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Beyond the Numbers

Report Of Pessimism About Trade Deal May Weigh On Wall Street
11/18/2019 9:03 AM

The major U.S. index futures have erased an earlier advance and are currently pointing to a roughly flat opening on Monday following last week’s climb to record highs.

The pullback by the futures came after a tweet from CNBC’s Beijing Bureau Chief Eunice Yoon suggested Chinese officials have grown pessimistic about the chances for a trade deal.

“Mood in Beijing about #trade deal is pessimistic, government source tells me. #China troubled after Trump said no tariff rollback. (China thought both had agreed in principle.)” Yoon tweeted.

She added, “Strategy now to talk but wait due to impeachment, US election. Also prioritize China economic support.”

The futures had previously benefited from a weekend report from Chinese state media indicating the U.S. and China had “constructive discussions” regarding a phase one trade deal in a high-level phone call.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin reportedly talked with Chinese Vice Premier Liu He about the core issues for an agreement.

Traders have recently put tremendous faith in reports and comments about the trade talks, highlighting the importance of a trade deal to the global economic outlook.

Optimism a trade agreement will eventually be reached has helped propel stocks to record highs, although it remains to be seen if a deal will be finalized and actually benefit U.S. producers.

Following the lackluster performance seen over the past several sessions, stocks showed a strong move to the upside during trading on Friday. With the upward move on the day, the major averages all reached new record highs.

The major averages saw continued strength going into the close, ending the session at their best levels of the day. The Dow jumped 222.93 points or 0.8 percent to 28,004.89, the Nasdaq climbed 61.81 points or 0.7 percent to 8,540.83 and the S&P 500 advanced 23.83 points or 0.8 percent to 3,120.46.

For the week, the Dow surged up by 1.2 percent, while the Nasdaq and the S&P 500 climbed by 0.8 percent and 0.9 percent, respectively.

The strength on Wall Street came amid renewed optimism about a U.S.-China trade deal following comments from White House officials.

White House economic adviser Larry Kudlow said Thursday that U.S. and Chinese negotiators are in contact every single day and are "getting close" to a phase one trade deal.

"It's not done yet, but there has been very good progress and the talks have been very constructive," Kudlow said at an event at the Council on Foreign Relations.

In an appearance on the Fox Business Network on Friday, Commerce Secretary Wilbur Ross said the talks are "down to the last details" and a deal will be completed "in all likelihood."

Adding to the positive sentiment, China has lifted a nearly five-year ban on imports of U.S. poultry in a goodwill gesture that could lead to more than $1 billion in annual shipments to China.

Traders also reacted positively to a report from the Commerce Department showing U.S. retail sales rebounded by slightly more than expected in the month of October.

The Commerce Department said retail sales climbed by 0.3 percent in October, reversing the 0.3 percent drop in September. Economists had expected retail sales to rise by 0.2 percent.

Excluding a rebound in auto sales, the report said retail sales rose by 0.2 percent in October after edging down by 0.1 percent in September. Ex-auto sales had been expected to increase by 0.4 percent.

Meanwhile, traders shrugged off a report from the Federal Reserve showing a steep drop in industrial production in October, as the decrease was partly due to the since-resolved strike at General Motors (GM).

Healthcare stocks turned in some of the market's best performances on the day, resulting in a 2.2 percent jump by the Dow Jones U.S. Health Care Index. The index ended the session at a new record closing high.

Significant strength was also visible among biotechnology stocks, as reflected by the 2 percent gain posted by the NYSE Arca Biotechnology Index. The advance lifted the index to its best closing level in over three months.

Oil service stocks also saw considerable strength on the day, driving the Philadelphia Oil Service Index up by 1.9 percent. The strength among oil service stocks came amid a notable increase by the price of crude oil.

Natural gas, steel, pharmaceutical and computer hardware stocks also turned in strong performances amid broad based buying interest.

Commodity, Currency Markets

Crude oil futures are sliding $0.43 to $57.29 a barrel after jumping $0.95 to $57.72 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,465.50, down $3 from the previous session’s close of $1,468.50. On Friday, gold fell $4.90.

On the currency front, the U.S. dollar is trading at 108.78 yen compared to the 108.80 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1061 compared to last Friday’s $1.1051.

Asia

Asian stock markets ended mostly higher on Monday as investors awaited further progress on a U.S.-China trade deal, while China's central bank surprised markets by cutting a key interest rate for the first time since 2015.

On Saturday, Chinese state media said that the U.S. and China had “constructive discussions” regarding a phase one trade deal in a high-level phone call.

Chinese shares closed higher after the People's Bank of China unexpectedly lowered the rate on seven-day reverse repurchase agreements by five basis points to 2.50 percent. The move stoked hopes of more stimulus measures to revive the slowing economy.

