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Beyond the Numbers

Perpetual Rally Seems Poised To Continue
1/17/2020 8:57 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, with stocks likely to extend the rally seen over the course of the previous session.

The continued upward momentum on Wall Street has been widely attributed to Chinese GDP data even though the latest report showed China’s economy grew at the slowest pace since 1990.

The report from China’s National Bureau of Statistics said Chinese GDP grew by 6.1 percent in 2019 compared to the 6.6 percent growth seen in 2018.

However, the GDP growth matched economist estimates, which seems to have allowed global traders to breathe a sigh of relief that the impact of the U.S.-China trade war was not worse than feared.

More upbeat U.S. economic data may also generate buying interest, with a report from the Commerce Department showing a substantial increase in U.S. housing starts in the month of December.

Stocks moved sharply higher over the course of the trading session on Thursday, adding to the modest gains posted in the previous session. With the continued upward move, the major averages climbed to new record closing highs.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 267.42 points or 0.9 percent to 29,297.64, the Nasdaq spiked 98.44 points or 1.1 percent to 9,357.13 and the S&P 500 surged up 27.52 points or 0.8 percent to 3,316.81.

The markets continued to benefit from recent upward momentum following the official signing of the U.S.-China phase one trade deal on Wednesday.

The deal did not address some major issues and leaves significant tariffs in place, but the agreement has still helped lift some of the uncertainty generated by the trade war between the two economic superpowers.

A batch of largely upbeat U.S. economic data also contributed to the buying interest, with a report from the Labor Department showing an unexpected decrease in initial jobless claims in the week ended January 11th.

The Labor Department said initial jobless claims fell to 204,000, a decrease of 10,000 from the previous week's unrevised level of 214,000. The drop came as a surprise to economists, who had expected jobless claims to inch up to 216,000.

The Commerce Department also released a report showing U.S. retail sales rose in line with economist estimates in the month of December, with a sharp pullback in auto sales more than offset by strength in other areas.

The report said retail sales climbed by 0.3 percent in December, matching the upwardly revised increase in November.

Economists had expected retail sales to rise by 0.3 percent compared to the 0.2 percent uptick originally reported for the previous month.

Excluding auto sales, retail sales increased by 0.7 percent in December after coming in unchanged in November. Ex-auto sales had been expected to climb by 0.5 percent.

The Philadelphia Federal Reserve also released a report showing a substantial acceleration in the pace of growth in regional manufacturing activity in the month of January.

Meanwhile, the National Association of Home Builders released a report showing a slight pullback in homebuilder confidence in January, although confidence remains at an elevated level.

The report said the NAHB/Wells Fargo Housing Market Index edged down to 75 in January after jumping to 76 in December.

The modest decrease, which matched economist estimates, came after the index reached its highest level since June of 1999 in the previous month.

Brokerage stocks showed a substantial move to the upside on the day, driving the NYSE Arca Broker/Dealer Index up by 2.2 percent to a record closing high.

Morgan Stanley (MS) led the sector higher after reporting fourth quarter earnings that exceeded expectations on revenues that came in well above estimates.

Significant strength also emerged among semiconductor stocks, as reflected by the 1.7 percent gain posted by the Philadelphia Semiconductor Index. The index also reached a new record closing high.

Tobacco, computer hardware, and software stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are rising $0.31 to $58.83 a barrel after climbing $0.71 to $58.52 a barrel on Thursday. Meanwhile, after sliding $3.50 to $1,550.50 an ounce in the previous session, gold futures are advancing $6.40 to $1,556.90 an ounce.

On the currency front, the U.S. dollar is trading at 110.19 yen versus the 110.16 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1101 compared to yesterday’s $1.1137.

Asia

Asian stocks rose on Friday as investors cheered more signs of resilience in the world's second-largest economy.

Chinese GDP data came in line with expectations and there was growth in industrial output and retail sales, suggesting the world's second-biggest economy ended the year on a firmer note.

China's Shanghai Composite Index finished the day marginally higher at 3,075.50, giving up initial gains. Hong Kong's Hang Seng Index rose 0.6 percent to 29,056.42.

China's economy expanded at the slowest pace since 1990 as cooling domestic demand and property investment amid the trade war with the United States weighed heavily on growth last year.

In the whole year of 2019, gross domestic product grew 6.1 percent, which was well within the target of 6-6.5 percent, data from the National Bureau of Statistics showed. China's growth for 2019 matched the projections of the International Monetary Fund and the World Bank.

Further, data showed that growth in industrial production unexpectedly accelerated to 6.9 percent in December from 6.2 percent in November. The rate was expected to ease to 5.9 percent.

Retail sales expanded 8 percent annually, as seen in November, and slightly faster than the expected rate of 7.9 percent.

In the year-to-date period, fixed asset investment was up 5.4 percent versus the expected rate of 5.2 percent.

Japanese shares hit a one-month high as a softer yen boosted exporters' shares. The Nikkei 225 Index hit a 15-month high before giving up some gains to end the session up 108.13 points, or 0.5 percent, at 24,041.26. The broader Topix closed 0.4 percent higher at 1,735.44.

Honda Motor, Nissan Motor and Panasonic climbed 1-2 percent as the yen lingered near an eight-month low. Suzuki Motor shares jumped more than 4 percent and Mazda Motor soared 5.8 percent.

