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Beyond the Numbers

Strength Overseas May Carry Over To Wall Street
7/6/2020 8:56 AM

The major U.S. index futures are currently pointing to a higher opening on Monday as traders return to their desks following the holiday weekend.

Strength in overseas markets may carry over to Wall Street, as Chinese shares skyrocketed on the day amid positive commentary on the market from state media.

China’s Securities Times said fostering a “healthy” bull market after the coronavirus pandemic is now more important to the economy than ever.

Traders also remain generally optimistic about the U.S. economic outlook following last Thursday’s better than expected jobs data.

Not long after the start of trading, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of June.

The non-manufacturing index is expected to climb to 50.0 in June from 45.4 in May, with a reading of 50 marking the dividing line between expansion and contraction.

Overall trading activity may be somewhat subdued, however, as some traders may remain away from their desks following the long weekend.

Lingering concerns about the recent spike in coronavirus cases may also keep some traders on the sidelines, with the World Health Organization reporting the biggest single-day increase in cases on Saturday.

After failing to sustain an early rally, stocks gave back some ground over the course of the trading session on Thursday. The major averages pulled back well off their best levels of the day but still managed to close in positive territory, with the Nasdaq reaching a new record closing high.

The major averages came under pressure going into the close but held on to moderate gains. The Dow rose 92.39 points or 0.4 percent to 25,827.36, the Nasdaq advanced 53.00 points or 0.5 percent to 10,207.63 and the S&P 500 climbed 14.15 points or 0.5 percent to 3,130.01.

For the holiday shortened week, the Dow surged up by 3.2 percent, the S&P 500 spiked by 4 percent and the tech-heavy Nasdaq soared by 4.6 percent.

The early rally on Wall Street came following the release of a closely watched Labor Department report showing another record spike in employment in the month of June.

The report said non-farm payroll employment skyrocketed by 4.8 million jobs in June after soaring by an upwardly revised 2.7 million jobs in May.

Economists had expected employment to surge up by about 3.0 million jobs compared to the spike of 2.5 million jobs originally reported for the previous month.

The Labor Department also said the unemployment rate dropped to 11.1 percent in June from 13.3 percent in May. The unemployment rate had been expected to dip to 12.3 percent.

The data initially added to optimism about an economic recovery, although a number of economists pointed out that the employment numbers are still well below pre-pandemic levels.

"The 4.8 million rise in non-farm payrolls in June provides further confirmation that the initial economic rebound has been far faster than we and most others anticipated," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "But that still leaves employment 9.6% below its February level and with the spread of the virus accelerating again, we expect the recovery from here will be a lot bumpier and job gains far slower on average."

A separate Labor Department report showing first-time claims for U.S. unemployment benefits fell by much less than expected in the week ended June 27th may also have limited the upside for the markets.

The Labor Department said initial jobless claims dropped to 1.427 million, a decrease of 55,000 from the previous week's revised level of 1.482 million.

Economists had expected jobless claims to tumble to 1.355 million from the 1.480 million originally reported for the previous week.

The report also showed an increase in continuing claims, a reading on the number of people receiving ongoing unemployment assistance, which climbed by 59,000 to 19.290 million in the week ended June 20.

The late-day pullback by stocks may also have reflected concerns about the recent surge in new coronavirus cases headed into the holiday weekend.

In other U.S. economic news, the Commerce Department released a report showing the U.S. trade deficit widened more than expected in the month of May amid a steep drop in the value of exports.

Despite the pullback by the broader markets, substantial strength remained visible among natural gas stocks, as reflected by the 3.2 percent jump by the NYSE Arca Natural Gas Index.

The strength in the natural gas sector came amid a notable increase by the price of the commodity, with natural gas for August delivery surging up $0.063 or 3.8 percent to $1.734 per million BTUs.

Chemical stocks also turned in a strong performance on the day, driving the S&P Chemical Sector Index up by 2.1 percent

Oil, semiconductor, and steel stocks also held on to strong gains, while gold stocks came under pressure over the course of the session.

Commodity, Currency Markets

Crude oil futures are inching up $0.11 to $40.76 a barrel after advancing $0.83 to $40.65 a barrel last Thursday. Meanwhile, after climbing $10.10 to $1,790 an ounce in the previous session, gold futures are rising $6.40 to $1,796.40 an ounce.

On the currency front, the U.S. dollar is trading at 107.46 yen versus the 107.51 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1325 compared to last Thursday’s $1.1248.

Asia

Asian stocks rose broadly on Monday as signs of an economic rebound in China as well as hopes of more stimulus measures helped offset worries over a spike in Covid-19 cases in some U.S. states and other parts of the world.

The World Health Organization said that more than 200,000 coronavirus cases were confirmed worldwide on Saturday, marking the highest single-day total since the start of the pandemic.

Chinese stocks posted strong gains amid positive commentary on the market from state media, with the Securities Times saying that fostering a "healthy" bull market after the pandemic is now more important to the economy than ever.

The benchmark Shanghai Composite Index soared 180.07 points, or 5.7 percent, to 3,332.88, while Hong Kong's Hang Seng Index jumped 966.04 points, or 3.8 percent, to 26,339.16.

Investors shrugged off the latest survey from IHS Markey showing that the private sector in Hong Kong continued to contract in June.

