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Beyond the Numbers

Disappointing Jobs Data May Lead To Pullback On Wall Street
7/16/2020 8:52 AM

The major U.S. index futures are currently pointing to a lower opening on Thursday, with stocks likely to give back ground after ending the previous session mostly higher.

Traders may cash in on recent strength in the markets after data from the Labor Department showed the pullback in first-time claims for unemployment benefits nearly ground to a halt last week.

The Labor Department said initial jobless claims slipped to 1.300 million in the week ended July 11th, a decrease of just 10,000 from the previous week’s revised level 1.310 million.

Economists had expected jobless claims to drop to 1.250 million from the 1.314 million originally reported for the previous week.

Jobless claims fell for the fifteenth consecutive week, although the pace of decline has slowed considerably from April and May.

While a separate report from the Commerce Department showed another substantial increase in retail sales in the month of June, the data may be seen as old news as some states roll back their reopening plans due to a surge in coronavirus cases.

On the earnings front, shares of Bank of America (BAC) are moving significantly lower in pre-market trading after the financial giant reported better than expected second quarter earnings but also set aside another $4 billion for coronavirus-related loan losses.

Healthcare giant Johnson & Johnson (JNJ) is also seeing modest pre-market weakness despite reporting second quarter results that exceeded analyst estimates and raising its full-year guidance.

Shares of Morgan Stanley (MS) may also be in focus after the investment firm reported better than expected second quarter results.

Stocks fluctuated over the course of the trading session on Wednesday but largely maintained a positive bias before ending the day mostly higher. Adding to the strong gains posted in the previous session, the Dow and the S&P 500 finished the day at their best closing levels in over a month.

The major averages finished the day firmly positive but well off their early highs. The Dow advanced 227.51 points or 0.9 percent to 26,870.10, the Nasdaq rose 61.92 points or 0.6 percent to 10,550.49 and the S&P 500 climbed 29.04 points or 0.9 percent to 3,226.56.

The continued strength on Wall Street came as upbeat news on the coronavirus vaccine front helped traders shrug off news of a record single-day spike in new Covid-19 cases in the U.S.

Biotech firm Moderna (MRNA) said its experimental vaccine for Covid-19 was safe and produced strong immune responses in all 45 patients in an ongoing early-stage human trial.

An interim analysis of the open-label Phase 1 study of the vaccine candidate was published in the New England Journal of Medicine.

The latest news follows other recent positive developments on the coronavirus treatment and vaccine fronts, which have generated optimism the economic threat posed by the pandemic could be addressed in the relatively near future.

Upbeat earnings news from Goldman Sachs (GS) added to the positive sentiment, with the financial giant reporting much stronger than expected second quarter results.

Goldman Sachs reported earnings of $6.26 per share on revenues of $13.3 billion compared to analyst estimates for earnings of $3.78 per share on revenues of $9.8 billion. The company benefited from strong results in its trading and investment banking divisions.

Traders also reacted positively to a report from the Federal Reserve showing U.S. industrial production spiked by even more than anticipated in the month of June.

The report said industrial production soared by 5.4 percent in June after jumping by 1.4 percent in May. Economists had expected production to surge up by 4.3 percent.

Despite the substantial increase, the Fed noted industrial production remained 10.9 percent below its pre-pandemic February level.

Airline stocks moved sharply higher amid optimism about a coronavirus vaccine, driving the NYSE Arca Airline Index up by 8.7 percent.

Substantial strength was also visible among oil service stocks, as reflected by the 4.7 percent spike by the Philadelphia Oil Service Index.

The rally by oil service stocks came as the price of crude oil for August delivery jumped following the release of a report showing a much bigger than expected weekly drop in crude oil inventories.

Financial stocks also saw considerable strength following the upbeat earnings news from Goldman Sachs, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index surging up by 3.2 percent and 3 percent, respectively.

Housing, natural gas, and transportation stocks also showed significant moves to the upside, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are falling $0.48 to $40.72 a barrel after jumping $0.91 to $41.20 a barrel on Wednesday. Meanwhile, after inching up $0.40 to $1,813.80 an ounce in the previous session, gold futures are sliding $6.10 to $1,807.70 an ounce.

On the currency front, the U.S. dollar is trading at 107.14 yen versus the 106.94 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.419 compared to yesterday’s $1.412.

Asia

Asian stocks fell on Thursday as investors fretted about a second wave of coronavirus infections and the reimposition of lockdowns in the wake of fresh spikes in infections in the United States, Australia and Japan.

U.S.-China tensions also remained on investors' radar. U.S. Secretary of State Mike Pompeo said the U.S. would impose visa restrictions on Chinese firms like Huawei Technologies that he accused of facilitating human rights violations.

