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Beyond the Numbers

Profit Taking May Contribute To Pullback On Wall Street
3/27/2020 8:55 AM

The major U.S. index futures are currently pointing to a substantially lower opening on Friday, with stocks likely to give back ground after moving sharply higher over the past few sessions.

Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on the strong gains seen in recent days.

Lingering concerns about the economic impact of the coronavirus may weigh on the markets, as the number of confirmed cases in the U.S. surpasses the number of cases in China or Italy.

According to data from Johns Hopkins University, there have been nearly 86,000 confirmed coronavirus cases in the U.S. and 1,300 deaths.

Meanwhile, traders are likely to keep an eye on the latest developments in Washington, where the House is scheduled to vote on the $2 trillion stimulus bill passed by the Senate late Wednesday.

With many members currently stuck at home, House Democratic leaders hope to pass by the bill by voice vote but could face challenges if there are any objections.

Stocks moved sharply higher over the course of the trading session on Thursday as traders shrugged off data showing a spike in first-time jobless claims. The Dow and the S&P 500 closed higher for the third straight day, climbing further off Monday's three-year lows.

The major averages saw further upside going into the close, ending the day just off their highs of the session. The Dow spiked 1,351.62 points or 6.4 percent to 22,552.17, the Nasdaq soared 413.24 points or 5.6 percent to 7,797.54 and the S&P 500 skyrocketed 154.51 points or 6.2 percent to 2,630.07.

The rally on Wall Street came even though the Labor Department released a report before the start of trading showing first-time claims for unemployment benefits soared last week, as large swaths of the U.S. economy were shut down due to the coronavirus pandemic.

The Labor Department said initial jobless claims skyrocketed to 3,283,000 in the week ended March 21st, an increase of 3,001,000 from the previous week's revised level of 282,000.

Economists had expected jobless claims to spike to about 1.5 million from the 281,000 originally reported for the previous week.

While the increase in unemployment claims is staggering, economists noted the data may still underestimate the number of new claims due to constraints on the capacity of offices to process claims.

However, traders seem to believe the news was already priced into the markets with the sell-off seen over the past several weeks.

Any negative sentiment also seems to have been offset by last night's news that the Senate finally voted to approve a massive $2 trillion stimulus package in response to the coronavirus pandemic.

Shrugging off concerns among some Republican Senators about an expansion of unemployment benefits, the Senate eventually voted 96 to 0 in favor of the bill.

The bill now heads to the Democrat-controlled House, which will be under pressure to quickly send the legislation to President Donald Trump's desk.

House Speaker Nancy Pelosi, D-Calif., said the House will take up the legislation on Friday with strong bipartisan support.

"The longer the crisis lasts the more likely that even good quality businesses will fail and unemployment will climb higher - hence the importance of the agreement on the fiscal package that can provide support for key industries and small businesses," said ING Chief International Economist James Knightley.

Utilities stocks turned in some of the market's best performances, with the Dow Jones Utility Average spiking by 8.6 percent. The average continued to recover after ending Monday's trading at its lowest closing level in over four years.

Substantial strength was also visible among computer hardware stocks, as reflected by the 8.1 percent jump by the NYSE Arca Computer Hardware Index.

Banking stocks also saw considerable strength on the day, driving the KBW Bank Index up by 8.1 percent.

Commercial real estate, telecom, health care and semiconductor stocks also showed significant moves to the upside amid broad based buying interest.

Commodity, Currency Markets

Crude oil futures are sliding $0.52 to $22.08 a barrel after tumbling $1.89 to $22.60 a barrel on Thursday. Meanwhile, after jumping $26 to $1,660.30 an ounce in the previous session, gold futures are slumping $24.30 to $1,636 an ounce.

On the currency front, the U.S. dollar is trading at 108.76 yen versus the 109.58 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0980 compared to yesterday’s $1.1032.

Asia

Asian stocks pared early gains to end on a mixed note on Friday as worries about an impending global recession offset investor optimism over U.S. stimulus and a pledge by G20 countries to inject $5 trillion into the global economy to overcome the COVID-19 crisis.

China's Shanghai Composite Index pared early gains to close 7.29 points, or 0.3 percent, higher at 2,772.20 after data showed profits at Chinese industrial firms slumped in the first two months of the year to their lowest in at least a decade. Hong Kong's Hang Seng Index rose 131.94 points, or 6 percent, to 23,484.28.

Chinese industrial profits plunged by 38.3 percent during the January to February period compared to the same period last year, as the coronavirus epidemic weighed heavily on economic activity, data published by the National Bureau of Statistics showed.

Japanese shares gained ground amid reports that the government is drawing up a fresh economic package worth $135 billion or more to aid people and businesses bearing the brunt of the global coronavirus outbreak.

The Nikkei 225 Index rallied 724.83 points, or 3.9 percent, to 19,389.43 after falling as much as 4.5 percent in the previous session. For the week, the index surged 17.1 percent, logging its biggest weekly gain ever.

The broader Topix index closed 4.3 percent higher at 1,459.49 on the back of massive buying by passive investors.

