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Beyond the Number

Profit Taking May Contribute To Initial Weakness On Wall Street
8/4/2020 8:56 AM

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to give back ground following the strong upward move seen in the previous session.

Profit taking may contribute to initial weakness on Wall Street as some traders look to cash in on recent strength in the markets.

The tech-heavy Nasdaq has closed higher for four consecutive sessions and ended the previous session at a new record closing high. The S&P 500 also finished Monday’s trading at its best closing level since February.

Uncertainty about the prospects for a new coronavirus relief bill may also weigh on the markets, as negotiators struggle to reach an agreement even as new cases continue to spike and enhanced unemployment benefits expired last week.

Democrats and Trump administration officials said they made progress towards a deal during a meeting on Monday, but House Speaker Nancy Pelosi, D-Calif., noted the two sides “still have our differences.”

The amount of the federal unemployment benefit remains a key sticking point, as Republicans want to slash the benefit to $200 per week and Democrats want to keep the benefit at $600 per week.

A disagreement over funding for state and local governments is also holding up a deal, with President Donald Trump accusing Democrats of seeking to bail out poorly run Democratic-run states and cities.

Stocks moved mostly higher during trading on Monday, with strength among tech stocks once again contributing to an advance on Wall Street. The tech-heavy Nasdaq jumped to a new record closing high, while the S&P 500 ended the session at its best closing level in well over five months.

The major averages all closed firmly in positive territory, although the Nasdaq outperformed its counterparts. While the Nasdaq surged up 157.52 points or 1.5 percent to 10,902.80, the Dow advanced 236.08 or 0.9 percent to 26,664.40 and the S&P 500 climbed 23.49 points or 0.7 percent to 3,294.61.

Technology stocks saw continued strength on the day after moving sharply higher last Friday on largely upbeat earnings news.

Shares of Microsoft (MSFT) soared by 5.6 percent to a new record closing high after the software giant confirmed it is in talks to acquire Chinese-owned video-sharing app TikTok.

The statement from Microsoft came just days after President Donald Trump revealed plans to ban TikTok in the U.S. due to national security concerns.

Tech giant Apple (AAPL) also extended the rally seen in the previous session, jumping by 2.5 percent to a new record closing high.

Adding to the positive sentiment on Wall Street, the Institute for Supply Management released a report showing a bigger than expected acceleration in the pace of growth in U.S. manufacturing activity in the month of July.

The ISM said its purchasing managers index rose to 54.2 in July from 52.6 in June, with a reading above 50 indicating growth in manufacturing activity. Economists had expected the index to inch up to 53.6.

"In July, manufacturing continued its recovery after the disruption caused by the coronavirus (COVID-19) pandemic," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, "Panel sentiment was generally optimistic (two positive comments for every one cautious comment), continuing a trend from June."

With the bigger than expected increase, the purchasing managers index reached its highest level of expansion since March of 2019.

The better than expected reading on U.S. manufacturing activity came on the heels of upbeat readings on manufacturing in China and Europe.

With Microsoft helping lead the way higher, software stocks showed a substantial move to the upside on the day. Reflecting the strength in the sector, the Dow Jones U.S. Software Index surged up by 3.8 percent to a record closing high.

Significant strength was also visible among biotechnology stocks, as reflected by the 2.7 spike by the NYSE Arca Biotechnology Index. The index rebounded after ending the previous session at its lowest closing level in a month.

Oil service stocks also moved sharply higher over the course of the session, driving the Philadelphia Oil Service Index up by 2.1 percent. The rally by oil service stocks came amid a notable increase by the price of crude oil.

Steel, semiconductor and housing stocks also showed strong moves to the upside on the day, while gold and commercial real estate stocks bucked the uptrend.

Commodity, Currency Markets

Crude oil futures are sliding $0.72 to $40.29 a barrel after climbing $0.74 to $41.01 a barrel on Monday. Meanwhile, after inching up $0.40 to $1,986.30 an ounce in the previous session, gold futures are rising $8.10 to $1,994.40 an ounce.

On the currency front, the U.S. dollar is trading at 106.116 yen compared to the 105.95 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1730 compared to yesterday’s $1.762.

Asia

Asian stocks rose broadly on Tuesday after Wall Street's main indexes rose overnight on data showing a bigger than expected acceleration in the pace of growth in U.S. manufacturing activity in July and Microsoft's statement confirming that it is talks to purchase the U.S. operations of Chinese-owned video-sharing app TikTok.

Investors shrugged off surging coronavirus cases in dozens of countries, with the World Health Organization warning that there might never be a "silver bullet" for the new coronavirus, despite the rush to discover effective vaccines.

Chinese shares edged up slightly, with banks rising after the People's Bank of China said it would extend the grace period for implementation of sweeping asset management rules to the end of 2021.

The benchmark Shanghai Composite Index inched up 3.72 points, or 0.1 percent, to 3,371.69, while Hong Kong's Hang Seng Index spiked 488.50 points, or 2 percent, to 24,946.63.

