Market Analysis

Beyond the Numbers

Upbeat Report On Trade Talks May Inspire Bargain Hunting
12/4/2019 9:02 AM

The major U.S. index futures are pointing to a higher opening on Wednesday following the notable pullback seen over the course of the three previous sessions.

Traders may go bargain hunting after a report from Bloomberg News indicated the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase one trade deal.

Citing people familiar with the talks, Bloomberg said U.S. negotiators expect a phase one deal to be completed before U.S. tariffs are set to rise on December 15.

The people told Bloomberg outstanding issues in the talks include how to guarantee China’s purchases of U.S. agricultural goods and exactly which tariffs to roll back.

Bloomberg said the people downplayed President Donald Trump’s recent remarks suggesting he would like to delay completing an agreement until after the 2020 elections, noting the president was speaking off the cuff.

Nonetheless, the early buying interest may be partly offset by a report from payroll processor ADP showing much weaker than expected private sector job growth in the month of November.

Stocks regained ground over the course of the trading day on Tuesday after falling sharply early in the session but still closed firmly in the red. The major averages closed lower for the third straight session, pulling back further off their record highs.

After hitting its lowest intraday level in a month, the Dow pared its losses but still tumbled 280.23 points or 1 percent to 27,502.81. The Nasdaq fell 47.34 points or 0.6 percent to 8,520.64 and the S&P 500 slid 20.67 points or 0.7 percent to 3,093.20.

The early sell-off on Wall Street came amid renewed trade concerns after President Donald Trump suggested he might prefer to wait until after the 2020 elections to strike a trade deal with China.

Trump told reporters at a NATO summit in London there is no deadline to reach a trade deal, adding, "In some ways, I think it's better to wait until after the election."

"But they want to make a deal now, and we'll see whether or not the deal's going to be right; it's got to be right," Trump said.

Trump claimed a potential trade deal is only dependent on whether he wants to sign it, because the U.S. is "doing very well" and China is "having by far the worst year that they have had in 57 years."

The comments from the president added to rising trade concerns after his administration threatened to impose duties of up to 100 percent on $2.4 billion in French imports, including champagne and handbags.

The threat comes after the administration concluded France's new digital services tax discriminates against U.S. companies such as Google (GOOGL), Apple (AAPL), Facebook (FB), and Amazon (AMZN).

Selling pressure waned as the day progressed, however, with traders looking ahead to the closely watched monthly jobs report due on Friday.

Oil service stocks fluctuated before ending the session sharply lower, dragging the Philadelphia Oil Service Index down by 2.5 percent.

The steep drop by oil service stocks came even though the price of crude oil for January delivery recovered from early weakness to close modestly higher.

Significant weakness was also visible among transportation stocks, as reflected by the 2.2 percent slump by the Dow Jones Transportation Average. With the drop, the average ended the session at its lowest closing level in over a month.

Steel, banking and semiconductor stocks also saw considerable weakness on the day, while gold stocks bucked the downtrend amid a sharp increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are climbing $0.87 to $56.97 a barrel after inching up $0.14 to $56.10 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,484, down $0.40 compared to the previous session’s close of $1,484.40. On Tuesday, gold jumped $15.20.

On the currency front, the U.S. dollar is trading at 108.63 yen compared to the 108.63 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1105 compared to yesterday’s $1.1082.


Asian stocks fell on Wednesday after U.S. President Donald Trump and Commerce Secretary Wilbur Ross suggested a U.S.-China trade deal might have to wait until after the 2020 presidential elections.

Ross said in an interview that planned tariffs on Chinese imports would be imposed on December 15 as scheduled unless there is substantive progress in talks.

China's Shanghai Composite Index slipped 6.58 points or 0.2 percent to 2,878.12 after Trump said there was no deadline for the U.S.-China talks.

Hong Kong's Hang Seng Index tumbled 328.74 points or 1.3 percent to 26,062.56. Hong Kong's private sector contracted at a faster pace in November, the latest survey from IHH revealed with a 16-year low PMI score of 38.5.

Japanese shares hit two-week lows amid worries about a delay to a U.S.-China trade deal. The Nikkei 225 Index ended down 244.58 points or 1.1 percent at 23,135.23, while the broader Topix closed 0.2 percent lower at 1,703.27.

Exporters were hit hard as the yen held gains against the U.S. dollar. Nissan Motor, Mazda Motor and Sharp Corp. lost 1-2 percent. Advantest and Sumco fell around 2 percent in the technology sector.

