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Beyond the Number

Futures Pointing To Mixed Open On Wall Street
5/22/2020 8:53 AM

The major U.S. index futures are currently pointing to a mixed opening on Friday, with stocks likely to show a lack of direction in early trading.

Traders may be reluctant to make significant moves as they digest the volatility seen on Wall Street over the past few sessions.

Stocks have see-sawed in recent days following the substantial rally on Monday, although the major averages are currently still poised to close higher for the week.

Concerns about rising tensions between the U.S. and China may also keep some traders on the sidelines, as Beijing moved to strengthen control over Hong Kong with new security laws.

U.S. President Donald Trump warned that Washington would react “very strongly” if China follows through on its plans.

The latest developments come after the Senate passed a bill on Wednesday that would potentially delist Chinese stocks from U.S. exchanges.

Overall trading activity may also be subdued due to the upcoming Memorial Day holiday, with some traders looking to get a head start on the long weekend.

Stocks showed a lack of direction early in the trading day on Thursday but moved mostly lower over the course of the session. The pullback on the day partly offset the strong gains posted on Wednesday.

The major averages ended the day firmly in negative territory but well off their lows of the session. The Dow fell 101.78 points or 0.4 percent to 24,474.12, the Nasdaq slumped 90.90 points or 1 percent to 9,284.88 and the S&P 500 slid 23.10 points or 0.8 percent to 2,948.51.

The weakness on Wall Street was partly due to profit taking, as some traders cashed in on the strong gains posted on Monday and Wednesday.

The advance seen in the previous session lifted the Nasdaq to a three-month closing high, while the S&P 500 reached its best closing level since early March.

The tech-heavy Nasdaq has shown a particularly strong recovery from its March lows and ended Wednesday's trading less than 5 percent below the record high set in February.

Traders were also reacting to a Labor Department report showing initial jobless claims pulled back further off their record high but remain at an elevated level.

The report said initial jobless claims dropped to 2.438 million in the week ended May 16th, a decrease of 249,000 from the previous week's revised level of 2.687 million.

Economists had expected jobless claims to tumble to 2.400 million from the 2.981 million originally reported for the previous week.

Jobless claims fell for the seventh straight week after reaching a record high of 6.867 million in the week ended March 28th.

The total number of new claims since the coronavirus-induced lockdowns began in mid-March still reached 38.6 million.

Meanwhile, the National Association of Realtors released a report showing another steep drop in U.S. existing home sales in the month of April.

NAR said existing home sales plunged by 17.8 percent to an annual rate of 4.33 million in April after tumbling by 8.5 percent to 5.27 million in March. Economists had expected existing home sales to plummet to a rate of 4.30 million.

The continued nosedive pulled existing home sales down to their lowest level since hitting 3.45 million in July of 2010.

Gold stocks regained some ground after an early sell-off but still ended the day sharply lower. The NYSE Arca Gold Bugs Index plunged by 2.9 percent, pulling back further off the seven-year intraday high set in early trading on Wednesday.

The weakness among gold stocks came amid a sharp drop by the price of the precious metal.

Significant weakness was also visible among semiconductor stocks, as reflected by the 2.7 percent slump by the Philadelphia Semiconductor Index. The index ended the previous session at a three-month closing high.

Oil stocks also saw considerable weakness even as the price of crude oil rose. The NYSE Arca Oil Index slid 1.6 percent after ending Wednesday's trading at its best closing level in well over two months.

Networking, biotechnology and software stocks also moved to the downside, while housing stocks moved higher despite the steep drop in existing home sales.

Commodity, Currency Markets

Crude oil futures are slumping $1.16 to $32.76 a barrel after rising $0.43 to $33.92 a barrel on Thursday. Meanwhile, after plunging $30.20 to $1,721.90 an ounce in the previous session, gold futures are jumping $17.10 to $1,739 an ounce.

On the currency front, the U.S. dollar is trading at 107.53 yen versus the 107.61 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0898 compared to yesterday’s $1.0950.

Asia

Asian stocks fell on Friday as China moved to strengthen control over Hong Kong with new security laws and U.S. President Donald Trump warned that Washington would react "very strongly" if Beijing follows through on its plans.

A fresh wave of U.S.-China tensions over Beijing's handling of the coronavirus outbreak also rekindled growth worries.

Chinese shares fell as tensions escalated with the U.S. and the Chinese government abandoned setting an economic growth target for the first time amid uncertainties posed by the coronavirus pandemic.

At the annual session of the National People's Congress in Beijing, Premier Li Keqiang said the country will face some factors that are difficult to predict in its development due to the great uncertainty regarding the Covid-19 pandemic and the world economic and trade environment.

