Market Analysis

Beyond the Numbers

Futures Pointing To Initial Weakness Amid Renewed Trade Worries
11/20/2019 8:52 AM

The major U.S. index futures are pointing to a lower opening on Wednesday following the lackluster performance seen in the previous session.

Renewed uncertainty about a U.S.-China trade deal may weigh on the markets after a report from the Wall Street Journal said trade talks are in danger of hitting an impasse.

Citing former administration officials and others following the talks, the WSJ said the potential impasse threatens to derail the Trump administration’s plan for a limited phase one deal this year.

The Journal said both sides remain divided over core issues, including China’s demand for removing tariffs and the U.S.’s insistence on China buying farm products.

The report from the WSJ comes after President Donald Trump threatening higher tariffs on Chinese goods if an agreement is not reached.

“If we don’t make a deal with China, I’ll just raise the tariffs even higher,” Trump said during a cabinet meeting at the White House on Tuesday.

Trump said he was happy with the current trade situation, citing the billions of dollars brought in by tariffs, and declared, “China is going to have to make a deal that I like.”

Despite the downward momentum being shown by the futures, traders have recently shown a knack for shrugging off negative news on the trade front amid unshakable optimism a deal will eventually get done.

Later in the trading day, the Federal Reserve is scheduled to release the minutes of its latest monetary policy meeting.

The minutes are likely to reinforce the view that the Fed will leave interest rates on hold for the foreseeable future after three straight rate cuts.

After moving modestly higher over the course of Monday’s session, stocks showed a lack of direction during trading on Tuesday. The major averages spent most of the day bouncing back and forth across the unchanged line.

The major averages eventually ended the session mixed. While the Nasdaq rose 20.72 points or 0.2 percent to a new record closing high of 8,570.66, the Dow fell 102.20 points or 0.4 percent to 27,934.02 and the S&P 500 edged down 1.85 points or 0.1 percent to 3,120.18.

Stocks initially moved to the upside amid recent upward momentum, which has helped propel stocks to record highs amid unshakable optimism about a potential U.S.-China trade deal.

Buying interest waned shortly after the start of trading, however, with disappointing results from Home Depot (HD) offsetting the positive sentiment.

Shares of Home Depot moved sharply lower after the home improvement retailer reported weaker than expected third quarter revenues and lowered its full-year sales forecast.

Department store chain Kohl's (KSS) also posted a steep loss after reporting weaker than expected third quarter results and cutting its annual guidance.

Meanwhile, in a continuation of the market' recent trend of shrugging off negative news on the trade front, traders seemed unfazed by Trump threatening higher tariffs on Chinese goods if an agreement is not reached.

In U.S. economic news, the Commerce Department released a report before the start of trading showing a substantial rebound in new residential construction in the month of October.

The Commerce Department said housing starts surged up by 3.8 percent to an annual rate of 1.314 million in October after plunging by 7.9 percent to a revised rate of 1.266 million in September.

Economists had expected housing starts to jump by 5.1 percent to a rate of 1.320 million from the 1.256 million originally reported for the previous month.

The report also said building permits spiked by 5.0 percent to an annual rate of 1.461 million in October after tumbling by 2.4 percent to a revised rate of 1.391 million in September.

Building permits, an indicator of future housing demand, had been expected to edge down by 0.1 percent to a rate of 1.385 million from the 1.387 million originally reported for the previous month.

Most of the major sectors ended the day showing only modest moves, although natural gas stocks showed another substantial move to the downside.

Extending the steep drop seen in the previous session, the NYSE Arca Natural Gas Index plunged by 2.9 percent to its lowest closing level in well over fourteen years.

The continued sell-off by natural gas stocks came as the price of natural gas for December delivery slid $0.056 or 2.2 percent to $2.510 per million BTUs.

A sharp decline by the price of crude oil also contributed to weakness throughout the energy sector. Reflecting the weakness in the sector, the NYSE Arca Oil Index and the NYSE Arca Oil Service Index slumped by 1.6 percent and 1.3 percent, respectively.

On the other hand, biotechnology stocks showed a strong move to the upside, driving the NYSE Arca Biotechnology Index up by 1.5 percent to a four-month closing high.

