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Beyond the Number

Futures Pointing To Roughly Flat Open On Wall Street
7/8/2020 8:59 AM

The major U.S. index futures are pointing to a roughly flat open on Wednesday following the sharp pullback seen in the previous session.

Traders may be reluctant to make significant moves as they digest the recent strength on Wall Street, which lifted the Nasdaq to a new record intraday high on Tuesday.

The tech-heavy Nasdaq may continue to outperform its counterparts, with Netflix (NFLX), Apple (AAPL) and Amazon (AMZN) all moving notably higher in pre-market trading.

Overall trading activity is likely to be somewhat subdued, however, as a lack of major U.S. economic news keeps some traders on the sidelines.

The economic calendar remains relatively light throughout the week, although reports on weekly jobless claims and producer price inflation may attract some attention in the coming days.

Traders are also likely to keep an eye on the latest news on the coronavirus front after the U.S. reported a record daily increase of more than 60,000 coronavirus cases.

Stocks moved significantly lower over the course of the trading session on Tuesday, giving back ground following the strong upward move seen in recent days. The Nasdaq reached a new record intraday high in morning trading but eventually joined the Dow and S&P 500 in negative territory.

The major averages saw further downside going into the close, ending the session near their worst levels of the day. The Dow plunged 396.85 points or 1.5 percent at 25,890.18, the Nasdaq slumped 89.76 points or 0.9 percent to 10,343.89 and the S&P 500 tumbled 34.40 points or 1.1 percent to 3,145.32.

The weakness that emerged on Wall Street came as a lack of major U.S. economic data allowed concerns about the coronavirus pandemic to resurface.

The renewed coronavirus concerns came as World Health Organization officials warned that the death toll from the pandemic may start to climb again.

The death toll has fallen in recent weeks despite the spike in new coronavirus cases in certain areas, but the WHO officials noted there is a lag between when a person contracts the disease and when they become seriously ill and potentially die.

"I don't think it should be a surprise if the deaths start to rise again. It will be very unfortunate, but it may happen," said Dr. Mike Ryan, Executive Director of the WHO Health Emergencies Programme.

Adding to the concerns, New York and New Jersey have added Delaware, Kansas and Oklahoma to the list of states from which travelers are required to self-quarantine for 14 days.

Atlanta Federal Reserve President Raphael Bostic also warned that the spike in coronavirus cases in southern and western states could slow the U.S. economic recovery.

Bostic noted in an interview with the Financial Times that high-frequency data had shown a "leveling off" of economic activity both in terms of business openings and mobility.

"There are a couple of things that we are seeing and some of them are troubling and might suggest that the trajectory of this recovery is going to be a bit bumpier than it might otherwise," Bostic said.

Profit taking may also have contributed to the pullback on Wall Street after the Nasdaq and S&P 500 closed higher for five consecutive sessions.

Airline stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Airline Index down by 4.2 percent.

Significant weakness also emerged among oil stocks, as reflected by the 3.8 percent nosedive by the NYSE Arca Oil Index.

The sell-off by oil stocks came even though the price of crude oil closed nearly flat for the second straight day.

Banking stocks also moved sharply lower over the course of the trading session, resulting in a 3.3 percent slump by the KBW Bank Index. The index ended the session at its lowest closing level in well over a month.

Computer hardware, networking and oil service stocks also came under pressure over the course of the session, while considerable strength remained visible among gold stocks.

Commodity, Currency Markets

Crude oil futures are inching up $0.10 to $40.72 a barrel after edging down $0.01 to $40.62 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,814.70, up $4.80 compared to the previous session’s close of $1,809.90. On Tuesday, gold jumped $16.40.

On the currency front, the U.S. dollar is trading at 107.57 yen compared to the 107.52 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1279 compared to yesterday’s $1.1274.

Asia

Asian stocks turned in another mixed performance on Wednesday, as the daily rise in coronavirus cases remained above 50,000 in the U.S., raising concerns over a potential delay in the economic recovery.

Gloomy economic forecasts from the Organization for Economic Cooperation and Development and the European Commission also weighed on markets.

The World Health Organization officials warned that the death toll from the pandemic may start to climb again.

Chinese shares rose for the seventh straight session on hopes of a quick economic recovery. The benchmark Shanghai Composite Index rallied 58.10 points, or 1.7 percent, to 3,403.44, while Hong Kong's Hang Seng Index climbed 153.52 points, or 0.6 percent, to 26,129.18.

Japanese shares fell as new coronavirus continued to climb globally, dampening the prospect of a swift economic recovery.

Meanwhile, as the pace of increase in infections in Japan slowed, Economy Minister Yasutoshi Nishimura said there was no need to declare a new state of emergency.

The Nikkei 225 Index swung between gains and losses before ending down 176.04 points, or 0.8 percent, at 22,438.65. The broader Topix slid 0.9 percent to 1,557.23, dragged down by mining and insurance stocks.

