Market Analysis

Beyond the Number

Futures Pointing To Initial Weakness On Wall Street
2/20/2020 9:06 AM

The major U.S. index futures are pointing to a lower opening on Thursday, with stocks likely to give back ground after ending the previous session mostly higher.

Traders continue to keep an eye on developments regarding the coronavirus outbreak, which has contributed to some volatility on Wall Street in recent sessions.

While China reported just 394 new confirmed cases on Wednesday compared to 1,749 cases a day earlier, South Korea reported 31 new cases of the coronavirus.

The jump in confirmed cases in South Korea combined with news of the deaths of two passengers aboard a cruise ship docked in Japan has led to renewed concerns about the spread of the disease.

Selling pressure may be somewhat subdued, however, as traders also react to the People’s Bank of China’s widely expected move to cut its benchmark one-year loan prime rate by 10 basis points.

The rate cut adds to a slew of fiscal and monetary measures in recent weeks aimed at mitigating the economic damage from the coronavirus outbreak.

Following the weakness seen on Tuesday, stocks moved mostly higher during trading on Wednesday. With the upward move on the day, the Nasdaq and the S&P 500 reached new record closing highs.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Dow rose 115.84 points or 0.4 percent to 29,348.03, the Nasdaq advanced 84.44 points or 0.9 percent to 9,817.18 and the S&P 500 climbed 15.86 points or 0.5 percent to 3,386.15.

Easing concerns about the coronavirus outbreak contributed to the strength on Wall Street after Chinese officials reported the lowest number of newly confirmed cases since late January.

China's National Health Commission reported 1,749 new cases of the coronavirus, bringing the nationwide total to 74,185. More than 2,000 people have died as a result of the outbreak.

A rebound by shares of Apple (AAPL) also generated some positive sentiment, with the tech giant jumping by 1.5 percent after slumping by 1.8 percent on Tuesday.

Apple warned of weaker than previously forecast second quarter revenue due to the coronavirus outbreak, but traders seem optimistic the impact will only be temporary.

On the U.S. economic front, the Labor Department released a report showing producer prices increased by much more than anticipated in the month of January.

The Labor Department said it producer price index for final demand climbed by 0.5 percent in January after rising by 0.2 percent in December. Economists had expected producer prices to inch up by 0.1 percent.

Excluding a pullback in energy prices and a modest increase in food prices, core producer prices still rose by 0.5 percent in January compared to economist estimates for a 0.2 percent uptick.

A separate report released by the Commerce Department showed a pullback in new residential construction in the month of January.

The Commerce Department said housing starts slumped by 3.6 percent to an annual rate of 1.567 million in January after soaring by 17.7 percent to a revised rate of 1.626 million in December.

Economists had expected housing starts to tumble by 11.4 percent to a rate of 1.425 million from the 1.608 million originally reported for the previous month.

Meanwhile, the report said building permits spiked by 9.2 percent to an annual rate of 1.551 million in January after sliding by 3.7 percent to a revised rate of 1.420 million in December.

Building permits, an indicator of future housing demand, had been expected to rise by 2.4 percent to a rate of 1.450 million from the 1.416 million originally reported for the previous month.

Toward the end of the trading day, the Federal Reserve released the minutes of its latest monetary policy meeting, which reiterated Fed officials believe leaving interest rates at their current levels is likely to remain appropriate for some time.

The minutes of the January meeting made several references to the coronavirus outbreak but are likely to reinforce expectations that the Fed will remain on hold at upcoming meetings.

Natural gas stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Natural Gas Index up by 2.9 percent.

The rally by natural gas stocks came despite a decrease by the price of the commodity, as crude for March delivery fell $0.026 to $1.955 per million BTUs.

Substantial strength was also visible among semiconductor stocks, as reflected by the 2.6 percent jump by the Philadelphia Semiconductor Index.

Gold, oil and brokerage stocks also saw considerable strength on the day, while interest rate-sensitive real estate and utilities stocks showed notable moves to the downside.

Commodity, Currency Markets

Crude oil futures are rising $0.42 to $53.71 a barrel after jumping $1.24 to $53.29 a barrel on Wednesday. Meanwhile, after climbing $8.20 to $1,611.80 an ounce in the previous session, gold futures are up $6.60 at $1,618.40 an ounce.

