Market Analysis

Beyond the Numbers

Apple Warning May Lead To Initial Weakness On Wall Street
2/18/2020 9:00 AM

The major U.S. index futures are currently pointing to a lower opening on Tuesday as trades return to their desks following the long holiday weekend.

The downward momentum on Wall Street comes after tech giant Apple (AAPL) warned of weaker than previously forecast second quarter revenue.

Apple said it expects to miss its forecast for second quarter revenue of $63 billion to $67 billion due to lower iPhone production and weak Chinese demand as a result of the coronavirus outbreak.

Disappointing earnings news from Walmart (WMT) may also weigh on the markets after the retail giant reported weaker than expected fourth quarter results and provided disappointing guidance.

Following the volatility seen over the course of Thursday’s session, stocks continue to experience choppy trading on Friday. The major averages spent the day bouncing back and forth across the unchanged line before eventually closing mixed.

While the Dow edged down 25.23 points or 0.1 percent to 29,398.08, the Nasdaq inched up 19.21 points or 0.2 percent to 9,731.18 and the S&P 500 crept up 6.22 points or 0.2 percent to 3,380.16.

Despite the mixed performance on the day, the major averages all moved higher for the week. While the Nasdaq soared by 2.2 percent, the S&P 500 surged up by 1.6 percent and the Dow jumped by 1 percent.

Traders have recently shown a predilection toward buying despite signs of mounting headwinds, but the release of a mixed batch of U.S. economic data finally gave them pause.

While the Commerce Department released a report before the start of trading showing U.S. retail sales rose in line with estimates in January, closely watched core retail sales came in unchanged.

The Commerce Department said retail sales rose by 0.3 percent in January after edging up by a downwardly revised 0.2 percent in December.

Economists had expected retail sales to climb by 0.3 percent, matching the increase originally reported for the previous month.

However, the report said closely watched core retail sales, which exclude autos, gasoline, building materials and food services, were unchanged in January after rising by a downwardly revised 0.2 percent.

Core retail sales were expected to rise by 0.3 percent compared to the 0.5 percent increase originally reported for the previous month.

"After a rare contraction in the fourth quarter, the 3m/3m annualized growth rate of control group sales slipped further to -0.7% in January," said Andrew Hunter, Senior U.S. Economist at Capital Economics,

He added, "That means there are now clear downside risks to our initial forecast that real consumption growth will rebound back above 2% annualized in the first quarter."

The Federal Reserve also released a report showing a continued decrease in U.S. industrial production in the month of January, as unseasonably warm weather led to another steep drop in utilities output.

The Fed said industrial production fell by 0.3 percent in January following a revised decrease of 0.4 percent in December. Economists had expected industrial production to dip by 0.2 percent.

Manufacturing output edged down by 0.1 percent in January after inching up by 0.1 percent in December, as Boeing (BA) significantly slowed production of civilian aircraft amid the grounding of its troubled 737 Max.

Meanwhile, the University of Michigan released a report showing an unexpected increase in U.S. consumer sentiment in the month of February.

Preliminary data showed the consumer sentiment index rose to 100.9 percent in February from the final January reading of 99.8. The uptick surprised economists, who had expected the index to edge down to 99.5.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Considerable weakness was visible among networking stocks, however, with the NYSE Arca Networking Index slumping by 1.3 percent.

Arista Networks (ANET) posted a steep loss even though the networking company reported better than expected fourth quarter results.

Gold stocks also saw considerable weakness on the day, dragging the NYSE Arca Gold Bugs Index down by 1.2 percent. The weakness in the sector came despite an increase by the price of gold.

Transportation, natural gas and steel stocks also showed notable moves to the downside, while some strength was visible among commercial real estate and software stocks.

Commodity, Currency Markets

Crude oil futures are sliding $1.07 to $50.98 a barrel after climbing $0.63 to $52.05 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,594, up $7.60 from the previous session’s close of $1,586.40. On Friday, gold rose $7.60.

On the currency front, the U.S. dollar is trading at 109.78 yen compared to the 109.88 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.0801 compared to last Friday’s $1.0836.


Asian stocks ended broadly lower on Tuesday after Apple warned it was unlikely to meet a sales target set just three weeks ago and reports suggested the Trump administration may force global chipmakers using American-made equipment to obtain licenses before supplying their chips to Huawei.

It was also said that Washington is considering blocking exports of jet engines made by General Electric, which could limit China's efforts to develop its own passenger jets.

Chinese stocks reversed early losses to finish marginally higher. The benchmark Shanghai Composite Index inched up 1.35 points to 2,984.97, while Hong Kong's Hang Seng Index fell 1.5 percent to 27,530.20.