China reported better-than-expected second quarter growth, but a worse than expected drop in retail sales in June suggested consumers are still reticent about spending.

Chinese stocks led regional losses as renewed U.S.-China tensions overshadowed encouraging GDP data. The benchmark Shanghai Composite Index plunged 151.21 points, or 4.5 percent, to 3,210.10, marking the sharpest single-day loss in more than five months. Hong Kong's Hang Seng Index ended down 2 percent at 24,970.69.

China's gross domestic product surged a seasonally adjusted 11.5 percent sequentially in the second quarter of 2020, the National Bureau of Statistics said today, beating expectations for a gain of 9.6 percent following the 9.8 percent decline in the previous three months.

On a yearly basis, GDP advanced 3.2 percent - again topping forecasts for an increase of 2.5 percent after tumbling 6.8 percent in the three months prior.

The bureau also said that industrial production gained 4.8 percent year-over-year in June, beating forecasts for 4.7 percent and up from 4.4 percent in May.

Meanwhile, retail sales fell an annual 1.8 percent in June compared to expectations for a gain of 0.3 percent after slumping 2.8 percent in the previous month.

Fixed asset investment was down an annual 3.1 percent, beating forecasts for a fall of 3.3 percent after sinking 6.3 percent a month earlier. House prices in China were up 4.9 percent year-over-year in June, unchanged from the previous month.

Japanese stocks declined after Tokyo Governor Yuriko Koike warned of a record number of daily coronavirus infections. The Nikkei 225 Index fell 175.14 points, or 0.8 percent, to 22,770.36 after hitting a one-month high the previous day. The broader Topix closed 0.7 percent lower at 1,579.06.

Tech stocks succumbed to selling pressure, with Advantest, Tokyo Electron and Screen Holdings losing 3-4 percent.

Murata Manufacturing lost 2.8 percent. The company said one of its production units was temporarily closed after an employee tested positive for the coronavirus.

Australian markets gave up early gains to end notably lower as virus fears lingered and data showed the country's unemployment rate rose to a two-decade high in June.

The jobless rate came in at a seasonally adjusted 7.4 percent in June, in line with forecasts and up from 7.1 percent in the previous month. The Australian economy gained 210,800 jobs in the month, blowing past expectations for the addition of 112,500 jobs following the loss of 227,700 jobs in May.

Australia's two most populous states will impose harsher rules on movement if a Covid-19 outbreak is not brought under control, state premiers said on Wednesday.

The benchmark S&P/ASX 200 Index dropped 42 points or 0.7 percent to 6,010.90, while the broader All Ordinaries Index ended down 37.40 points or 0.6 percent at 6,123.

Mining heavyweights BHP and Rio Tinto fell 0.6 percent and 1.4 percent, respectively. Alumina rallied 2.4 percent after its joint venture with Alcoa achieved record quarterly daily alumina production.

Gold miners Evolution, Newcrest, Northern Star Resources and Regis Resources dropped 1-2 percent. Energy stocks turned in a mixed performance. Woodside Petroleum, Origin Energy and Santos declined between 1.4 percent and 2.2 percent, while Beach Energy rose 1 percent and Oil Search advanced 1.3 percent.

Banks ANZ, NAB and Westpac fell between 0.6 percent and 1 percent. Michael Hill soared 6.6 percent. The jewelry group reported a 4.1 percent decrease in fourth-quarter sales and said it has closed seven stores in Victoria due to a six-week lockdown.

Seoul stocks retreated after the Bank of Korea's monetary policy board voted to leave its benchmark lending rate unchanged at a record low 0.50 percent and said it expects the economy to contract this year by more than it forecast in May. The benchmark Kospi slid 18.12 points, or 0.8 percent, to 2,183.76.

The decision was in line with expectations following the bank's 25 basis point cut on May 28. It had executed an emergency 50 basis point cut on March 16 to combat the economic damage that resulted from the Covid-19 pandemic.

Europe

European stocks have fallen on Thursday as growing friction in U.S.-China relations as well as fears of a second wave of coronavirus infections dashed investor hopes for a revival of the global economy.

The European Central Bank left its key interest rates and the size of asset purchases unchanged as policymakers weigh the effect of previous actions.

While the U.K.’s FTSE 100 Index has fallen by 0.4 percent, the German DAX Index and the French CAC 40 Index are down by 0.6 percent and 0.7 percent, respectively.

Swiss luxury goods group Compagnie Financiere Richemont has slumped after its first quarter total sales fell 47 percent, hurt by the impact of the Covid-19 pandemic.

Dutch brewer Heineken NV has also moved to the downside as it reported a first-half preliminary net loss of around 150 million euros.