Nissan has accused former Chairman Carlos Ghosn of using company funds for private events abroad.

Nomura Holdings rose over 1 percent and Mitsubishi UFJ Financial Group advanced 1.2 percent after Morgan Stanley reported a massive increase in fixed-income trading and raised its profit targets.

Australian markets hit record highs for the fourth day running. The benchmark S&P/ASX 200 Index rose 22.30 points, or 0.3 percent, to 7,064.10, while the broader All Ordinaries Index ended up 21.70 points, or 0.3 percent, at 7,180.30.

Mining stocks led the surge, with Rio Tinto climbing 1.8 percent after it forecast higher iron ore shipments for 2020. BHP, which unveils its second-quarter production figures next week, rallied 1.2 percent, while smaller rival Fortescue Metals Group jumped 3.7 percent.

Crop protection firm Nufarm plunged 10 percent after releasing an update on its first half expectations.

Seoul stocks rose slightly as the Bank of Korea left its key interest rates unchanged, citing improvement in facilities investment and consumption growth. The benchmark Kospi inched up by 2.52 points, or 0.1 percent, to 2,250.57.

Europe

European stocks have advanced on Friday as Chinese GDP numbers came in line with estimates and EU trade commissioner Phil Hogan said that U.S. threats to put tariffs on European autos did not come up during talks this week with American trade officials in Washington.

Chinese GDP data came in line with expectations and there was growth in industrial output and retail sales, suggesting the world's second-biggest economy ended the year on a firmer note.

In the whole year of 2019, China's gross domestic product grew 6.1 percent, which was well within the target of 6-6.5 percent.

Closer to home, the euro area current account surplus declined in November from the previous month, the European Central Bank reported.

The current account surplus fell to 34 billion euros from 36 billion euros in October. However, the surplus was larger than the 27 billion euros logged in November 2018.

U.K. retail sales volume, including auto fuel, dropped 0.6 percent month on month in December following a 0.8 percent decrease in November. This was the fifth consecutive month of no growth.

While the German DAX Index has climbed by 0.7 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both jumping by 1 percent.

Trade-sensitive automakers are moving higher on the day, with Volkswagen and Renault showing notable moves to the upside.

Fiat Chrysler Automobiles N.V. has also risen after confirming that it is in discussions with Hon Hai Precision Ind. Co., Ltd., better known as Foxconn, to create a possible equal joint venture to develop and manufacture electric vehicles in China.

British Airways-owner IAG has soared after the airline said it had lifted a restriction on non-EU investors' ability to buy its stock.

Premier Foods has also rallied. The company reported third quarter sales growth of 2.6 percent, reflecting very good Sweet Treats sales, which increased 8 percent.

Swiss luxury goods group Compagnie Financiere Richemont has also jumped after its third quarter total sales grew 6 percent.

On the other hand, Ladbrokes-owner GVC Holdings has fallen despite the company saying it expects Ebitda for 2019 to be at the top end of the guidance range given last October.

U.S. Economic Reports

After reporting significant increases in new residential construction in the two previous months, the Commerce Department released a report on Friday showing U.S. housing starts saw an even more substantial spike in the month of December.

The Commerce Department said housing starts skyrocketed by 16.9 percent to an annual rate of 1.608 million in December after jumping by 2.6 percent to a revised rate of 1.375 million in November.

The surge came as a big surprise to economists, who had expected housing starts to rise by 0.7 percent to a rate of 1.375 million from the 1.365 million originally reported for the previous month.

With the much bigger than expected increase, housing starts soared to their highest level since hitting a rate of 1.649 million in December of 2006.

Meanwhile, the report said building permits tumbled by 3.9 percent to an annual rate of 1.416 million in December after climbing by 0.9 percent to a revised rate of 1.474 million in November.

Building permits, an indicator of future housing demand, had been expected to slide by 0.9 percent to a rate of 1.468 million from the 1.482 million originally reported for the previous month.

At 9 am ET, Philadelphia Federal Reserve President Patrick Harker is scheduled to speak at the New Jersey Bankers Association Economic Leadership Forum in Somerset, New Jersey.

The Federal Reserve is due to release its report on industrial production in the month of December at 9:15 am ET. Industrial production is expected to dip by 0.2 percent in December after jumping by 1.1 percent in November.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of January. The consumer sentiment index is expected to come in unchanged at 99.3.

The Labor Department is also due to release its Job Openings and Labor Turnover Survey for the month of November at 10 am ET. Job openings are expected to edge down to 7.23 million.

At 12:45 pm ET, Federal Reserve Vice Chairman for Supervision Randal Quarles is slated to speak on bank supervision at the American Bar Association Banking Law Committee's annual meeting in Washington, D.C.

Stocks In Focus

Shares of Tailored Brands (TRLD) are moving sharply higher in pre-market trading after the menswear retailer announced an agreement to sell the Joseph Abboud trademarks to brand management firm WHP Global for $115 million.

Apparel retailer Gap (GPS) is also likely to see initial strength on news the company no longer intends to separate Old Navy into a standalone public company.

On the other hand, shares of Expeditors International (EXPD) may come under pressure after the logistics company provided fiscal fourth quarter guidance well below analyst estimates.

Social media giant Twitter (TWTR) may also move to the downside after UBS downgraded its rating on the company’s stock to Neutral from Buy.
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