The benchmark Shanghai Composite Index added 17.86 points or 0.6 percent to finish at 2,909.20. Hong Kong shares closed notably higher, after suffering hefty losses last week. The Hang Seng Index advanced 293.05 points or 1.1 percent to close at 26,619.71.

Japanese stocks also rose in choppy trading as investors awaited further progress on a potential U.S.-China trade deal. Tech stocks were among the major gainers. The benchmark Nikkei 225 Index climbed 113.44 points or 0.5 percent to close at 23,416.76.

In the tech space, Advantest gained 3.7 percent and Tokyo Electron rose 1.8 percent. Market heavyweight SoftBank Group and South Korean internet giant Naver said they have reached a basic agreement on a merger by October 2020 of Z Holdings, formerly known as Yahoo Japan, and the Line chat app.

Shares of Z Holdings rose 1.2 percent. SoftBank Group advanced 1.6 percent, while Fast Retailing added 0.6 percent.

The major exporters closed mixed despite a weaker yen. Sony rose 1.8 percent and Canon added 0.5 percent, while Mitsubishi Electric declined 1 percent and Panasonic lost 0.8 percent.

Among the other major gainers, Eisai Co. rose 4.4 percent, while Recruit Holdings and Hitachi Zosen advanced 2.2 percent each.

On the flip side, DIC Corp. lost 4.1 percent, Nippon Suisan Kaisha dipped 3.4 percent and Toray Industries declined 3.3 percent.

The Australian market closed lower as investors awaited further progress on a potential U.S.-China trade deal. Banking, telecom and utility stocks were among the major losers.

The benchmark S&P/ASX 200 Index fell 26.90 points or 0.4 percent to close at 6,766.80, while the broader All Ordinaries Index lost 27.20 points or 0.4 percent to finish at 6,871.70.

In the banking space, ANZ Banking, Westpac, Commonwealth Bank and National Australia Bank fell in a range of 0.2 percent to 0.8 percent ahead of the release of the minutes of the Reserve Bank of Australia's November meeting on Tuesday.

National Australia Bank is seeking to raise A$1.4 billion through the issue of medium-term notes to bolster its capital ahead of a regulatory deadline.

Among gold miners, Evolution Mining lost 2.3 percent and Newcrest Mining declined 0.9 percent.

Saracen Mineral Holdings has agreed to acquire a 50 percent stake in Kalgoorlie's Super Pit from Canada's Barrick Gold for $750 million. The company's shares were in a trading halt for a capital raising.

Smartgroup Corp. fell 13.7 percent after the salary packaging company said its long-term chief executive would retire in early 2020.

Among the major miners, Rio Tinto advanced 0.9 percent and BHP added 0.2 percent, while Fortescue Metals edged down 0.1 percent.

oOh!Media rejected rumors it has hired Macquarie Capital to help find a private equity firm to back a management buyout and delist from the ASX. Shares of the outdoor advertiser dipped 1.7 percent after emerging from a trading halt.

Appen raised its earnings outlook for the full year and also reiterated a lowered outlook for annual recurring revenue from its Figure Eight machine learning software. The tech company's shares rose 13.4 percent.

Seoul stocks edged lower as investors booked profits. The benchmark Kospi declined 1.49 points or 0.1 percent to settle at 2,160.69. Market heavyweight Samsung Electronics dipped 0.4 percent, while chipmaker SK hynix added 0.4 percent.

Europe

The major European markets are turning in a mixed performance on Monday as investors look for further news on a potential U.S.-China trade deal after reports said the two sides had "constructive discussions" over the weekend in a high-level telephone call.

With no big earnings news or economic data due for the day, most of the other markets in Europe are subdued amid stock specific activity.

While the U.K.’s FTSE 100 Index is just above the unchanged line, the French CAC 40 Index is down by 0.5 percent and the German DAX Index is down by 0.6 percent.

Meanwhile, according to reports, British political leaders are gearing up to present their election manifestos to business leaders during the Confederation of British Industry conference.

Shares of Bolsas Y Mercado Espanoles have moved sharply higher after Swiss Stock Exchange operator SIX Group said it is willing to offer 34 euros per share to acquire the Madrid bourse in an all-cash deal.

Consort Medical shares have also soared after Swedish pharmaceutical group Recipharm said it has agreed to buy the company for 505 million pounds.

The two companies said in separate statements that the board of Consort Medical had unanimously recommended the cash offer.

Shares of Qiagen have also shown a strong move to the upside after the company said it is exploring a sale following indications of interest.

U.S. Economic Reports

The National Association Of Home Builders is scheduled to release its report on homebuilder confidence in the month of November at 10 am ET. The housing market index is expected to come in unchanged after jumping to 71 in October.

At 12 pm ET, Cleveland Federal Reserve President Loretta Mester is due to speak in a fireside chat at the University of Maryland in College Park, Maryland.
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