Commodity, Currency Markets

Crude oil futures are rising $0.40 to $55.61 a barrel after plunging $1.84 to $55.21 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,470.90, down $3.40 compared to the previous session’s close of $1,474.30. On Tuesday, gold rose $2.40.

On the currency front, the U.S. dollar is trading at 108.56 yen compared to the 108.54 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1054 compared to yesterday’s $1.1078.


Asian stock markets fell on Wednesday as risk appetite waned after U.S. President Donald Trump threatened higher tariffs on Chinese goods if a trade deal is not reached between the two countries.

Hopes for a trade deal further dimmed after the U.S. Senate passed legislation supporting protesters in Hong Kong. China has condemned the U.S. Senate measure.

Chinese shares closed lower amid rising U.S.-China tensions. The benchmark Shanghai Composite Index dropped 22.94 points or 0.8 percent to finish at 2,911.05.

Hong Kong shares fell for the first time in three days. The Hang Seng Index tumbled 204.19 points or 0.8 percent to close at 26,889.61.

The Japanese market extended losses from the previous session and the safe-haven yen strengthened on fresh worries about a U.S.-China trade deal. Data showing Japan's merchandise trade surplus for October missed expectations also dampened sentiment.

The benchmark Nikkei 225 Index fell 144.08 points or 0.6 percent to close at 23,148.57, while the broader Topix dropped 5.62 points or 0.3 percent to finish at 1,691.11.

Market heavyweight SoftBank Group and Fast Retailing declined 1.2 percent each. The major exporters fell on a stronger yen. Sony lost 0.9 percent, Canon is dipped 1.3 percent, Mitsubishi Electric dropped 0.6 percent and Panasonic edged down less than 0.1 percent.

In the tech space, Tokyo Electron slipped 1.6 percent and Advantest fell 2.7 percent. Among auto stocks, Toyota Motor declined 0.9 and Honda Motor dropped 1.3 percent.

Among the major gainers, Sumitomo Dainippon Pharma soared 6.9 percent, Rakuten rose 2.6 percent and M3 added 2.5 percent.

On the flip side, Nippon Yusen KK lost 4.2 percent, T&D Holdings dropped 4 percent and JGC Holdings fell 3.7 percent.

In economic news, the Ministry of Finance said Japan posted a merchandise trade surplus of 17.3 billion yen in October. That was well shy of expectations for a surplus of 301.0 billion yen following the 124.8 billion yen deficit in September.

Exports fell 9.2 percent year-over-year, missing forecasts for a drop of 7.5 percent following the 5.2 percent decline in the previous month. Imports were down an annual 14.8 percent versus expectations for a drop of 15.4 percent after dipping 1.5 percent a month earlier.

The Australian market closed notably lower, recording its worst day in nearly seven weeks amid fresh uncertainty about a U.S.-China trade deal and sharp losses in the banking sector.

The benchmark S&P/ASX 200 Index fell 91.80 points or 1.4 percent to close at 6,722.40, while the broader All Ordinaries Index lost 85.80 points or 1.2 percent to settle at 6,828.30.

In the banking space, Westpac's shares fell 3.3 percent after AUSTRAC, Australia's financial intelligence agency, accused the lender of breaching money laundering and anti-terrorist financing laws 23 million times.

ANZ Banking declined 2.1 percent, Commonwealth Bank dipped 1.3 percent and National Australia Bank lost 3.1 percent.

Among the major miners, BHP declined 0.6 percent and Rio Tinto fell 0.8 percent, while Fortescue Metals added 0.2 percent.

Oil stocks fell as crude oil prices tumbled overnight. Oil Search declined 1.8 percent, while Santos dropped 1.5 percent and Woodside Petroleum lost 1.3 percent.

Origin Energy raised the full-year production outlook for its Australia Pacific LNG project. However, the company's shares dipped 0.6 percent.

Aristocrat Leisure reported a 29 percent increase in full-year profit and said it will pay a higher fully franked final dividend. The gambling giant's shares gained 6 percent.

Lifescience and industrial testing company ALS gained 12.1 percent after reporting a 5.3 percent increase in its half-year profit.