The benchmark Shanghai Composite Index fell 40.62 points, or 1.4 percent, to 2,827.30. Hong Kong's Hang Seng Index plunged 1,349.89 points or 5.6 percent to 22,930.14 after China proposed to impose new national security laws on the country.

"Hong Kong is an inseparable part of the People's Republic of China," Zhang Yesui, a spokesperson for China's National People's Congress, told journalists Thursday night in Beijing.

Japanese shares fell as Hong Kong's political unrest returned as a flashpoint in fast-deteriorating U.S.-China relations. The Nikkei 225 Index dropped 164.15 points, or 0.8 percent, to 20,388.16 but rose 1.8 percent for the week. The broader Topix closed 0.9 percent lower at 1,477.80.

Market heavyweight SoftBank Group advanced 2.8 percent. The tech conglomerate said it would raise about 310.2 billion yen ($2.9 billion) by selling a 5 percent stake in its Japanese wireless subsidiary this month.

In economic news, the Bank of Japan introduced a new lending program to help small and medium-sized firms after leaving its target for short-term interest rates and the bond yield target unchanged.

A government report showed that consumer prices in Japan were up just 0.1 percent year-on-year in April - matching forecasts and slowing from the 0.4 percent increase in March.

Australian markets fell sharply as escalating U.S.-China tensions outweighed hopes of a swift recovery from the coronavirus crisis. Sentiment was also dampened after rating agency Fitch downgraded the outlook on Australia's coveted AAA credit rating to "negative" from '"stable."

The benchmark S&P/ASX 200 Index lost 53.40 points, or 1 percent, to finish at 5,497, while the broader All Ordinaries Index ended down 52.10 points, or 0.9 percent, at 5,608.80.

Healthcare stocks declined, with CSL falling 2.4 percent and Cochlear declining 1.4 percent. The big four banks ended down between 0.6 percent and 1.2 percent.

Retail conglomerate Wesfarmers finished marginally lower despite flagging a substantial non-cash impairment charge in its low-priced retail chain, Kmart Group.

Mining heavyweights BHP Group and Rio Tinto dropped 0.6 percent and 2 percent, respectively, while coal miner Whitehaven Coal lost 2.6 percent on news that China may tighten coal import rules in the second half of 2020.

Seoul stocks ended lower to snap a five-day winning streak on concerns that an escalating dispute between the United States and China may further undermine the country's exports.

The benchmark Kospi ended down 28.18 points, or 1.4 percent, at 1,970.13. Samsung Electronics, SK Hynix and Hyundai Motor fell 2-3 percent.

Europe

European stocks have turned mixed on Friday as U.S.-China tensions escalate and China decided not to set an economic growth target for 2020 due to the coronavirus pandemic.

After China moved to strengthen control over Hong Kong with new security laws, U.S. President Donald Trump warned that Washington would react "very strongly" if Beijing follows through on its plans.

Critics say that the controversial law will effectively end wide-ranging freedoms including the right to peaceful assembly and free speech that Hong Kong enjoys under the "one country, two systems" mechanism.

While the U.K.’s FTSE 100 Index has fallen by 0.3 percent, the German DAX Index and the French CAC 40 Index are up by 0.4 percent and 0.5 percent, respectively.

Luxury goods makers that rely on China and Hong Kong for a chunk of sales are among the prominent decliners. United Utilities has also slumped after posting a lower net profit for fiscal 2020.

Renault has also fallen. The automaker could disappear if it does not get help very soon to cope with the coronavirus pandemic fallout, France's Finance Minister Bruno Le Maire said.

Spectris, a supplier of precision instrumentation and controls, has also come under pressure after reporting a 20 percent drop in sales in the first four months of the year.

On the other hand, luxury fashion house Burberry Group has advanced after the company said there are signs of a rebound in China, the industry's key market.

In economic news, U.K. retail sales declined at a record pace in April as many stores were temporarily closed to contain the spread of the coronavirus, data published by the Office for National Statistics showed.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Hewlett Packard Enterprise (HPE) are moving sharply lower in pre-market trading after the computing giant reported fiscal second quarter results that missed analyst estimates on both the top and bottom lines.

Athletic footwear and apparel retailer Foot Locker (FL) may also come under pressure after reporting weaker than expected fiscal first quarter results and suspended its quarterly dividend.

Meanwhile, shares of Deere (DE) are likely to see initial strength after the construction equipment maker reported fiscal second quarter results that exceeded analyst estimates.

Cosmetics retailer e.l.f. Beauty (ELF) is also moving significantly higher in pre-market trading after reporting much better than expected fiscal fourth quarter earnings.
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