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Beyond the Number

Report Of Tariff Delay May Lead To Initial Strength On Wall Street
12/10/2019 9:09 AM

The major U.S. index futures have recently turned positive and are currently pointing to a higher open for the markets on Tuesday.

The futures turned positive after a report from the Wall Street Journal said the U.S. plans to delay imposing additional tariffs on Chinese goods.

Citing officials on both sides, the Journal said negotiators are laying the groundwork for delaying the tariffs set to kick in on December 15th as they continue to haggle over getting China to commit to massive purchases of U.S. farm products.

The report from the WSJ comes after an earlier report from the South China Morning Post said a trade deal between the U.S. and China is unlikely to be completed this week.

However, the SCMP said sources close to the talks do not expect the tariffs planned for December 15th to take effect, adding to a growing chorus on both sides who expect de-escalation this week.

The uncertainty about the trade deal may still lead to light trading on Wall Street as traders look ahead to the Federal Reserve’s monetary policy announcement on Wednesday.

After showing a lack of direction early in the session, stocks moved moderately lower over the course of the trading day on Monday. The major averages slid more firmly into negative territory, snapping a three-day winning streak.

The major averages saw further downside going into the close, ending the session just off their lows of the day. The Dow slid 105.46 points or 0.4 percent to 27,909.60, the Nasdaq fell 34.70 points or 0.4 percent to 8,621.83 and the S&P 500 dropped 9.95 points or 0.3 percent to 3,135.96.

The weakness that emerged on Wall Street came as some traders looked to cash in on the recent strength in the markets, which helped lift the major averages back within striking distance of the record highs set late last month.

Lingering uncertainty about U.S.-China trade talks also weighed on Wall Street, as new 15 percent tariffs on $165 billion worth of Chinese imports are currently still set to take effect this coming Sunday.

The new round of tariffs could throw a wrench into negotiations over a phase on trade deal, which is reportedly being held up in part by a dispute over how much to roll back existing tariffs.

Rising tensions between the U.S. and North Korea also led to some caution among traders after North Korea conducted a "very important test" at a long-range missile launch site.

President Donald Trump warned North Korean leader Kim Jong Un risks losing "everything" if he acts in a hostile way, leading a North Korean official to describe the president as a "heedless and erratic old man."

Nonetheless, overall trading activity remained somewhat subdued, with traders looking ahead to the Federal Reserve's monetary policy announcement on Wednesday.

The Fed is widely expected to leave interest rates unchanged, although traders are still likely to pay close attention to the accompanying statement for clues about the outlook for rates.

A lack of major U.S. economic data also kept some traders on the sidelines ahead of the release of reports on retail sales and consumer and producer prices in the coming days.

Despite the pullback by the broader markets, most of the major sectors finished the session showing only modest moves on the day.

Healthcare, brokerage and biotechnology stocks saw some weakness, although selling pressure was relatively subdued.

On the other hand, natural gas stocks showed a strong move to the upside, driving the NYSE Arca Natural Gas Index up by 1.1 percent.

Commodity, Currency Markets

Crude oil futures are inching up $0.01 to $59.03 a barrel after slipping $0.18 to $59.02 a barrel on Monday. Meanwhile, after edging down $0.20 to $1,464.90 an ounce in the previous session, gold futures are climbing $5.60 to $1,470.50 an ounce.

On the currency front, the U.S. dollar is trading at 108.62 yen compared to the 108.56 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1079 compared to yesterday’s $1.1064.

Asia

Asian stocks ended on a muted note Tuesday as investors refrained from making big bets ahead of key central bank meetings and the rapidly approaching deadline for more U.S. tariffs on Chinese imports.

Chinese shares ended little changed after data from the National Bureau of Statistics showed Chinese consumer price inflation accelerated to the highest since early 2012 in November. Another report from the NBS showed that producer prices declined for the fifth consecutive month in November.

The benchmark Shanghai Composite Index crept up 2.84 points 0.1 percent to 2,917.32, while Hong Kong's Hang Seng Index edged down 58.11 points or 0.2 percent to 26,436.62.

Chinese consumer price inflation rose more than expected to 4.5 percent in November from 3.8 percent in October as disruption to pork supply pushed up food inflation. This was the highest since January 2012.

Producer prices were down 1.4 percent annually, slower than the 1.6 percent decrease seen in the previous month.