The services sector in Japan moved back into expansion in November, albeit barely, the latest survey from Jibun Bank showed today with a PMI score of 50.3, up from 49.8 in the previous month.

Australian markets fell sharply as trade war worries deepened and official data showed the Australian economy expanded by an underwhelming 0.4 percent in the September quarter.

Separately survey results from IHS Markit and Commonwealth Bank of Australia revealed that Australia's service sector contracted for the first time in three months in November on subdued sales growth and demand conditions.

The S&P/ASX 200 Index tumbled 105.80 points or 1.6 percent to 6.606.50 after falling more than 2 percent the previous day to post its biggest single-day loss in two months. The broader All Ordinaries Index slumped 104 points or 1.5 percent to 6,714.40.

Renewed doubts about U.S.-China trade talks weighed on the mining and financials sectors. Mining heavyweights BHP and Rio Tinto fell 2.5 percent and 2.1 percent, respectively, while banks ANZ, Commonwealth and NAB gave up around 2 percent each.

Gold miners benefited from safe-haven demand after bullion prices rose over 1 percent on Tuesday. St Barbara and Newcrest Mining rose over 1 percent.

Seoul stocks extended losses for a second straight session as foreign investors extended their selling streak to a 20th consecutive session amid prolonged uncertainties in the global economy. The benchmark Kospi ended down 15.18 points or 0.7 percent at 2068.89.


European stocks have advanced on Wednesday even as trade worries deepened after U.S. President Donald Trump and Commerce Secretary Wilbur Ross suggested a U.S.-China trade deal might have to wait until after the 2020 presidential elections.

Underlying sentiment improved somewhat after data showed activity in China's services sector accelerated to a seven-month high in November, hinting at short-term stabilization in the world's second-largest economy.

Closer to home, euro area private sector growth remained the lowest in six-and-a-half years in November, signaling a modest expansion for the fourth quarter, final survey data from IHS Markit showed.

The composite output index held steady at 50.6 in November, coming in slightly above the flash estimate of 50.3.

The IHS Markit/CIPS UK Services Purchasing Managers' Index fell to 49.3 in November from October's 50.0 due to uncertainty over Brexit and an imminent national election.

While the U.K.’s FTSE 100 Index has bucked the uptrend and edged down by 0.1 percent, the German DAX Index and the French CAC 40 Index have jumped by 0.9 percent and 1 percent, respectively.

Swiss drug maker Roche Group has moved higher after the U.S. FDA approved Tecentriq (atezolizumab) in combination with chemotherapy for the initial treatment of metastatic non-squamous non-small cell lung cancer.

Chipmakers Infineon Technologies and STMicroelectronics have also moved to the upside as investors cheer upbeat earnings guidance from U.S. peer Microchip Technology.

Shares of Airbus has also jumped after the airplane maker received an order from U.S. carrier United Airlines for 50 long-range jets.

On the other hand, Orange has tumbled after the telecom company presented its new strategic plan "Engage2025." It announced the disposal of 1,500 non-strategic sites in Spain to Cellnex for 260 million euros.

British American Tobacco shares have also dropped as the pound hit its highest level against the dollar since mid-May amid hopes of a Conservative party victory in next week's elections.

U.S. Economic Reports

Private sector employment increased by much less than anticipated in the month of November, according to a report released by payroll processor ADP.

ADP said private sector employment rose by 67,000 jobs in November after climbing by a revised 121,000 jobs in October.

Economists had expected employment to jump by 140,000 jobs compared to the addition of 125,000 jobs originally reported for the previous month.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of November.

The ISM’s non-manufacturing index is expected to edge down to 54.5 in November from 54.7 in October, although a reading above 50 would still growth in the service sector.

Federal Reserve Vice Chair for Supervision Randal Quarles is also due to testify before the House Financial Services Committee beginning at about 10 am ET.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended November 29th.

Crude oil inventories are expected to decrease by 1.8 million barrels after rising by 1.6 million barrels in the previous week.

Stocks In Focus

Shares of Microchip Technology (MCHP) are moving notably higher in pre-market trading after the chipmaker raised its fiscal third quarter guidance due to strong bookings.

Credit card giant Mastercard (MA) may also move to the upside after increasing its quarterly cash dividend to $0.40 per share and announcing a new $8 billion share repurchase program.

On the other hand, shares of Workday (WDAY) may come under pressure after the human resources software company reported better than expected third quarter results but provided disappointing guidance for next year.

Campbell Soup (CPB) may also see initial weakness after reporting fiscal first quarter earnings that beat estimates but on weaker than expected sales. The soup giant also cut its full-year sales forecast.
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