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Beyond the Numbers

Bargain Hunting May Lead To Initial Strength On Wall Street
1/28/2020 8:55 AM

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to move back to the upside following the sell-off seen in the previous session.

Bargain hunting may contribute to early strength on Wall Street, as some traders look to pick up stocks at relatively reduced levels after the steep drop seen on Monday.

Buying interest may remain somewhat subdued, however, as lingering concerns about the coronavirus outbreak could lead to some reluctance to get back into the markets.

Traders may also be reluctant to make significant moves ahead of the release of quarterly results from tech giant Apple (AAPL) after the close of today’s trading.

Dow components United Technologies (UTX), Pfizer (PFE) and 3M (MMM) all reported their quarterly results this morning.

United Technologies reported results that beat expectations on both the top and bottom lines, while Pfizer and 3M both reported weaker than expected earnings.

Stocks moved sharply lower during trading on Monday, extending the notable pullback seen over the course of last Friday’s session. With the sell-off on the day, the major averages retreated further from their recent record highs.

The major averages showed a steep drop at the start of trading and remained firmly negative throughout the session. The Dow tumbled 453.93 points or 1.5 percent to 28,535.80, the Nasdaq plunged 175.60 points or 1.9 percent to 9,139.31 and the S&P 500 slumped 51.84 points or 1.6 percent to 3,243.63.

Growing concerns about the coronavirus outbreak in China contributed to the weakness on Wall Street amid worries about the impact on the global economy.

Chinese officials said the death toll from the new coronavirus has jumped to 81, with more than 2,800 people infected globally.

The continued spread of the coronavirus weighed on travel, tourism and hospitality stocks as well as companies with major exposure to China.

Some traders have likely taken the opportunity created by the outbreak to cash in on some of the recent record gains in the markets, potentially exacerbating the pullback.

On the U.S. economic front, the Commerce Department released a report unexpectedly showing a modest decrease in new home sales in the month of December.

The report said new home sales fell by 0.4 percent to an annual rate of 694,000 in December from a downwardly revised 697,000 in November.

The drop surprised economists, who had expected new home sales to surge up by 1.5 percent to an annual rate of 730,000 in December from the 719,000 originally reported for the previous month.

Revised data also showed new home sales slumped by 1.1 percent in November compared to the previously reported 1.3 percent jump.

Most of the major sectors showed notable moves to the downside on the day, reflecting broad based weakness on Wall Street.

Oil service stocks turned in some of the market's worst performances, with the Philadelphia Oil Service Index plunging by 5.8 percent to a three-month closing low. The sell-off by oil service stocks came amid a continued nosedive by the price of crude oil.

Substantial weakness was also visible among steel stocks, as reflected by the 4.3 percent slump by the NYSE Arca Steel Index. The index fell to its lowest closing level in over two months.

Semiconductor, computer hardware, natural gas and chemical stocks also saw significant weakness during the session.

Commodity, Currency Markets

Crude oil futures are rising $0.23 to $53.37 a barrel after tumbling $1.05 to $53.14 a barrel on Monday. Meanwhile, after climbing $5.50 to $1,577.40 an ounce in the previous session, gold futures are slipping $3.50 to $1,573.90 an ounce.

On the currency front, the U.S. dollar is trading at 109.04 yen compared to the 108.90 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1008 compared to yesterday’s $1.1019.

Asia

Asian stocks fell yet again on Tuesday after China reported 24 more deaths from the coronavirus epidemic, taking the number of fatalities to 106 and raising concerns about a hit to global economic growth. The virus has now spread to more than ten countries, including the U.S., France, Australia and Canada.

Japanese shares recouped some early losses to end off their day's lows. The Nikkei 225 Index still ended down 127.80 points, or 0.6 percent, at 23,215.71, while the broader Topix closed 0.6 percent lower at 1,692.28.

Yamaha Corp., Isetan Mitsukoshi Holdings and Chiyoda Corp. were among the worst performers. Exporters finished broadly lower as the yen held near a two-week high against the U.S. dollar.

Australian markets tumbled as traders returned to their desks after a long holiday weekend. The benchmark S&P/ASX 200 Index ended down 96.00 points, or 1.4 percent, at 6,994.50, after seeing its biggest intraday drop so far this year earlier in the day.

The broader All Ordinaries Index dropped 104.80 points, or 1.5 percent, to 7,098.40 as fears of the coronavirus contagion hammered oil and commodity prices.