Japanese shares finished marginally lower amid uncertainty ahead of the U.S. tariff deadline on Chinese imports. The Nikkei 225 Index and the broader Topix both ended slightly lower at 23,410.19 and 1,720.77, respectively. The industrial and consumer discretionary sectors paced the declines.

Australian markets retreated as investors anxiously waited to see whether a new round of tariffs on Chinese consumer goods takes effect.

The benchmark S&P/ASX 200 Index slid 23.10 points or 0.3 percent to 6,706.90, while the broader All Ordinaries Index ended down 24.30 points or 0.4 percent at 6,812.10.

Miners BHP, Fortescue Metals Group and Rio Tinto rose over 1 percent after iron ore prices jumped overnight.

Lender National Australia Bank declined 1.5 percent as Morgan Stanley retained its underweight rating and cut its price target on the stock.

IOOF Holdings edged up 0.6 percent after the wealth manager issued an update on its OnePath acquisition.

Petroleum retailer Viva Energy Group tumbled 2.8 percent to extend steep declines from the previous session after warning it expects fiscal 2019 underlying net profit to fall by up to 41 percent due to weak refining margins.

Australian business confidence declined in November, unwinding the increase seen in previous month, while business conditions remained unchanged, survey data from National Australia Bank showed today.

Seoul stocks ended on a firmer note, with the benchmark Kospi ending up 0.5 percent at 2,098 after data showed Chinese consumer price inflation climbed to an eight-year peak.

Europe

European stocks have fallen on Tuesday as uncertainty prevails ahead of the U.S. tariff deadline on Chinese imports. Investors also await the outcome of key central bank meetings this week and Thursday's general election in the U.K. for directional cues.

While the German DAX Index has slid by 0.5 percent, the U.K.’s FTSE 100 Index is down by 0.3 percent and the French CAC 40 Index is down by 0.1 percent.

Ted Baker shares have slumped after the fashion retailer warned its full-year profit would fall more than expected. The company also said that its board has accepted Lindsay Page's resignation as Chief Executive Officer.

Ashtead Group, an industrial equipment rental company, has also plunged after warning of currency woes.

Travis Perkins is also posting a notable loss. The company said that the planned demerger of Wickes business is progressing well and is on track to be completed in the second quarter of 2020.

Bayer has also dropped after the chemical and pharmaceutical giant said it aims to become "climate-neutral" by 2030.

Meanwhile, Sanofi shares have jumped. The pharmaceutical company said that it would discontinue research in diabetes and cardiovascular diseases and would not pursue plans to launch efpeglenatide as part of a restructuring.

In economic releases, French manufacturing production grew 0.5 percent month-on-month in October following a 0.8 percent increase in September, which was revised from 0.6 percent, preliminary data from the statistical office INSEE showed. Economists had forecast a 0.4 percent gain.

French payroll employment increased in the third quarter, driven by job creation in the private sector, another report showed.

The U.K economy stagnated in October as growth in the industrial and service sectors was offset by a contraction in construction, data from the Office for National Statistics revealed.

Gross domestic product remained unchanged in October from September, when it was down 0.1 percent.

U.S. Economic Reports

Revised data released by the Labor Department on Tuesday showed U.S. labor productivity dipped by slightly less than originally estimated in the third quarter.

The report said labor productivity edged down by 0.2 percent in the third quarter compared to the previously reported 0.3 percent drop. Economists had expected the decrease in productivity to be revised to just 0.1 percent.

The modest decrease in productivity in the third quarter compares to the 2.5 percent jump in productivity seen in the second quarter.

Meanwhile, the Labor Department said unit labor costs surged up by a revised 2.5 percent in the third quarter compared to the previously reported 3.6 percent spike. Labor cost growth had been expected to be revised to 3.3 percent.

The report also showed the previously reported 2.4 percent jump in labor costs in the second quarter was downwardly revised to just 0.1 percent.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $24 billion worth of ten-year notes.

Stocks In Focus

Shares of Chewy (CHWY) are moving to the downside in pre-market trading after the online pet supplies retailer reported a wider than expected fiscal third quarter loss.

Convenience store operator Casey’s General Stores (CASY) may also come under pressure after the reported fiscal second quarter earnings that beat estimates but lowered its full-year guidance.

On the other hand, shares of AutoZone (AZO) are likely to see initial strength after the auto parts retail reported fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.

Online clothing styling service Stitch Fix (SFIX) may also move to the upside after reporting better than expected fiscal first quarter results and boosting its full-year forecast.
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