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Beyond the Numbers

Upward Momentum May Make Resurgence On Wall Street
12/5/2019 9:05 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks likely to add to the gains posted in the previous session.

The markets may benefit from a return of recent upward momentum, which could be restored following a brief three-day pullback.

The upward momentum helped propel stocks to new record highs last week, as traders generally remain optimistic about a potential U.S.-China trade deal.

Chinese Commerce Ministry spokesman Gao Feng told reporters earlier in the day that the U.S. and China remain in close communication but provided few details about the negotiations.

Gao reiterated the Chinese contention that tariffs must be lowered as part of a phase one trade deal, although a new round of U.S. tariffs on Chinese goods is currently set to kick in on December 15th.

Nonetheless, overall trading activity may be somewhat subdued ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

After showing a notable move to the downside over the past few sessions, stocks regained some ground during trading on Wednesday. The major averages climbed firmly into positive territory but remained well off the record highs.

The major averages gave back ground going into the close but held on to notable gains. The Dow climbed 146.97 points or 0.5 percent to 27,649.78, the Nasdaq rose 46.03 points or 0.5 percent to 8,566.67 and the S&P 500 advanced 19.56 points or 0.6 percent to 3,112.76.

The rebound on Wall Street came 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.

Renewed optimism about a potential trade deal helped offset negative sentiment generated by some disappointing economic data, including a report from payroll processor ADP showing much weaker than expected private sector job growth in the month of November.

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.

"The job market is losing its shine," said Mark Zandi, chief economist of Moody's Analytics. "Job openings are declining and if job growth slows any further unemployment will increase."

A separate report released by the Institute for Supply Management showed the pace of growth in U.S. service sector activity slowed by more than anticipated in the month of November.

The ISM said its non-manufacturing index dipped to 53.9 in November after climbing to 54.7 in October. While a reading above 50 still indicates service sector growth, economists had expected the index to edge down to 54.5.

Energy stocks helped lead the markets higher, benefiting from a sharp increase by the price of crude oil, which spiked 4.2 percent to $58.43 a barrel.

The jump in oil prices came after a report from the Energy Information Administration showed a steeper than expected weekly drop in crude oil inventories. Traders were also looking ahead to the start of OPEC's biannual meeting in Vienna on Thursday.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index and the Philadelphia Oil Service Index surged up by 3.6 percent and 3.5 percent, respectively. The NYSE Arca Oil Index also jumped by 1.6 percent.

Significant strength was also visible among semiconductor stocks, as reflected by the 1.6 percent gain posted by the Philadelphia Semiconductor Index.

Microchip Technology (MCHP) posted a standout gain after the chipmaker raised its fiscal third quarter guidance due to strong bookings.

Steel, banking and biotechnology stocks also saw notable strength, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are inching up $0.05 to $58.48 a barrel after spiking $2.33 to $58.43 a barrel on Wednesday. Meanwhile, after falling $4.20 to $1,480.20 an ounce in the previous session, gold futures are unchanged.

On the currency front, the U.S. dollar is trading at 108.84 yen compared to the 108.86 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1093 compared to yesterday’s $1.1078.

Asia

Asian stocks rose on Thursday after Bloomberg reported U.S. and Chinese negotiators are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase one trade deal.

Chinese shares ended higher after U.S. President Donald Trump said talks with China were going “very well.”

The benchmark Shanghai Composite Index gained 21.35 points, or 0.7 percent, to finish at 2,899.47, while Hong Kong's Hang Seng Index rose 0.6 percent to 26,217.04.

Japanese shares rose notably after Prime Minister Shinzo Abe announced a $120 billion fiscal package to support stalling growth in the world's third-largest economy.

The Nikkei 225 Index climbed 164.86 points, or 0.7 percent, to 23,300.09, while the broader Topix closed 0.5 percent higher at 1,711.41.

Electronics manufacturers and oil-linked shares led the gainers. Panasonic gained 1 percent, Inpex added 1.5 percent and Japan Petroleum jumped 4.3 percent. Steelmaker Nippon Steel soared 6.7 percent and JFE Holdings advanced 5.2 percent.

Australian markets rallied amid growing optimism for a U.S.-China trade deal. The benchmark S&P/ASX 200 Index jumped 76.50 points, or 1.2 percent, to 6,683.00, while the broader All Ordinaries Index surged up 76.70 points, or 1.1 percent, to 6,791.10.

The big four banks rose 1-2 percent. Mining heavyweights BHP and Rio Tinto rose 1.6 percent and 0.8 percent, respectively after iron ore futures in China rose on data showing that shipments from Brazil dropped last week.

