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Beyond the Numbers

Drop In Jobless Claims May Lead To Initial Strength On Wall Street
8/13/2020 9:01 AM

The major U.S. index futures have edged higher on Thursday following the release of a report from the Labor Department showing first-time claims for U.S. unemployment benefits declined by much more than anticipated in the week ended August 8th.

The Labor Department said initial jobless claims tumbled to 963,000, a decrease of 228,000 from the previous week’s revised level of 1.191 million.

Economists had expected jobless claims to slide to 1.120 million from the 1.186 million originally reported for the previous week.

With the much bigger than expected decrease, jobless claims dropped below 1 million for the first time since the week ended March 14th.

Stocks may subsequently extend the rally seen in the previous session, although buying interest may be somewhat subdued.

Democrats and White House officials remain at an impasse over a coronavirus relief bill, raising concerns the economic recovery implied by the jobless claims data could stall.

House Speaker Nancy Pelosi, D-Calif., and Treasury Secretary Steven Mnuchin spoke on Wednesday, but both sides came out of the conversation blaming the other for a lack of progress.

President Donald Trump, who has taken unprecedented action to circumvent Congress due to the impasse, claimed “the bill’s not going to happen” during a press briefing.

Following the sharp pullback seen late in the session on Tuesday, stocks showed a strong move back to the upside during trading on Wednesday. The major averages more than offset Tuesday's losses, with the S&P 500 climbing back within striking distance of its record highs.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Dow jumped 289.93 points or 1.1 percent to 27,976.84, the Nasdaq soared 229.42 points or 2.1 percent to 11,012.24 and the S&P 500 surged up 46.66 points or 1.4 percent to 3,380.35.

The strength on Wall Street partly reflected a rebound by tech stocks, which have pulled back sharply in recent sessions after the tech-heavy Nasdaq reached another new record closing high last Thursday.

Big-name tech companies like Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) posted notable gains, partly offsetting the recent weakness.

Shares of Tesla (TSLA) also moved sharply higher after the electric car maker said its board has approved and declared a five-for-one split of the company's common stock in the form of a stock dividend.

Positive sentiment may also have been generated by news that the U.S. government has secured 100 million doses of Moderna's (MRNA) experimental COVID-19 vaccine in a deal valued at up to $1.525 billion.

Meanwhile, traders largely shrugged off a report from the Labor Department showing the biggest increase in core consumer prices in nearly thirty years.

The Labor Department said its consumer price index climbed by 0.6 percent in July, matching the increase seen in June. Economist had expected consumer prices to rise by 0.3 percent.

Excluding food and energy prices, core consumer prices still advanced by 0.6 percent in July after inching up by 0.2 percent in the previous month. Core prices were expected to edge up by another 0.2 percent.

Core consumer prices showed their biggest increase since January of 1991, partly reflecting another jump in prices for motor vehicle insurance.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the increase in consumer prices "should end any speculation that the pandemic-related slump in demand will quickly push the economy into a deflationary spiral."

"But this is not a sign that the U.S. is instead about to experience a bout of much high inflation because of supply restrictions," Ashworth said. "It mainly reflects a recovery in the prices of goods and services that were most affected during the early stages of the pandemic."

Traders also seemed to ignore comments from House Speaker Nancy Pelosi, D-Calif., who told MSNBC that Democrats and Republicans remain "miles apart" on a coronavirus relief bill.

Semiconductor stocks turned in some of the market's best performances on the day, driving the Philadelphia Semiconductor Index up by 3.4 percent. With the jump, the index reached a new record closing high.

Substantial strength was also visible among software stocks, as reflected by the 2 percent spike by the Dow Jones U.S. Software Index.

Pharmaceutical stocks also showed a significant move to the upside, with the NYSE Arca Pharmaceutical Index surging up by 2 percent.

Retail, utilities and healthcare stocks also saw considerable strength on the day, while airline stocks were among the few groups to buck the uptrend.

Commodity, Currency Markets

Crude oil futures are inching up $0.05 to $47.72 a barrel after jumping $1.06 to $42.67 a barrel on Wednesday. Meanwhile, after rising $2.70 to $1,949 an ounce in the previous session, gold futures are slumping $11.50 to $1,937.50 an ounce.

On the currency front, the U.S. dollar is trading at 106.95 yen versus the 106.91 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1838 compared to yesterday’s $1.1784.

Asia

Asian stocks ended mixed on Thursday as investors weighed signs of economic recovery against stalled U.S. stimulus talks.

Chinese shares ended on a flat note after U.S. President Donald Trump played down the importance of the phase one trade deal ahead of a review between top U.S. and Chinese officials.

The benchmark Shanghai Composite Index finished marginally higher at 3,320.73, while Hong Kong's Hang Seng Index edged slightly lower to close at 25,230.67.

Japanese shares hit a six-month high, with chip-related companies surging on expectations of U.S. stimulus and hopes of a recovery in the global manufacturing sector.

The Nikkei 225 Index jumped 405.65 points, or 1.8 percent, to 23,249.61, the highest level since February 21. The broader Topix closed 1.2 percent higher at 1,624.15, closing in on its June peak.

Chip equipment maker Tokyo Electron rallied 3.1 percent, Murata Manufacturing advanced 2.6 percent, Advantest surged 4.3 percent and Screen Holdings added 3.2 percent. Dai-ichi Life Holdings rose 3.3 percent on share buyback news.

Market heavyweight SoftBank Group climbed 3.7 percent and Fast Retailing added 2 percent.

Australian markets fell notably, with mixed jobs data and weak earnings results from telecommunications giant Telstra dampening sentiment.

Australia's unemployment data for July showed an uptick in the unemployment rate as well as a surge in employment.