Japanese shares hit a nearly one-month high as hopes of faster recovery in China helped investors shrug off worries about the rising number of coronavirus cases in the U.S. and Tokyo.

Tokyo reported 102 new coronavirus cases today, marking the fifth consecutive day of more than 100 infections.

The Nikkei 225 Index rallied 407.96 points, or 1.8 percent, to 22,714.44, the highest close since June 10. The broader Topix closed 1.6 percent higher at 1,577.15.

Cyclical stocks led the gains as Chinese shares soared on hopes of a swift economic recovery in China. Nissan Motor jumped 5.2 percent after the carmaker posted brisk sales in China last month. Heavyweight SoftBank Group advanced 2.4 percent to a 14-month high on hopes of share buyback.

Meanwhile, Australian markets finished modestly lower as investors fretted about a spike in Covid-19 cases both locally and globally. A late surge in the coronavirus infections has forced Australia to seal off the state of Victoria from the rest of the country as of midnight Tuesday.

The benchmark S&P/ASX 200 Index dropped 43.30 points, or 0.7 percent, to 6,014.60, while the broader All Ordinaries Index ended down 37.80 points, or 0.6 percent, at 6,125.90.

The big four banks fell between 0.2 percent and half a percent ahead of a Reserve Bank of Australia policy meeting on Tuesday, with analysts expecting the central bank to maintain the cash rate at 0.25 percent.

Mining giants BHP and Rio Tinto lost 1.7 percent and 1 percent, respectively, while energy companies Beach Energy and Santos fell more than 1 percent each.

Mayne Pharma rallied 3.7 percent after it entered into an agreement with China's Novast Laboratories to manufacture thirteen oral contraceptives that will be marketed in the U.S.

Event Hospitality and Entertainment declined 2 percent. The cinema and hotel operator said it will not pay a final dividend for the year ended June 2020 or the half year ending December 31, 2020.

Seoul stocks rose sharply after the country's parliament approved a supplementary budget of 35.1 trillion won ($29.3 billion), raising hopes of a faster rebound by the pandemic-hit economy.

Meanwhile, South Korea reported 48 new coronavirus infections today, down from 61 reported Sunday and 63 on both Friday and Saturday.

The benchmark Kospi surged up 35.52 points, or 1.7 percent, to 2,187.93. Market bellwether Samsung Electronics jumped 2.6 percent after brokerage houses raised the company's quarterly earnings estimate.

Europe

European stocks have rallied on Monday after Chinese stocks soared on hopes the world's second-largest economy will lead a recovery from the coronavirus crisis. A slew of positive data has also boosted hopes for a quick economic recovery.

While the German DAX Index has jumped by 1.9 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 1.8 percent.

Sonova Holding has moved sharply higher. The Swiss provider of hearing solutions announced job cuts and said it expects a partial recovery in the first-half.

Homebuilders Persimmon, Taylor Wimpey and Barratt Developments have also spiked on reports that British Finance Minister Rishi Sunak plans to raise a property tax threshold.

Aviva has also shown a strong move to the upside as it announced the appointment of Amanda Blanc as Chief Executive Officer with immediate effect.

Lloyds Banking Group has also risen. Robin Budenberg CBE has been selected to succeed Lord Blackwell as Chairman.

Automakers BMW, Daimler, Volkswagen, Renault and Peugeot have also advanced on signs that the economic recovery from the coronavirus crisis is building up steam.

On the data front, Eurozone investor confidence improved in July, survey results from behavioral research firm Sentix showed. The investor confidence index improved to -18.2 in July from -24.8 in June.

Retail sales activity also rebounded strongly in the euro area in May, as lockdown restrictions were eased in most countries. Sales in the 19 countries sharing the euro zone rose by 17.8 percent in May from April, Eurostat data showed.

A survey showed the U.K. construction industry surged back to growth in June. The closely followed IHS Markit/CIPS construction purchasing managers' index skyrocketed to a reading of 55.3 last month, from 28.9 in May.

German factory orders advanced 10.4 percent month-on-month in May, reversing a steep 26.2 percent drop in April, official data revealed. Economists had forecast monthly growth of 15 percent.

U.S. Economic Reports

The Institute for Supply Management is scheduled to release its report on service sector activity in the month of June at 10 am ET.

The non-manufacturing index is expected to climb to 50.0 in June from 45.4 in May, with a reading of 50 marking the dividing line between expansion and contraction.

Stocks In Focus

Shares of Uber Technologies (UBER) are moving sharply higher in pre-market trading after the ride-sharing company announced an agreement to acquire food delivery service Postmates for approximately $2.65 billion in an all-stock transaction.

Electric car maker Tesla (TSLA) is also seeing significant pre-market strength after JMP Securities raised its price target for the company’s stock to $1,500 per share from $1,050 per share.

Shares of Becton Dickinson (BDX) may also move to the upside after the FDA granted emergency use authorization for the medical technology company’s rapid Covid-19 test that can deliver results in 15 minutes.

On the other hand, shares of Dominion Energy (D) may see initial weakness after the power company scrapped an $8 billion pipeline project and sold its natural gas transmission business to Warren Buffett’s Berkshire Hathaway (BRK.B).
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