Market Analysis

Beyond the Numbers

Futures Pointing To Initial Weakness On Wall Street
6/4/2020 8:58 AM

The major U.S. index futures are currently pointing to a lower opening on Thursday, although the futures have fluctuated over the course of the morning.

Profit taking may lead to some initial weakness on Wall Street as traders cash in on the strong upward move seen in recent sessions.

The major averages have climbed well off their March lows amid optimism about an economic recovery, with the tech-heavy Nasdaq within striking distance of its record highs.

Negative sentiment may also be generated in reaction to a report from the Labor Department showing first-time claims for U.S. unemployment benefits fell by less than expected in the week ended May 30th.

However, stock futures briefly turned positive after the European Central Bank announced additional stimulus to deal with the economic fallout from the coronavirus pandemic.

The ECB announced that it will increase its Pandemic Emergency Purchase Programme by 600 billion euros. The bank announced plans to purchase 750 billion euros of government bonds back in March.

Stocks moved sharply higher over the course of the trading day on Wednesday, extending the upward trend seen in recent sessions. The rally lifted the Dow and the S&P 500 three-month closing highs, while the tech-heavy Nasdaq continued to close in on the record highs set in February.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow surged up 527.24 points or 2.1 percent to 26,269.89, the Nasdaq advanced 74.54 points or 0.8 percent to 9,682.91 and the S&P 500 jumped 42.05 points or 1.4 percent to 3,122.87.

The continued strength on Wall Street came as new economic data added to investor optimism about a quick recovery, including a report from payroll processor ADP showing the pace of private sector job losses slowed by much more than anticipated in the month of May.

ADP said private sector employment slumped by 2.76 million jobs in May after plummeting by a revised 19.557 million jobs in April.

Economists had expected employment to plunge by about 9.0 million jobs compared to 20.236 million job nosedive originally reported for the previous month.

"While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses," said Ahu Yildirmaz, co-head of the ADP Research Institute.

Mark Zandi, chief economist at Moody's Analytics, which compiles the report with ADP, declared the "Covid-19 recession is over" following the release of the data.

A separate report from the Institute for Supply Management also showed the pace of contraction in the service sector slowed by even more than economists had been expecting.

The ISM said its non-manufacturing index rebounded to 45.4 in May after plunging to an eleven-year low of 41.8 in April.

A reading below 50 still indicates a contraction in service sector activity, but the index came in above economist estimates for a reading of 44.0.

The U.S. data came after survey results from IHS Markit showed China's service sector expanded for the first time in four months in May amid an easing of measures implemented to curb the spread of the coronavirus.

Banking stocks turned in some of the market's best performances amid the optimism about an economic recovery, with the KBW Bank Index spiking by 5.2 percent. The index ended the session at its best closing level in nearly three months.

Economic optimism also contributed to a rally by steel stocks, driving the NYSE Arca Steel Index up by 4 percent to a three-month closing high.

Substantial strength also emerged among transportation stocks, as reflected by the 3.4 percent jump by the Dow Jones Transportation Average.

Boeing (BA) posted a standout gain after two 737 Max customers deferred deliveries rather than canceling their orders for the aerospace's giant troubled plane.

Brokerage, oil service, housing and commercial real estate stocks also saw significant strength, moving higher along with most of the other major sectors.

Meanwhile, gold stocks bucked the uptrend, with the NYSE Arca Gold Bugs Index plunging by 3.6 percent amid a steep drop by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are sliding $0.48 to $36.81 a barrel after climbing $0.48 to $37.29 a barrel on Wednesday. Meanwhile, after plunging $29.20 to $1,704.80 an ounce in the previous session, gold futures are jumping $15.10 to $1,719.90 an ounce.

On the currency front, the U.S. dollar is trading at 108.71 yen versus the 108.90 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1238 compared to yesterday’s $1.233.


Asian stocks rose broadly on Thursday as social unrest across the U.S. showed signs of calming and the ADP's U.S. private sector jobs report showed employers cut fewer jobs than expected in May.

However, Chinese shares finished slightly lower due to lingering worries about diplomatic tensions between the United States and China.

The benchmark Shanghai Composite Index slipped 4.12 points, or 0.1 percent, to 2,919.25, although Hong Kong's Hang Seng Index edged up 40.68 points, or 0.2 percent, to 24,366.30.

Japanese shares rose for a fourth straight session as the safe-haven yen weakened amid continued optimism about easing of lockdowns in some pandemic-hit economies.

The Nikkei 225 Index rose 81.98 points, or 0.4 percent, to 22,695.74, while the broader Topix closed 0.3 percent higher at 1,603.82.

Exporters ended on a mixed note. Honda Motor, Toyota and Sony rose between 0.6 percent and 1.6 percent, while Canon dropped 1 percent and Nissan Motor fell 2.1 percent.

Airlines lost ground, with Japan Airlines and ANA Holdings falling 1 percent and 1.7 percent, respectively.

Australian markets gained ground after the country's prime minister unveiled a fourth stimulus package worth A$680 million ($471 million) to repair an economy that is now in its first recession in 29 years.