Japanese shares lost ground after Apple warned about its quarterly revenue. The Nikkei 225 Index gave up 329.44 points, or 1.4 percent, to finish at a two-week low of 23,193.80, while the broader Topix ended down 22.06 points, or 1.3 percent, at 1,665.71, its lowest close since late October.

Apple suppliers TDK Corp., Murata Manufacturing and Taiyo Yuden lost 3-6 percent. Semiconductor equipment supplier Tokyo Electron slumped 4.8 percent and semiconductor test equipment maker Advantest plummeted 5.8 percent.

Heavyweight SoftBank Group declined 4.9 percent after Indian startup Oyo Hotels and Homes, one of the SBG's high-profile bets, said losses surged sevenfold last fiscal year.

Australian markets edged lower, with technology stocks falling heavily after Apple flagged a revenue miss amid weakening demand and production in China from the coronavirus outbreak, which has so far killed more than 1,800 people in the country.

The benchmark S&P/ASX 200 Index dropped 11.40 points, or 0.2 percent, to 7,113.70, while the broader All Ordinaries Index ended down 12.90 points, or 0.2 percent, at 7,208.30. Trading activity was subdued due to a public holiday in the United States on Monday.

Shares of Altium slumped 7.9 percent after the design software company warned that its revenue for the full year will be at the lower end of its guidance range due to the impact of the coronavirus in China. Appen lost 4.2 percent.

Ansell shares tumbled almost 3 percent. The surgical gloves and protective clothing group said overall the coronavirus would have a mixed impact on it and "a minimal net impact" on annual results. Supermarket giant Coles Group declined 1 percent after posting near-flat half-year earnings.

BHP Group edged up 0.8 percent as the miner reported a 39 percent jump in its half-year profit. Rival Rio Tinto gained half a percent and Fortescue Metals Group climbed 1.3 percent.

Seven West Media plunged more than 21 percent after the media firm reported a first-half statutory loss on lower revenues and said it will not pay an interim dividend.

The Aussie dollar has turned lower after the Reserve Bank of Australia revealed in the minutes from its rate decision last meeting that "a further reduction in interest rates could encourage additional borrowing at a time when there was already a strong upswing in the housing market amid rising house prices."

Seoul stocks fell sharply after reports suggested that the Trump administration is considering new restrictions on exports of cutting-edge technology to China in a move targeting Huawei Technologies Co., China's largest smartphone maker. The Kospi tumbled 33.29 points, or 1.5 percent, to close at 2,208.88.


European stocks have fallen on Tuesday, with technology and mining stocks pacing the declines after Apple became the latest company to warn of trouble from the coronavirus outbreak, saying it would not meet its guidance for March-quarter revenue because of slower iPhone production.

While the French CAC 40 Index has fallen by 0.4 percent, the German DAX Index and the U.K.’s FTSE 100 Index are down by 0.7 percent and 0.8 percent, respectively.

Technology stocks fell broadly, with STMicroelectronics NV, Dialog Semiconductor and Infineon Technologies shares posting notable losses.

French speed-train maker Alstom has also slumped. The company has signed a Memorandum of Understanding with Bombardier Inc. and Caisse de dépôt et placement du Québec for the acquisition of Bombardier Transportation.

Automaker Renault and Peugeot have also dropped after industry data showed Europe's passenger car demand decreased in January. German automakers BMW, Daimler and Volkswagen have also moved lower..

Passenger car registrations contracted 7.5 percent year-on-year in January due to the uncertainty caused by the U.K.'s departure from the European Union and weakening of global economic conditions.

Car sales dropped 13.4 percent year-on-year in France, the biggest fall among the main markets, and by 7.6 percent in Spain. Sales declined by 7.3 percent in Germany and 5.9 percent in Italy.

Glencore has tumbled after reporting its first annual net loss since 2015 after writing down $2.8 billion in coal, oil and copper assets. BHP has also declined 1 after reporting its half-year results.

Asia-focused lender HSBC Holdings has plummeted. The bank's net profit for 2019 plunged 53 percent due to a substantial amount of goodwill impairment.

U.S. Economic Reports

Growth in New York manufacturing activity saw a notable acceleration in the month of February, according to a report released by the Federal Reserve Bank of New York on Tuesday.

The New York Fed said its general business conditions index climbed to 12.9 in February from 4.8 in January, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to inch up to 5.0.

The bigger than expected increase by the headline index came as the new orders index shot up 16 points to 22.1 and the shipments index climbed to 18.9.

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of February. Economists expect the housing market to edge down to 74 in February after slipping to 75 in January.
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