On the currency front, the U.S. dollar is trading at 111.98 yen compared to the 111.37 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0807 compared to yesterday’s $1.0804.


Asian stocks ended mixed on Thursday as coronavirus cases rose in South Korea and Japan, offsetting hopes of further stimulus in China and the Fed's upbeat tone on the health of the U.S. economy.

China's National Health Commission reported only 394 new confirmed cases related to the coronavirus outbreak as of February 19, sharply lower than the 1,749 new cases reported in the previous day.

Chinese stocks ended on a firm note after the People's Bank of China cut its benchmark one-year loan prime rate by 10 basis points, as anticipated, adding to a slew of fiscal and monetary measures in recent weeks aimed at mitigating the economic damage from the coronavirus outbreak.

The benchmark Shanghai Composite Index surged up 54.75 points, or 1.8 percent, to 3,030.15, while Hong Kong's Hang Seng Index edged down 46.65 points, or 0.2 percent, to 27,609.16.

Japanese stocks closed higher as a sharp sell-off in the yen helped lift exporters. The Nikkei 225 Index rose 78.45 points, or 0.3 percent, to 23,479.15, while the broader Topix ended 0.2 percent higher at 1,674.48.

Automakers Honda Motor, Subaru and Toyota surged 2-3 percent after the yen hit a nearly 10-month low versus the dollar overnight against a backdrop of a weakening economy and the coronavirus outbreak. There were over 70 confirmed cases in Japan as of Wednesday.

Market heavyweight SoftBank Group rallied 3.4 percent after the tech conglomerate unveiled plans to borrow as much as 500 billion yen ($4.5 billion) to improve working capital.

Seven & i Holdings lost 8.8 percent on a Bloomberg report that the retail group is in exclusive talks to buy Marathon Petroleum's Speedway business.

Australian markets reached new record highs before ending off their best levels. The benchmark S&P/ASX 200 Index edged up 17.90 points, or 0.3 percent, to 7,162.50, while the broader All Ordinaries Index ended up 17.80 points, or 0.3 percent, at 7,255.20.

Miners extended gains for the third straight session. Mining heavyweights BHP and Rio Tinto edged up marginally, while smaller rival Fortescue Metals Group advanced 1.8 percent and Illuka Resources jumped 6.4 percent.

Retail conglomerate Wesfarmers gained 0.8 percent to extend gains, while Coca-Cola Amatil surged 8.6 percent on upbeat earnings. Carrier Qantas Airways jumped 5.9 percent on share buyback news.

ANZ shares rose about 1 percent after the bank posted its first quarterly home loan growth in almost two years. Origin Energy, the country's largest electricity and gas retailer, rallied 1.8 percent after its flagship APLNG project reported record output in the first half.

Meanwhile, Whitehaven Coal shares plummeted 5.5 percent. The coal producer reported a 91 percent slump in profit for the first half of the year and lowered its interim dividend.

On the economic front, the unemployment rate in Australia came in at a seasonally adjusted 5.3 percent in January. That exceeded expectations for 5.2 percent and was up from 5.1 percent in December.

The economy added 13.500 jobs last month, again surpassing forecasts for a gain of 10,000 jobs, following the gain of 28,900 jobs in the previous month.

Seoul stocks ended notably lower as investors fretted about the spread of the coronavirus in the country. The Kospi slid 14.84 points, or 0.7 percent, to 2,195.50, dropping below the 2,200-point mark for the first time since February 5 after South Korea reported 31 new cases of the coronavirus, bringing the total number of infections to 82.


European stocks have pulled back slightly from record highs on Thursday as the coronavirus outbreak showed signs of spreading globally, raising fresh concerns about global growth.

There were over 70 confirmed cases in Japan as of Wednesday, the third highest number after China, while South Korea reported 31 new cases of the coronavirus today, bringing the total number of infections in the country to 82.

On the data front, German consumer confidence is set to ease slightly in March, as a modest gain in economic expectations is offset by moderate losses in the income outlook and the propensity to buy, results of a monthly survey by market research firm GfK showed.

