairman Jerome Powell reiterated in Congressional testimony that the central bank is likely to leave interest rates unchanged in the near future.

Powell told members of the Joint Economic Committee that the Fed would leave rates at their current level unless there is a material change in the economic outlook.

Trump renewed his attacks on the Fed during his remarks on Tuesday, claiming the economy and the markets would be even stronger if the central bank would take his advice and slash interest rates further.

Stocks moved back to the downside in afternoon trading after a report from the Wall Street Journal said U.S.-China trade talks have hit a snag over Chinese purchases of U.S. agricultural products.

While Trump has said China agreed to buy up to $50 billion in agricultural products a year, people familiar with the matter told the Journal that China is leery of putting a numerical commitment in the text of a potential agreement.

In U.S. economic news, the Labor Department released a report showing consumer prices rose by slightly more than anticipated in the month of October.

The Labor Department said its consumer price index climbed by 0.4 percent in October after coming in unchanged in September. Economists had expected consumer prices to rise by 0.3 percent.

Excluding food and energy prices, core consumer prices edged up by 0.2 percent in October after a 0.1 percent uptick in September. The uptick in core prices matched economist estimates.

Oil service stocks showed a significant move to the downside on the day, dragging the Philadelphia Oil Service Index down by 2.4 percent. The weakness among oil service stocks came despite an increase by the price of crude oil.

Renewed uncertainty about a U.S.-China trade deal also contributed to considerable weakness among steel stocks, with the NYSE Arca Steel Index slumping by 2 percent.

On the other hand, interest rate-sensitive utilities showed a strong move to the upside on the day, driving the Dow Jones Utility Average up by 1.5 percent. The average continued to regain ground after ending Monday's session at its lowest closing level in almost three months.

Notable strength also emerged among gold stocks, as reflected by the 1.2 percent gain posted by the NYSE Arca Gold Bugs Index. The strength among gold stocks came amid an increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.35 to $57.47 a barrel after rising $0.32 to $57.12 a barrel on Wednesday. Meanwhile, after jumping $9.60 to $1,463.30 an ounce in the previous session, gold futures are advancing $7.10 to $1,470.40 an ounce.

On the currency front, the U.S. dollar is trading at 108.59 yen compared to the 108.82 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0997 compared to yesterday’s $1.1007.

Asia

Asian stocks ended mixed on Thursday as worries over the U.S.-China trade war lingered and weak data from China and Japan stoked worries that a global slowdown is deepening.

Chinese stocks ended on a positive note as weak data, reflecting a sharper slowdown in industrial activity in October, bolstered expectations that policymakers will ramp up stimulus to boost a fragile economic recovery.

Retail sales in China grew 7.2 percent in October compared to a year ago, below the 7.9 percent increase expected by analysts. Industrial output grew 4.7 percent, which was also weaker than anticipated.

The benchmark Shanghai Composite Index edged up 4.63 points, or 0.2 percent, to 2,909.87, while Hong Kong's Hang Seng Index slid 247.77 points, or 0.9 percent, to 26,323.69 amid reports the Hong Kong government will announce a curfew for the weekend.

Japanese shares fell sharply as the yen strengthened on doubts about progress in U.S.-China trade negotiations and data showed Japan's economy grew at the slowest pace in a year in the third quarter.

Gross domestic product grew an annualized 0.2 percent quarterly following a revised 1.8 percent expansion in the second quarter, figures from the Cabinet Office showed, as trade wars and a weaker global economy hurt exports and private consumption slowed. Economists had forecast 0.8 percent growth.

The Nikkei 225 Index fell 178.32 points, or 0.8 percent, to 23,141.55, while the broader Topix ended down 15.93 points, or 0.9 percent, at 1,684.40.

Toyota Motor, Honda Motor, Sony and Panasonic declined 1-2 percent on a stronger yen. Semiconductor test equipment supplier Advantest plunged 7.6 percent and Screen Holdings gave up 1.6 percent.

On the other hand, Z Holdings, formerly known as Yahoo Japan, surged 17 percent after reports the company and messaging service Line Corp. are in talks about a merger of their businesses. Line is controlled by South Korea's Naver Corp.

Australian markets gained ground, supported by healthcare and technology firms. The benchmark S&P/ASX 200 index rose 36.70 points, or 0.6 percent, to 6,735.10, while the broader All Ordinaries Index ended up 35.20 points, or 0.5 percent, at 6,840.80.

Healthcare stocks rose on defensive buying, with CSL rising 1 percent and Cochlear rallying 1.3 percent.

Afterpay Touch Group soared 7.5 percent to extend gains after announcing an A$200 million subscription by U.S.-based Coatue Management LLC. Aerial imagery business Nearmap surged 14 percent after updating its fiscal 2020 guidance.

Lender National Australia Bank tumbled 3.4 percent on going ex-dividend. Mining heavyweight BHP Group ended little changed as it named Mike Henry as its chief executive officer to succeed Andrew Mackenzie.