German sugar producer Suedzucker has also declined. The group noted that its outlook for 2020/21 is currently still of considerable uncertainty due to the corona pandemic.

GVC Holdings is also posting a steep loss. The British sports betting and gambling company said its chief executive officer Kenny Alexander plans to retire from the Board and the Company after 13 years at the helm.

Miner Anglo American has also fallen after it reported an 18 percent decrease in overall second-quarter output. Recruiter Hays has also tumbled after warning of lower annual profit.

On the other hand, Sweden's Getinge AB has moved sharply higher after reporting a jump in quarterly core profit.

Alstom SA shares have also advanced. After reporting a 27 percent drop in first quarter sales, the French company reiterated its previous outlook and said it expects a fast recovery in the rail market.

German online fashion retailer Zalando has also surged after raising its full year earnings forecast.

Similarly, Sartorius has jumped after raising its full-year sales and earnings guidance for the Bioprocess Solutions Division and thus for the entire Group.

In economic news, the euro area trade surplus increased sharply in May as the relaxation of coronavirus containment measures boosted both exports and imports, data from Eurostat revealed.

The trade surplus rose to a seasonally adjusted 8 billion euros from 1.6 billion euros in April. Exports increased 7.9 percent month-on-month in May while imports grew 3.2 percent.

The U.K. unemployment remained unchanged in the three months to May, data from the Office for National Statistics showed. The jobless rate was largely unchanged at 3.9 percent, well below economists' forecast of 4.2 percent.

Early indicators for June suggested that the number of employees on payrolls fell around 650,000 compared to March.

U.S. Economic Reports

Reflecting the reopening of businesses following the coronavirus-induced lockdowns, the Commerce Department released a report on Thursday showing another substantial increase in U.S. retail sales in the month of June.

The report said retail sales soared by 7.5 percent in June after skyrocketing by an upwardly revised 18.2 percent in May.

Economists had expected retail sales to jump by 5.0 percent compared to the 17.7 percent spike originally reported for the previous month.

Excluding sales by motor vehicles and parts dealers, retail sales still shot up by 7.3 percent in May after soaring by 12.1 percent in May. Ex-auto sales were also expected to surge up by 5.0 percent.

Meanwhile, a separate report released by the Labor Department showed first-time claims for U.S. unemployment benefits edged down by much less than expected in the week ended July 11th.

The Labor Department said initial jobless claims slipped to 1.300 million, a decrease of 10,000 from the previous week’s revised level 1.310 million.

Economists had expected jobless claims to drop to 1.250 million from the 1.314 million originally reported for the previous week.

The Federal Reserve Bank of Philadelphia also released a report showing a modest slowdown in the pace of growth in regional manufacturing activity in the month of July.

The Philly Fed said its diffusion index for current general activity dipped to 24.1 in July after skyrocketing to 27.5 in June, although a positive reading still indicates growth in regional manufacturing activity. Economists had expected the index to pull back to 20.0 percent.

The National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of July at 10 am ET. The housing market index is expected to rise to 60 in July after spiking to 58 in June.

Also at 10 am ET, the Commerce Department is due to release its report on business inventories in the month of May. Business inventories are expected to slump by 2.3 percent.

The Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds at 11 am ET.

At 11:10 am ET, New York Federal Reserve President John Williams is due to speak at an Office of Financial Research Advisory Committee meeting held as a video webinar.

Atlanta Federal Reserve President Raphael Bostic is scheduled to give remarks to the Economic Club of Florida at 12 pm ET.

Chicago Federal Reserve President Charles Evans is due to give a virtual presentation at the Rocky Mountain Economic Summit at 1 pm ET.

At 2 pm ET, Bostic is also scheduled to give remarks to the Center on Budget and Policy Priorities and the Groundwork Collaborative in a webinar on “Racial Equity and the Federal Reserve.”

Stocks In Focus

Shares of Twitter (TWTR) may come under pressure after hackers targeted some of the social media giant’s highest-profile users, including former President Barack Obama and Tesla (TSLA) CEO Elon Musk in a digital currency scam.

Tesla may also move to the downside after data compiled by marketing research firm Cross-Sell showed registrations of the company’s electric cars in California plunged nearly 48 percent during the second quarter compared to a year ago.

Shares of Sleep Number (SNBR) are also seeing notable pre-market weakness after the beds, mattresses and bedding products retailer reported a second quarter loss that was narrower than expected but a steep drop in revenues.

On the other hand, shares of Alcoa (AA) are likely to see initial strength after the aluminum producer reported a much narrower than expected second quarter loss on revenues that came in slightly above analyst estimates.
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