Woodside Petroleum jumped 1.9 percent, Santos soared 4.2 percent and Oil Search added 1.4 percent after oil prices jumped more than 4 percent on Wednesday on data showing a larger than expected drop in U.S. inventories and hopes of deeper production cuts from OPEC.

Meanwhile, Whitehaven Coal slumped 10.3 percent after cutting its FY20 production outlook and flagging higher costs. In the tech space, Afterpay Touch Group and Appen rose 1-2 percent.

Australia's trade surplus declined on falling exports, while retail sales remained flat in October, official data showed today.

Seoul stocks gave up early gains to finish lower as investors remained wary about a potential U.S.-China trade deal. The benchmark Kospi dropped 8.15 points, or 0.4 percent, to 2,060.74.

Market heavyweight Samsung Electronics ended on a flat note, while chipmaker SK Hynix advanced 1.4 percent and steelmaker Posco gained 0.9 percent.

Europe

European stocks have struggled for direction on Thursday as investors digest mixed signals regarding a U.S. -China phase one trade deal.

After a pair of weak economic reports underlined growing fears for the U.S. economic outlook, investors now await the closely-watched U.S. jobs report due Friday to see how well the world's largest economy is holding up amid a global slowdown.

While the French CAC 40 Index has climbed by 0.7 percent, the German DAX Index is just below the unchanged line and the U.K.’s FTSE 100 Index is down by 0.3 percent.

According to preliminary figures, German factory orders fell a seasonally and calendar adjusted 0.4 percent month-on-month following a 1.5 percent jump in September, which was revised from the initially reported 1.3 percent gain. Economists had expected a 0.4 percent gain.

The pound hit a 2-1/2-year peak against the euro and a seven-month high against the dollar as polls suggested Prime Minister Boris Johnson's Conservative Party would win a majority in next week's general election.

Swiss pharmaceutical company Novartis has moved to the upside after issuing an update on its R&D pipeline.

Luxury stocks are also rising, with Gucci-owner Kering jumping on a Bloomberg report that it has held exploratory talks with Moncler SpA about a potential deal for the Italian skiwear maker. Moncler shares have surged higher.

Publishing firm Daily Mail & General Trust has rallied after it reported a 19 percent increase in underlying adjusted pre-tax profit for the 12 months to 30 September.

On the other hand, fund manager M&G Investments has slumped after the company suspended trading in the shares in its £2.54 billion (€3 billion) property portfolio, citing the impact of Brexit uncertainty.

DS Smith, a packaging company, has also moved to the downside despite reporting record group profitability and return on sales.

IG Group Holdings have come under pressure after saying it expects lower half-year net trading revenue.

U.S. Economic Reports

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report on Thursday showing an unexpected decrease in first-time claims for U.S. unemployment benefits in the week ended November 30th.

The report said initial jobless claims slipped to 203,000, a decrease of 10,000 from the previous week’s unrevised level of 213,000. The drop came as a surprise to economists, who had expected jobless claims to inch up to 215,000.

The Labor Department said the less volatile four-week moving average also edged down to 217,750, a decrease of 2,000 from the previous week’s unrevised average of 219,750.

A separate report from the Commerce Department showed the U.S. trade deficit narrowed in the month of October amid a notable decrease in the value of imports.

The Commerce Department said the trade deficit narrowed to $47.2 billion in October from a revised $51.1 billion in September.

Economists had expected the trade deficit to narrow to $48.7 billion from the $52.5 billion originally reported for the previous month.

The narrower trade deficit came as the value of imports tumbled by 1.7 percent to $254.3 billion, while the value of exports edged down by 0.2 percent to $207.1 billion.

At 10 am ET, the Commerce Department is scheduled to release its report on factory orders in the month of October. Factory orders are expected to rise by 0.3 percent in October after falling by 0.6 percent in September.

Federal Reserve Vice Chair for Supervision Randal Quarles is also due to testify before the Senate Banking Committee beginning at around 10 am ET.

At 11 am ET, the Treasury Department is slated to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

Stocks In Focus

Shares of Express (EXPR) are moving sharply higher in pre-market trading after the apparel retailer reported a narrower than expected fiscal third quarter loss on revenues that exceeded analyst estimates.

Discount retailer Dollar General (DG) may also seeing initial strength after reporting better than expected fiscal third quarter results and raising its full-year profit forecast.

On the other hand, shares of Michaels Companies (MIK) are likely to come under pressure after the arts and crafts retailer reported fiscal third quarter results that missed estimates and provided disappointing guidance.

Luxury retailer Tiffany & Co. (TIF) is seeing modest pre-market weakness after reporting fiscal third quarter results that fell short of expectations on both the top and bottom lines.
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