Australia's inflation expectations and actual pay growth increased in November, results of a survey by the Melbourne Institute revealed today.

The expected inflation rate, which is the 30-percent trimmed mean measure, increased by 0.4 percentage points in November to 4.0 percent.

Separately, Australian consumer confidence strengthened in November, but Christmas spending is likely to be weak, survey data from Westpac showed.

The Australia's employment situation got worse in October, with the jobless rate rising from 5.2 percent to 5.3 percent. The participation rate dropped from 66.1 percent to 66 percent, while more than 19 thousand people lost their jobs.

Europe

European stocks have edged lower in cautious trading on Thursday after China reported unexpectedly weak data, with both industrial output and retail sales growth coming in below estimates. Weak data from Japan and Australia also added to signs of weak overall economic growth.

Closer to home, Germany's economy expanded modestly in the third quarter, supported by consumption, and thus avoided entering a widely expected technical recession.

German gross domestic product grew a seasonally and calendar adjusted 0.1 percent from the previous three months, provisional data from the statistical office Destatis showed, defying economists' expectations for a 0.1 percent decline. The contraction in the second quarter was revised to 0.2 percent from 0.1 percent.

While the French CAC 40 Index has edged down by 0.1 percent, the German DAX Index and the U.K.’s FTSE 100 Index are down by 0.3 percent and 0.4 percent, respectively.

Private equity company 3i group has slumped despite the company reporting "good momentum" across its portfolio in its half-year results.

Daimler shares has also tumbled after the automaker said it would cut jobs and save more than €1 billion (US$1.1 billion) by the end of 2022.

Utility RWE has also moved to the downside despite reporting a rise in nine-month earnings and lifting its 2019 guidance.

Consumer goods maker Henkel AG & Co. KGaA has also dropped after its third quarter earnings declined 9.4 percent.

On the other hand, Luxury brand Burberry has jumped after the company reported higher pretax profit and revenue for its first fiscal half.

Bouygues has also risen. The telecommunications, media and construction company reported that its nine-month net profit increased to 848 million euros from last year's 771 million euros.

Electric utility EDF has also moved notably higher after reporting a rise in nine-month sales and confirming its FY19 and FY20 guidance.

U.S. Economic Reports

After reporting an unexpected decrease in producer prices in the previous month, the Labor Department released a report showing U.S. producer prices rebounded by slightly more than anticipated in the month of October.

The Labor Department said its producer price index for final demand climbed by 0.4 percent in October after falling by 0.3 percent in September. Economists had expected producer prices to rise by 0.3 percent.

Excluding food and energy prices, core producer prices rose by 0.3 percent in October following a 0.3 percent drop in September. Core prices had been expected to edge up by 0.2 percent.

Meanwhile, a separate Labor Department report showed first-time claims for U.S. unemployment benefits increased by much more than expected in the week ended November 9th.

The report said initial jobless claims climbed to 225,000, an increase of 14,000 from the previous week's unrevised level of 211,000. Economists had expected jobless claims to inch up to 215,000.

At 9:10 am ET, Chicago Federal Reserve President Charles Evans is scheduled to speak at the Third Annual Fintech Conference at the Philadelphia Fed in Philadelphia, Pennsylvania.

Fed Vice Chairman Richard Clarida is also due to speak on the Fed's review of its monetary policy strategy, tools and communications practices at the Cato Institute's 37th Annual Monetary Conference in Washington, D.C., at 9:10 am ET.

At 10 am ET, Fed Chairman Jerome Powell is slated to begin his testimony on the economic outlook before the House Budget Committee.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 8th at 11 am ET.

Crude oil inventories are expected to rise by 1.6 million barrels after jumping by 7.9 million barrels in the previous week.

At 11:45 am ET, San Francisco Fed President Mary Daly is due to give opening remarks before the Asia Economic Policy Conference organized by the San Francisco Fed in San Francisco, California.

New York Fed President John Williams is also slated to address the San Francisco Fed’s Asia Economic Policy Conference at 12 pm ET.

At 12:20 pm ET, St. Louis Fed President James Bullard is scheduled to speak at a Louisville Downtown Rotary Club lunch meeting in Louisville, Kentucky.

Dallas Fed President Robert Kaplan is due to give opening remarks and participate in a moderated Q&A at a Dallas Fed community forum in Stephenville, Texas, at 5 pm ET.

Stocks In Focus

Shares of Cisco Systems (CSCO) are moving notably lower in pre-market trading after the networking company reported better than expected fiscal first quarter results but provided disappointing guidance.

Packaged food giant Kraft Heinz (KHC) may also see initial weakness after Goldman Sachs downgraded its rating on the company’s stock to Sell from Neutral.

On the other hand, shares of Walmart (WMT) are likely to move to the upside after the retail giant reported better than expected third quarter earnings and raised its full-year guidance.
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