The benchmark S&P/ASX 200 Index dropped 41 points, or 0.7 percent, to 6,091 despite Victoria recording 8 new coronavirus deaths and 278 cases, the lowest number in more than three weeks. The broader All Ordinaries Index ended down 33.10 points, or 0.5 percent, at 6,223.90.

The big four banks fell between 1.3 percent and 2.6 percent. Wealth manager AMP soared 10.9 percent after it sought to return A$544 million ($390.32 million) to shareholders through a special dividend and buyback.

AGL Energy slumped 9.6 percent after the country's top power producer forecast an unexpectedly steep further slide in benchmark profit this coming year.

Gold miners rose as the precious metal recovered from its worst fall in seven years. Newcrest Mining gained 1.1 percent ahead of its annual results due on Friday, while Evolution Mining jumped 3.3 percent after reporting a jump in underlying profit.

Energy stocks ended on a mixed note. Telstra plunged 8.3 percent as the telecommunications giant reported a 14 percent decrease in full-year profit and extended its pause on planned job cuts to February next year.

Seoul stocks ended a choppy session modestly higher. The benchmark Kospi edged up 5.18 points, or 0.2 percent, to 2,437.53. Drugmaker Celltrion rose 2.2 percent after it began selling Covid-19 diagnostic kits in the United States.

Online game developer NCSOFT jumped 5.5 percent after its second quarter net income rose 36 percent from a year earlier on the back of the continued popularity of its mobile game Lineage 2M.

Europe

European stocks are moving lower on Thursday as stimulus talks sputter in Washington. There's an atmosphere of uncertainty swirling around Congress as negotiations for the next stimulus package have stalled.

House Speaker Nancy Pelosi said Democrats and the Trump administration are "miles apart" on a new fiscal plan, with little prospect of any new negotiations bearing fruit in the near future.

While the U.K.’s FTSE 100 Index has slumped by 1 percent, the French CAC 40 Index and the German DAX Index are both down by 0.3 percent.

RTL Group shares have moved to the downside. The German digital media group expects full-year 2020 revenue and adjusted EBITA to be significantly below 2019 and other recent years.

Struggling conglomerate ThyssenKrupp has also slumped after posting a wider loss for the third quarter of its fiscal year.

Planemaker Airbus has also fallen. The company said it regretted a U.S. decision to keep in place 15 percent tariff on its aircraft despite European Union actions to comply with World Trade Organization rulings.

BP Plc and Royal Dutch Shell have slid after the International Energy Agency said the Covid-19 pandemic has cast a long shadow over oil demand.

TUI AG has also moved sharply lower after the tour operator said it is considering a rights issue or a sale of part of the business.

Precision engineer and manufacturing company Renishaw is also posting a steep loss after reporting lower annual revenue.

Transport provider National Express has also plummeted after posting a large first-half loss. Dutch life insurer Aegon NV has also plunged after its first-half earnings missed forecasts.

On the other hand, SMA Solar Technology shares have soared. The solar energy equipment supplier has confirmed its sales and earnings guidance for the 2020 fiscal year.

RWE has also advanced. The utility and energy supplier said it will reach the upper end of its 2020 outlook for both core and operating profit.

Telecommunications company Deutsche Telekom has also moved to the upside after raising its guidance for the year.

In economic news, German consumer prices fell 0.1 percent in July after a 0.9 percent rise in June, as initially estimated, final data from Destatis revealed. On a monthly basis, consumer prices fell 0.5 percent July, as estimated.

The French employment rate fell 1.6 points to 64.4 percent in the second quarter, the lowest since 2017, statistical office Insee said. Employment among youth logged a marked fall of 2.9 points to reach 26.6 percent, which was the lowest since the records began in 1975.

The U.K. housing market recovery gained further momentum in July as the stamp duty holiday helped to boost demand, survey data from the Royal Institution of Chartered Surveyors showed.

U.S. Economic Reports

A report released by the Labor Department on Thursday showed first-time claims for U.S. unemployment benefits declined by much more than anticipated in the week ended August 8th.

The Labor Department said initial jobless claims tumbled to 963,000, a decrease of 228,000 from the previous week’s revised level of 1.191 million.

Economists had expected jobless claims to slide to 1.120 million from the 1.186 million originally reported for the previous week.

With the much bigger than expected decrease, jobless claims dropped below 1 million for the first time since the week ended March 14th.

Meanwhile, a separate report released by the Labor Department showed import and export prices in the U.S. both increased by more than expected in the month of July.

The report said import prices climbed by 0.7 percent in July after surging up by 1.4 percent in June. Economists had expected import prices to rise by 0.4 percent.

The bigger than expected increase in export prices came as prices for fuel imports soared by 6.9 percent in July after skyrocketing by 21.9 percent in June.

The Labor Department said export prices also advanced by 0.8 percent in July following a 1.2 percent jump in June.

Economists had expected export prices to climb by 0.6 percent compared to the 1.4 percent spike originally reported for the previous month.

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

The Treasury Department is also due to announce the results of this month’s auction of thirty-year bonds at 1 pm ET.

Stocks In Focus

Shares of Cisco Systems (CSCO) are moving sharply lower after the networking giant reported better than expected fiscal fourth quarter results but provided disappointing guidance.

SmileDirectClub (SDC) may also come under pressure after the dental aligners maker reported a wider than expected second quarter loss.

On the other hand, shares of Tapestry (TPR) are likely to see initial strength after the parent of the Coach, Kate Spade and Stuart Weitzman reported a narrower than expected fiscal fourth quarter loss on revenues that exceeded analyst estimates.

Aspen Technology (AZPN) is moving sharply higher in pre-market trading after the maker of asset optimization software reported fiscal fourth quarter results that beat analyst estimates on both the top and bottom lines.
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