The forward-looking GfK consumer confidence index fell to 9.8 points for March from 9.9 in February, in line with economists' expectations.

Separately, U.K. retail sales grew 0.9 percent sequentially in January after falling in the previous two months, official data showed.

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

Swiss reinsurer Swiss Re has fallen sharply after its 2019 profit missed forecasts due to claims for a series of man-made and natural disasters, as well as expenses for its U.S. casualty business.

Telefonica SA shares have also come under pressure. The Spanish telecommunications company slipped to a net loss in the fourth quarter on the back of restructuring costs and impairments from Mexico and Argentina.

Swedish radiation therapy equipment maker Elekta AB has also slumped after its quarterly operating profit growth came in below estimates.

Air France-KLM Group is also posting a steep loss on the day after the airline warned of the coronavirus’ impact on earnings.

Axa shares have also declined. The insurer lowered its 2020 profit guidance for its companies-focused XL unit and named a new boss for the division.

On the other hand, Bouygues SA, a telecommunications, media, and construction company, has rallied after its full-year sales and profit figures topped forecasts.

Schneider Electric shares have also surged. The company reported fiscal 2019 net income (Group share) of 2.41 billion euros compared to 2.33 billion euros in the previous year.

Lloyds Banking Group shares have also jumped after the bank posted a 26 percent drop in pre-tax profits for 2019 and said it had reached a settlement with the Official Receiver over the mis-selling of payment protection insurance.

Medical technology business Smith & Nephew has soared as it reported revenues of more than $5 billion for the first time in its history.

BAE Systems has also moved notably higher. The defense company reported pre-tax profit of 1.6 billion pounds for the year ended December 31, 2019 compared to 1.2 billion pounds in the previous year.

Fresenius Medical Care has also jumped after the company said it expects both revenue and net income to grow at a mid to high single digit rate in 2020.

U.S. Economic Reports

A report released by the Labor Department on Thursday showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended February 15th.

The Labor Department said initial jobless claims crept up to 210,000, an increase of 4,000 from the previous week’s revised level of 206,000.

Economists had expected jobless claims to inch up to 210,000 from the 205,000 originally reported for the previous week.

Meanwhile, the Philadelphia Federal Reserve released a report unexpectedly showing another substantial acceleration in the pace of growth in Philadelphia-area manufacturing activity in the month of February.

The Philly Fed said its diffusion index for current general activity skyrocketed to 36.7 in January after spiking to 17.0 in January, with a positive reading indicating growth in regional manufacturing activity.

The continued increase by the Philly Fed Index came as a surprise to economists, who had expected the index to dip to 12.0. With the unexpected jump, the Philly Fed Index reached its highest reading since February of 2017.

The Conference Board is due to release its report on leading economic indicators in the month of January at 10 am ET. The leading economic index is expected to rise by 0.3 percent in January after dipping by 0.3 percent in December.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended February 14th.

Crude oil inventories are expected to increase by 3.8 million barrels after jumping by 7.5 million barrels in the previous week.

The Treasury Department is also due to announce the details of this month’s auctions of two-year, five-year and seven-year notes at 11 am ET.

At 1:20 pm ET, Richmond Federal Reserve President Tom Barkin is scheduled to talk with senior fellow Megan Greene at the Harvard Kennedy School in Cambridge, Massachusetts.

Stocks In Focus

Shares of L Brands (LB) are moving sharply lower in pre-market trading after the retailer announced an agreement to sell a majority stake in Victoria’s Secret to private equity firm Sycamore Partners for approximately $525 million.

Media giant ViacomCBS (VIAC) may also come under pressure after reporting weaker than expected fourth quarter results its first earnings report since the merger of Viacom and CBS.

On the other hand, shares of E*Trade (ETFC) are seeing substantial pre-market strength after the online broker agreed to be acquired by Morgan Stanley (MS) in an all-stock transaction valued at approximately $13 billion.

Marathon Petroleum (MPC) may also see initial strength amid reports Japan’s Seven & i Holdings is in talks to acquire the company’s Speedway gas stations for about $22 billion.
Follow RTT
Tomorrows Potential Movers