Market heavyweight SoftBank Group lost 2.8 percent. Shopping mall operator Aeon Mall slumped 6.3 percent after unveiling expansion plans.

On the other hand, OLED manufacturer Hodogaya Chemical Co. jumped 15.6 percent on reports that Apple will shift to OLED screens for its fifth-generation iPhones this year.

In economic news, Japan posted a current account surplus of 1,176.8 billion yen in May, official data showed. That exceeded expectations for a surplus of 1,088.2 billion yen and was up from 262.7 billion yen in April.

The trade balance showed a deficit of 556.8 billion yen, down 18.1 percent year-on-year. Exports tumbled 28.9 percent on year to 4.197 trillion yen, while imports sank an annual 27.7 percent to 4.754 trillion yen.

Australian markets fell sharply after Victoria said it would reimpose stage three restrictions for six weeks in metropolitan Melbourne and the Mitchell Shire to contain a spike in Covid-19 cases.

Federal Treasurer Josh Frydenberg has warned Victoria's coronavirus lockdowns could cost the national economy $1 billion a week.

The benchmark S&P/ASX 200 Index tumbled 92.60 points, or 1.5 percent, to 5,920.30, while the broader All Ordinaries Index ended down 92.40 points, or 1.5 percent, at 6,034.30.

The big four banks dropped 1-2 percent after the Australian Bankers Association said banks will extend six-month repayment holidays by another four months for households and businesses struggling to service their debts due to the pandemic.

Afterpay, the buy-now-pay-later firm, lost 2.9 percent after a discounted share placement. Energy companies such as Woodside Petroleum, Santos, Oil Search and Beach Energy declined 2-3 percent as oil prices fell on oversupply fears.

Mining heavyweights BHP and Rio Tinto fell around 1 percent, while Alumina slumped 7 percent after saying a joint venture with aluminum giant Alcoa has been assessed $212 million in back taxes.

Northern Star Resources soared 6.5 percent after the company said its shareholders would receive a fully-franked interim dividend. Evolution Mining advanced 1.3 percent after gold prices settled at a nearly nine-year high overnight.

Seoul stocks ended lower for the second straight day on fears that a surge in Covid-19 cases will delay the economic recovery. The benchmark Kospi dipped 5.29 points, or 0.2 percent, to close at 2,158.88. Samsung Electronics shed 0.8 percent and SK Hynix declined 1.3 percent.

Europe

European stocks have fallen for the second straight day on Wednesday after the U.S. coronavirus outbreak crossed a grim milestone of over 3 million confirmed cases and the World Health Organization acknowledged "evidence emerging" that the coronavirus can be transmitted through the air.

Traders also kept an eye on rising U.S.-China tensions after reports suggested that U.S. President Donald Trump's top advisers weighed proposals to undermine the Hong Kong currency's peg to the U.S. dollar in a bid to punish banks in Hong Kong.

While the French CAC 40 Index has slumped by 1 percent, the German DAX Index is down by 0.6 percent and the U.K.’s FTSE 100 Index is down by 0.4 percent.

HSBC Holdings, which draws more than two-thirds of its pretax income from Hong Kong, has shown a substantial move to the downside.

FirstGroup shares have also plunged after the company reported a £300 million loss and withdrew its dividend for the year to March.

Finnish network equipment provider Nokia is also posting a steep loss after JPMorgan downgraded its rating on the stock to “neutral.”

On the other hand, home appliance maker Electrolux has jumped after the company said it would report a smaller loss than previously anticipated for the second quarter.

German logistics group Deutsche Post has also risen. After reporting a 16 percent increase in second-quarter operating profit, the company said it would pay its employees a bonus for their efforts during the coronavirus crisis.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended July 3rd at 10:30 am ET.

Crude oil inventories are expected to decrease by 3.4 million barrels after slumping by 7.2 million barrels in the previous week.

At 12:15 pm ET, Atlanta Federal Reserve President Raphael Bostic is due to give remarks to the Rotary Club of Columbus on the Fed's response to Covid-19.

The Treasury Department is scheduled to announce the results of its auction of $29 billion worth of ten-year notes at 1 pm ET.

At 3 pm ET, the Federal Reserve is due to release its report on consumer credit in the month of May. Consumer credit is expected to decline by $17.5 billion.

Stocks In Focus

Shares of National General Holdings (NGHC) are spiking in pre-market trading after the insurance company agreed to be acquired by Allstate (ALL) for approximately $4 billion or $34.50 per share in cash.

Oil service provider TechnipFMC (FTI) may also see initial strength after signing a more than $1 billion contract for the construction of a new hydrocracking complex at an Assiut National Oil Processing refinery in Egypt.

Shares of Simply Good Foods (SMPL) are also likely to move to the upside after the nutritional foods and snack products maker reported better than expected fiscal third quarter results and provided upbeat guidance.

Meanwhile, shares of Levi Strauss (LEVI) may come under pressure after the jeans maker said it expects its business will continue to be significantly adversely impacted by the coronavirus pandemic for at least the balance of 2020.
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