Mining heavyweights BHP and Rio Tinto fell over 3 percent, while energy companies such as Woodside Petroleum, Origin Energy and Santos declined more than 2 percent after crude oil prices fell for a fifth straight session overnight.

Oil Search plunged 7.5 percent as it reported an 11 percent drop in quarterly revenue. Banks ANZ and Commonwealth lost 1.7 percent and 1.1 percent, respectively.

Qantas Airways slumped 5.2 percent as the rapid spread of the coronavirus out of China triggered travel bans. Webjet plummeted nearly 14 percent and Flight Centre Travel Group tumbled 4.1 percent.

In economic news, Australia's business conditions weakened marginally in December, signaling that activity stabilized in the fourth quarter, survey data from National Australia Bank showed today.

Seoul stocks fell sharply to hit an eight-month low amid worries that the coronavirus outbreak will have a significant impact on Chinese GDP this quarter. The benchmark Kospi ended down 69.41 points, or 3.1 percent, at 2,176.72.

"We are closely examining the impact of the spread (of the virus) in China on its consumption and production, along with the global economy and our exports," Finance Minister Hong Nam-ki said during an emergency meeting held with related ministries today.

China is the top trading partner of South Korea, taking up a quarter of the combined exports in 2019.

Market heavyweight Samsung Electronics fell 3.3 percent, chipmaker SK Hynix lost 2.4 percent and panel maker LG Display declined 1.7 percent. Duty-free operator Lotte Shopping plunged 7.3 percent.

Europe

European stocks have moved moderately higher on Tuesday after suffering their worst single-day loss in about four months the previous day on growing concerns over the economic impact of the deadly coronavirus outbreak in China.

While the German DAX Index has risen by 0.4 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both up by 0.5 percent.

SGS Group shares have jumped after the inspection, verification, testing and certification company reported 2.6 percent growth in profits for the full year, while revenue slid 1.6 percent.

Airbus shares have also risen. Regarding media reports on French, U.K. and U.S. investigations into allegations of bribery and corruption, the company confirmed that it has reached agreement in principle with the French Parquet National Financier, the U.K. Serious Fraud Office and the U.S. authorities.

Chemical group Wacker Chemie has also soared despite the company reporting a net loss for the full year of 630 million euros, hit by an impairment charge of 760 million euros associated with its poly-silicon production facilities.

Meanwhile, lender Credit Agricole Group has edged lower. The French bank said it would acquire a majority stake in Linxo Group, led by Crédit Agricole Payment Services and FIRECA, to consolidate its position in digital payment services.

SAP shares have also declined even though the German software company upwardly revised its guidance for 2020 after reporting higher net profit and revenue for the fourth quarter of 2019.

Sartorius has also moved to the downside. The laboratory and pharmaceutical equipment provider reported that its fiscal 2019 net profit rose 19.2 percent to 209.3 million euros from 175.6 million euros a year ago.

U.S. Economic Reports

New orders for U.S. manufactured durable goods rebounded by much more than anticipated in the month of December, according to a report released by the Commerce Department.

The report said durable goods orders surged up by 2.4 percent in December after tumbling by a revised 3.1 percent in November.

Economists had expected durable goods orders to rise by 0.5 percent compared to the 2.1 percent slump that had been reported for the previous month.

Orders for transportation equipment led the rebound, spiking by 7.6 percent in December after plunging by 8.3 percent in November.

Excluding orders for transportation equipment, durable goods orders edged down by 0.1 percent in December after falling by 0.4 percent in November. Economists had expected a 0.2 percent uptick.

At 9 am ET, Standard & Poor's is scheduled to release its report on home prices in major metropolitan areas in the month of November.

The Conference Board is due to release its report on consumer confidence in the month of January at 10 am ET. The consumer confidence index is expected to rise to 127.8 in January after edging down to 126.5 in December.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $32 billion worth of seven-year notes.

Stocks In Focus

Shares of Xerox (XRX) are moving significantly higher in pre-market trading after the office equipment maker reported better than expected fourth quarter results and provided upbeat guidance.

Biopharmaceutical company Incyte (INCY) may also see initial strength after revealing a pivotal trial of its ruxolitinib cream met its primary endpoint in patients with atopic dermatitis.

On the other hand, shares of McCormick & Co. (MKC) may come under pressure after the spice company reported fourth quarter revenues that missed expectations and provided disappointing guidance.

Motorcycle maker Harley-Davidson (HOG) is also seeing notable pre-market weakness after reporting weaker than expected fourth quarter results.
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