Semiconductor-related companies led the surge, with Tokyo Electron climbing 5.1 percent and Shin-Etsu Chemical adding 6.1 percent after U.S. chipmaker Micron Technology reported better than expected quarterly results.

Heavyweight SoftBank Group jumped 2.9 percent after losing more than 9 percent the previous day on a Moody's downgrade.

Overall consumer prices in the Tokyo region of Japan were up 0.4 percent year-on-year in March, the Ministry of Communications and Internal Affairs said in a report. That exceeded expectations for an increase of 0.3 percent and was unchanged from the February reading.

Core CPI, which excludes volatile food prices, also advanced an annual 0.4 percent - in line with expectations and down from 0.5 percent in the previous month.

Australian markets reversed course to end sharply lower, following three days of gains. The benchmark S&P/ASX 200 Index plunged 270.90 points, or 5.3 percent, to 4,842.40, while the broader All Ordinaries Index plummeted 261.00 points, or 5.1 percent, at 4,874.20.

Mining heavyweights BHP and Rio Tinto fell 3-5 percent, while smaller rival Fortescue Metals Group lost 8.8 percent. The big four banks dropped 6-7 percent. In the energy sector, Woodside Petroleum shed 6.4 percent after lowering its earnings outlook for fiscal 2020. Santos plummeted 10 percent and Beach Energy tumbled 5 percent.

Supermarket chain Woolworths Group lost 5.3 percent. The company said it would create 20,000 new jobs to meet a surge in demand amid the coronavirus pandemic. Rival Coles Group declined 5 percent.

Seoul stocks rose sharply after a series of hefty global stimulus measures to tackle the economic fallout from the novel coronavirus pandemic. The benchmark Kospi surged up 31.49 points, or 1.9 percent, to 1,717.73.

In economic news, consumer confidence in South Korea tanked in March, the Bank of Korea said after its monthly index tumbled 18.5 points to a reading of 78.4.

Europe

European stocks have fallen on profit taking Friday as fears of a deep global recession overshadowed optimism about more stimulus measures by global central banks and governments.

Virus anxiety has also deepened as the U.S. surpassed China and Italy with at least 82,100 reported coronavirus cases. There are now more than half a million cases of coronavirus reported in 202 countries and territories around the world.

While the U.K.’s FTSE 100 Index has plummeted by 5 percent, the French CAC 40 Index is down by 4 percent and the German DAX Index is down by 3.3 percent.

German automaker Volkswagen has come under pressure after extending the suspension of production at its passenger cars brand, commercial vehicles as well as Volkswagen group components until April 9.

Cairn Energy has also moved sharply lower. The oil and gas exploration and development company announced an overall 23 percent reduction in capital spending for the year 2020 in light of current market conditions.

Faurecia shares have also slumped as the automotive supplier abandoned its financial outlook due to the hit to its business from the coronavirus outbreak.

Ophthalmic company EssilorLuxottica is also posting a steep loss. Due to the evolving coronavirus pandemic, the company said its outlook for fiscal 2020 is no longer valid.

British housebuilder Redrow has also plummeted. The company has decided to commence with immediate effect, an orderly and safe closure of all of the company's sites and offices.

In addition, the company revealed that it was in talks with banks to secure additional credit and had applied to take part in the Bank of England's scheme for financing support.

Rightmove has also shown a notable move to the downside. Due to the uncertainties caused by the impact of COVID-19, the online real estate portal and property website has suspended all existing financial guidance for 2020.

Retailer Next Plc has fallen sharply after announcing it has decided to temporarily close its online, warehousing and distribution Operations due to Covid-19.

In economic news, French consumer confidence weakened slightly in March, survey results from the statistical office Insee showed. The corresponding index dropped to 103 from 104 in February.

U.S. Economic Reports

The Commerce Department released a report on Friday showing personal income in the U.S. increased more than expected in the month of February, while personal spending rose in line with economist estimates.

The report said personal income climbed by 0.6 percent in February, matching the increase seen in January. Economists had expected income to rise by 0.4 percent.

Meanwhile, the Commerce Department said personal spending edged up by 0.2 percent for the second straight month, matching expectations.

A reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth ticked up to 1.8 percent in February from an upwardly revised 1.7 percent in January.

At 10 am ET, the University of Michigan is scheduled to release its revised reading on consumer sentiment in the month of March.

The consumer sentiment index for March is expected to be downwardly revised to 90 from the preliminary reading of 95.9, which was down from 101.0 in February.

Stocks In Focus

Shares of Lululemon (LULU) are seeing notable pre-market weakness after the activewear maker reported better than expected fiscal fourth quarter results but did not provide full-year guidance and said sales saw a significant downturn in the second week of this month.

Apparel retailer Gap (GPS) may also move to the downside after withdrawing its full-year guidance and suspending its regular quarterly cash dividend for the remainder of the year due to the coronavirus outbreak.

On the other hand, shares of GameStop (GME) are moving sharply higher in pre-market trading after the video game retailer reported better than expected fiscal fourth quarter earnings and said it has seen comparable sales growth for the March month-to-date period.

Homebuilder KB Home (KBH) is also likely to see initial strength after reporting fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.
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