Meanwhile, Saracen Mineral Holdings' shares fell 10.6 percent after coming out of a trading halt following a A$701 million capital raising to fund its acquisition of a 50 percent stake in the Super Pit goldmine in Western Australia.

On the economic front, Australia's leading index rose moderately in October, but it remained below trend, suggesting weak economic momentum carrying well into 2020, Westpac reported Wednesday.

The six-month annualized growth rate in the Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, increased to -0.91 percent in October from -1.01 percent in September.

Seoul stocks fell for the third straight day amid fresh worries about a U.S.-China trade deal. The benchmark Kospi lost 27.92 points or 1.3 percent to settle at 2,125.32.

Market heavyweight Samsung Electronics fell 2.8 percent and chipmaker SK hynix dropped 3.1 percent. Automaker Hyundai Motor edged down 0.4 percent.


European markets are mostly lower on Wednesday amid renewed concerns about the U.S.-China trade war after U.S. President Donald Trump threatened to impose even higher tariffs on Chinese goods if a trade deal is not made between the two countries. Ongoing protests in Hong Kong have also weighed on sentiment.

After some positive news during the course of the previous week and over the weekend about the two countries closing in on an interim trade deal, optimism about a trade deal faded on Monday after it was reported that Trump is reluctant to roll out tariff cuts.

Now, with the U.S. President coming out with a threat to impose even higher tariffs on Chinese goods, investors are worried about further delays before the two countries agree on a pact.

While the U.K.’s FTSE 100 Index has slumped by 0.9 percent, the German DAX Index is down by 0.6 percent and the French CAC 40 Index is down by 0.3 percent.

In Germany, Wirecard shares have come under pressure after Ernest Young auditors refused to certify the 2017 annual balance sheet of Wirecard's Singapore subsidiary.

Deutsche Bank, Continental, Infineon, Fresenius, Bayer, Covestro, Lufthansa, BASF, BMW and Volkswagen are also posting notable losses.

In the French market, Accor, ArcelorMittal, Renault, Essilor, Societe Generale, Schneider Electric, Saint Gobain and Total have declined sharply.

U.K. stocks are notably lower with trade war worries outweighing some upbeat corporate earnings reports and prompting investors to exit counters.

Among the stocks in the key index, Kingfisher, SAGE Group, Aviva, Pearson and 3i Group are sharply lower.

NMC Health, Taylor Wimpey, Legal & General, Tui, DCC, Rolls Royce Holdings, Rio Tinto, Prudential and Standard Chartered are also down with notable losses.

On the economic front, Germany producer prices declined for the second straight month in October largely driven by energy prices, data from Destatis showed.

Producer prices fell by 0.6 percent year-on-year in October, bigger than the 0.1 percent drop in September. This was the second straight decrease. Economists had forecast an annual 0.4 percent decrease.

On a monthly basis, producer prices dipped 0.2 percent, in contrast to a 0.1 percent increase in September. Prices were forecast to rise 0.1 percent.

The European Central Bank said in its Financial Stability Review that the euro area financial stability environment remains challenging and non-banks have increased their exposure to riskier assets to address profitability challenges.

The bank noted that investment funds and insurers increased their investment in high yield securities. The search for yield led them to assets of emerging market economies.

The central bank said signs of excessive risk-taking in some sectors require monitoring and targeted macro-prudential action in some countries.

U.S. Economic Reports

The Energy Information Administration is due to release its report on oil inventories in the week ended November 15th at 10:30 am ET.

Oil inventories are expected to rise by 1.1 million barrels after climbing by 2.2 million barrels in the previous week.

At 2 pm ET, the Federal Reserve is scheduled to release the minutes of its last monetary policy meeting held in later October.

Stocks In Focus

Shares of Target (TGT) are seeing significant pre-market strength after the retail giant reported better than expected third quarter results and raised its full-year guidance.

Home improvement retailer Lowe’s (LOW) is also likely to move to the upside after reporting third quarter earnings that exceeded expectations and boosted its full-year earnings forecast.

On the other hand, shares of Urban Outfitters (URBN) are moving sharply lower in pre-market trading after the apparel retailer reported third quarter results that missed analyst estimates on both the top and bottom lines.
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