The benchmark S&P/ASX 200 Index gained 50.20 points, or 0.8 percent, to finish at 5,991.80, while the broader All Ordinaries Index ended up 47.10 points, or 0.8 percent, at 6,112.

Lender Westpac rose 1.3 percent after releasing the findings of an investigation into its money laundering and child exploitation scandal.

The other three big banks gained between 1.2 percent and 2.4 percent, while Credit Corp Group advanced 1.6 percent and Bendigo and Adelaide Bank jumped 2.8 percent.

Energy companies Woodside Petroleum, Santos, Oil Search and Beach Energy dropped 1-3 percent as oil prices fell in Asian trading on uncertainty about when OPEC would meet.

Gold miners Evolution and Newcrest shed around 3 percent after gold prices hit a more than three-week low overnight.

On the data front, Australia posted a seasonally adjusted merchandise trade surplus of A$8.800 billion in April, a government report showed, down 16 percent from the previous month.

The total value of retail sales in Australia tumbled by a seasonally adjusted 17.7 percent sequentially in April, another report showed.

Seoul stocks rose a day after the government unveiled the country's largest supplementary budget to revive the economy amid the fallout from the coronavirus pandemic. The benchmark Kospi inched up 4.18 points, or 0.2 percent, to 2,151.18.

South Korea had a current account deficit of $3.12 billion in April, the Bank of Korea said in a report. That follows the downwardly revised surplus of $5.95 billion in March (originally $6.23 billion). The goods account surplus narrowed to $0.82 billion, compared to $5.61 billion in April.


European stocks have moved lower on profit taking on Thursday after three days of strong gains on optimism around reopening and hopes of economic recovery.

The weakness in the markets comes even though the European Central Bank announced additional stimulus to deal with the economic fallout from the coronavirus pandemic.

The ECB announced that it will increase its Pandemic Emergency Purchase Programme by 600 billion euros. The bank announced plans to purchase 750 billion euros of government bonds back in March.

Late Wednesday, the German coalition government agreed to a €130 billion ($211 billion) stimulus package to help Europe's biggest economy recover from the coronavirus crisis.

While the French CAC 40 Index has fallen by 0.4 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both down by 0.6 percent.

LVMH Moet Hennessy Louis Vuitton shares have fallen. The luxury products maker confirmed that it is not considering buying Tiffany & Co. shares on the market.

Intermediate Capital Group has also tumbled. The asset manager reported a rise in net assets, but profit fell 37 percent for the year ended March 31.

Rolls Royce Holding ha also moved to the downside. The engineering giant, which makes jet engines, said it would slash more than 3,000 jobs in the U.K. due to the coronavirus pandemic.

BP Plc and Royal Dutch Shell wareere moving lower as oil prices have declined on concerns that major producers will be unable to agree to extend the record level of output cuts that have supported recent gains.

On the other hand, spirits company Remy Cointreau has jumped after it predicted a strong recovery in the second half, driven by China and the United States.

In economic news, Eurozone retail sales decreased 11.7 percent month-on-month in April, following an 11.1 percent drop in March, Eurostat data showed. Economists had forecast a monthly decrease of 15 percent.

The U.K. construction sector downturn eased in May, reflecting a gradual reopening of construction sites as lockdown measures introduced to curb the spread of coronavirus were eased in England, survey data from IHS Markit showed.

The IHS Markit/Chartered Institute of Procurement & Supply construction Purchasing Managers' Index rose to 28.9 in May from 8.2 in April. This was the second lowest score since February 2009.

The construction Purchasing Managers' Index for Germany rose to 40.1 in May from 31.9 in April. Output remained deep in contraction territory in May amid reports of restrictions on workplace activity and a slump in new work.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits pulled back further off their recent record high in the week ended May 30th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims tumbled to 1.877 million, a decrease of 249,000 from the previous week’s revised level of 2.126 million.

Economists had expected jobless claims to slump to 1.800 million from the 2.123 million originally reported for the previous week.

Jobless claims pulled back further off the record high of 6.867 million set in the week ended March 28th, although the number of new claims since the coronavirus lockdowns now exceeds 42.6 million.

A separate report released by the Commerce Department on Thursday showed the U.S. trade deficit widened by slightly more than anticipated in the month of April.

The Commerce Department said the trade deficit widened to $49.4 billion in April from a revised $42.3 billion in March.

Economists had expected the trade deficit to widen to $49.0 billion from the $44.4 billion originally reported for the previous month.

The wider trade deficit came as the value of exports plunged by 20.5 percent to $151.3 billion, while the value of imports tumbled by 13.7 percent to $200.7 billion.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

Stocks In Focus

Shares of Cloudera (CLDR) are moving sharply lower in pre-market trading after the software company reported better than expected fiscal first quarter results but provided disappointing guidance.

J.M. Smucker (SJM) may also move to the downside after providing weak full-year earnings guidance. The food company reported fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of The Michaels Companies (MIK) are also likely to come under pressure after the arts and crafts retailer reported fiscal first quarter earnings that came in well below expectations.

On the other hand, shares of Navistar are likely to see initial strength after the trucks and diesel engines maker reported a narrower than expected fiscal second quarter loss.
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