Japanese shares extended gains from the previous session as a weaker yen helped lift exporters' stocks. The Nikkei 225 Index jumped 378.28 points, or 1.7 percent, to 22,573.66, while the broader Topix closed 2.1 percent higher at 1,555.26.

Exporters Canon, Toyota Motor, Sony and Honda Motor surged 3-6 percent. Retail group Seven & I Holdings, owner of the 7-Eleven convenience store chain, soared 8.9 percent after the company announced a deal to buy Speedway gas stations in the U.S. from Marathon Petroleum for $21 billion.

Z Holdings tumbled 3.2 percent. The owner of Yahoo Japan and messaging app provider Line Corp. said they have decided to postpone their merger to March 2021 due to the impact of the coronavirus pandemic.

On the data front, official data showed that overall consumer prices in the Tokyo region were up 0.6 percent year-on-year in July. That exceeded expectations for an increase of 0.4 percent and was up from 0.3 percent in June.

Core CPI, which excludes volatile food prices, advanced an annual 0.4 percent - again exceeding expectations for 0.2 percent, which would have been unchanged.

Australian shares rose the most in two weeks as the Reserve Bank of Australia kept its monetary policy steady and said, “The downturn is not as severe as earlier expected and a recovery is now underway in most of Australia.”

Investors ignored domestic data showing that retails sales volumes suffered their biggest plunge in two decades in the second quarter.

The benchmark S&P/ASX 200 Index jumped 111.50 points, or 1.9 percent, to 6,037.60, while the broader All Ordinaries Index rallied 112.60 points, or 1.9 percent, to 6,166.50.

Financials, energy and technology companies paced the gainers. The big four banks rose between 1.2 percent and 2.3 percent, while Santos advanced 4.7 percent and Afterpay surged 6.5 percent.

Seoul stocks ended at a nearly two-year high, with strong U.S. manufacturing data and hopes of fresh stimulus helping underpin investor sentiment.

The top Democrats in the U.S. Congress and White House negotiators said on Monday they had made progress in talks on a new coronavirus relief bill.

The benchmark Kospi rose 28.93 points, or 1.3 percent, to 2,279.97 - its highest close since Oct 2, 2018. That also marked the biggest daily gain in a week.

Europe

European stocks are mostly lower on Tuesday as the dollar's rebound stalled as earnings proved to be a mixed bag and investors waited to see if negotiators will make any progress on U.S. stimulus.

U.S.-China tensions also remained on investors' radar after U.S. President Donald Trump said he would ban popular Chinese-owned video app TikTok in the United States unless a tech company such as Microsoft buys it. China will not accept U.S. theft of TikTok, the China Daily newspaper said today.

In another development, the editor of a newspaper published by China's ruling Communist Party said Beijing would retaliate if all Chinese journalists based in the United States are forced to leave the country.

While the German DAX Index has fallen by 0.6 percent, the French CAC 40 Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is just below the unchanged line.

Bayer AG has come under pressure after the multinational pharma and life sciences company said it expects sales of 43 billion euros to 44 billion euros this year, a range that's 1 billion euros lower than the previous target.

Diageo Plc, the world's largest spirits maker, has also moved sharply lower after it reported a bigger than expected decline in underlying net sales.

On the other hand, energy giant BP Plc has jumped after it posted a record loss and cut its dividend, as widely expected.

Chipmaker Infineon has also surged higher. The company confirmed its revenue guidance for the year after posting an after-tax loss for the fiscal third quarter on higher revenue.

Fashion house Hugo Boss has also risen. After reporting an overall 59 percent drop in sales for the second quarter, the company said it expects a gradual improvement in the second half of the year.

On the economic front, preliminary data from Eurostat showed that euro area industrial producer prices increased for the first time in five months in June. Prices rose at a faster than expected pace even though economic activity remained damped by the Covid-19 containment measures.

The producer price index for the Eurozone rose 0.7 percent from May, when it fell 0.6 percent. Economists had forecast a 0.5 percent increase.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on new orders for manufactured goods in the month of June at 10 am ET. Factory orders are expected to jump by 5.0 percent in June after spiking by 8.0 percent in May.

Stocks In Focus

Shares of Virgin Galactic (SPCE) are moving sharply lower in pre-market trading after the aerospace and space travel company reported a wider second quarter loss amid a lack of revenue during the quarter. The company also revealed in an SEC filing that it is offering 20.5 million shares of common stock.

Hospital operator Tenet Healthcare (THC) is also seeing significant pre-market weakness after reporting unexpected second quarter profit due to coronavirus relief funds but on weaker than expected revenues.

On the other hand, shares of Mosaic (MOS) are likely to see initial strength after the fertilizer producer reported second quarter results that exceeded analyst estimates on both the top and bottom lines.

Video game publisher Take-Two (TTWO) may also move to the upside after reporting better than expected fiscal first quarter results and raising its full-year sales guidance.
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