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Beyond the Numbers

Optimism About Economic Recovery Overshadows Social Unrest
6/2/2020 9:03 AM

The major U.S. index futures are currently pointing to a higher on Tuesday, with stocks likely to add to the gains posted in the previous session.

Unrelenting optimism about an economic recovery is likely to contribute to continued strength on Wall Street despite recent social unrest.

Traders largely seem to be looking past the large-scale protests across the country amid expectations the economy will quickly rebound from the coronavirus-induced downturn.

Recent strength on Wall Street suggests traders are more optimistic than most economists, who have warned the recovery will take time.

Following the strong gains posted last week, stocks saw some further upside during the trading session on Monday. With the continued advance on the day, the Nasdaq and the S&P 500 ended the session at their best closing levels in three months.

The major averages ended the day off their highs of the session but still firmly in positive territory. The Dow climbed 91.91 points or 0.4 percent to 25,475.02, the Nasdaq advanced 62.18 points or 0.7 percent to 9,552.05 and the S&P 500 rose 11.42 points or 0.4 percent to 3,055.73.

The continued strength on Wall Street came following the release of a report from the Institute for Supply Management showing U.S. manufacturing activity contracted at a slower rate in the month of May.

The ISM said its purchasing managers index rose to 43.1 in May from 41.5 in April, coming in just below economist estimates for a reading of 43.6.

While the index rebounded from its lowest level since April of 2009, a reading below 50 still indicates a contraction in manufacturing activity.

Nonetheless, Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, said the latest figure indicates expansion in the overall economy after April's contraction.

The report from the ISM came on the heels of a private survey showing the Chinese manufacturing sector expanded in May.

The Caixin manufacturing PMI score came in at 50.7 in May, beating expectations for a score of 49.6 and up from 49.4 in April. A reading above 50 indicates an expansion in manufacturing activity.

A separate report from the Commerce Department showed a sharp pullback in U.S. construction spending in the month of April, although the decrease was much smaller than economists had expected.

Traders remain generally optimistic about economies reopening despite political unrest across the country following the death of George Floyd, which has forced a number of major retailers to temporarily close their stores in areas hit hard by protests.

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.8 percent.

The rally by gold stocks came despite a modest decrease by the price of the precious metal.

Significant strength was also visible among banking stocks, with the KBW Bank Index jumping by 1.9 percent following the sharp pullback seen over the two previous sessions.

Natural gas, commercial real estate and oil stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are climbing $0.57 to $36.01 a barrel after edging down $0.05 to $35.44 a barrel on Monday. Meanwhile, after slipping $1.40 to $1,750.30 an ounce in the previous session, gold futures are easing $1 to $1,749.30 an ounce.

On the currency front, the U.S. dollar is trading at 108.38 yen compared to the 107.59 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1166 compared to yesterday’s $1.1136.

Asia

Asian stocks rose on Tuesday as hopes of an economic recovery after the coronavirus pandemic helped offset jitters over social unrest in the U.S. and rising U.S.-China tensions.

China's Shanghai Composite Index inched up 5.97 points, or 0.2 percent, to 2,921.40 as investors brushed off news that Beijing had ordered its state-run agricultural firms to temporarily halt buying some U.S. farm goods.

Hong Kong's Hang Seng Index jumped 263.42 points, or 1.1 percent, to 23,995.94 even as data showed a continued slump in retail sales in April.

Japanese shares hit a more than three-month high as investors pinned hopes on an economic recovery and corporate earnings growth.

The Nikkei 225 Index rallied 263.22 points, or 1.2 percent, to 22,325.61 after earlier rising to its highest level since February 26 on optimism about the phased reopening of the Japanese economy.

On Monday, the Tokyo Metropolitan Government entered the second phase of its three-part plan to gradually ease social distancing measures and allow businesses to reopen.

The broader Topix index closed 1.2 percent higher at 1,587.68, with industrial and technology companies leading the surge.

Market heavyweight SoftBank Group jumped 3.3 percent, while Fast Retailing slipped 0.2 percent. Exporters Honda Motors, Sony and Canon rose between 1.1 percent and 2.6 percent.

Australian markets closed higher despite weakness in the mining sector. The benchmark S&P/ASX 200 Index rose 15.90 points, or 0.3 percent, to 5,835.10 as the Reserve Bank of Australia left its interest rate and the target yield on three-year government bonds unchanged, as widely expected.

Policymakers said this accommodative approach will be maintained as long as it is required. The broader All Ordinaries index ended up 21.70 points, or 0.4 percent, at 5,960.10.

Energy stocks ended mostly lower despite oil prices crawling higher ahead of OPEC plus meeting.

Australia and New Zealand Banking Group edged down slightly after it announced the sale of its asset finance unit in New Zealand, UDC Finance, to Japan's Shinsei Bank for NZ$762 million.

Miners BHP, Fortescue Metals Group and Rio Tinto fell between 0.3 percent and 0.8 percent. Gold miners Evolution and Newcrest dropped 1-2 percent after gold prices dipped overnight.

Seoul stocks rose sharply after revisions to GDP data showed a slight improvement. South Korea's GDP contracted a seasonally adjusted 1.3 percent sequentially in the first three months of 2020, the Bank of Korea said in a preliminary reading. That's an upward revision from last month's advance estimate that suggested a decline of 1.4 percent.

Another report showed that consumer prices in South Korea were down 0.3 percent year-on-year in May - missing expectations for -0.2 percent and slowing from 0.1 percent in April.

The Kospi average gained 22.11 points, or 1.1 percent, to finish at 2,087.19.

Europe

European stocks have rallied on Tuesday to hit their highest level in nearly three months as optimism around a post-coronavirus economic recovery has helped offset jitters over social unrest in the U.S. and rising U.S.-China tensions.

While the German DAX Index has spiked by 3.8 percent following yesterday’s holiday, the French CAC 40 Index is up by 2 percent and the U.K.’s FTSE 100 Index is up by 1 percent.

German automobile stocks are moving higher after the ministry of economics proposed a $6.2 billion stimulus package to boost car sales.

German airline Lufthansa has also rallied. The company's supervisory board approved a 9 billion-euro ($10 billion) government bailout for the airline.

Hospital operator Mediclinic has also advanced despite posting a net loss of 315 million pounds ($394 million) for fiscal year 2019/2020.

Meanwhile, Norway's Seadrill has plunged after the company announced plans to delist from the New York Stock Exchange.

Tesco shares have also fallen. Chief Financial Officer Alan Stewart plans to step down next year, extending a management overhaul at the U.K.'s largest supermarket.

Carrefour has also moved lower. The supermarket group has agreed to buy Wellcome Taiwan from Dairy Farm International Holdings Ltd., making it the number two player in Taiwan's convenience stores market.

In economic news, U.K. house prices fell 1.7 percent month-on-month in May, in contrast to a 0.9 percent rise in April as the impact of the coronavirus pandemic filtered through the property market, data from the Nationwide Building Society showed. This was the biggest fall since February 2009. Economists had forecast a fall of 1 percent.

U.S. Economic Reports

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

Stocks In Focus

Shares of MoneyGram (MGI) are moving sharply higher in pre-market trading after a report from Bloomberg said Western Union (WU) has offered to acquire the company in a transaction that would bring together two of the largest U.S. providers of money-transfer services.

Slack Technologies (WORK) is also likely to see initial strength after Cowen initiated coverage of the software company with an Outperform rating.

On the other hand, shares of Lululemon (LULU) may move to the downside after Wells Fargo Securities downgraded its rating on the athletic apparel maker’s stock to Equal Weight from Overweight.
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