Market Analysis

Beyond the Numbers

Persistent Stimulus Optimism May Lead To Initial Strength On Wall Street
10/19/2020 8:52 AM

The major U.S. index futures are currently pointing to a higher opening on Monday, with stocks likely to move to the upside following the mixed performance seen last Friday.

The markets are likely to benefit from persistent optimism that lawmakers in Washington will ultimately reach an agreement on a new stimulus bill.

In a post on Twitter, House Speaker Nancy Pelosi’s deputy chief of staff Drew Hammill revealed that the Democratic leader spoke with Treasury Secretary Steven Mnuchin for just over an hour on Saturday.

“While there was some encouraging news on testing, there remains work to do to ensure there is a comprehensive testing plan that includes contact tracing and additional measures to address the virus’ disproportionate impact on communities of color,” Hammill tweeted.

Hammill said that there remains an array of additional differences that must be addressed in a comprehensive manner in the next 48 hours.

“Decisions must be made by the White House in order to demonstrate that the Administration is serious about reaching a bipartisan agreement that provides for Americans with the greatest needs during the pandemic,” Hammill said.

Traders remain optimistic that Pelosi and the White House will eventually reach an agreement, although it remains to be seen if the deal will have the support of Senate Majority Leader Mitch McConnell.

After moving sharply higher early in the session, stocks remained mostly positive throughout the trading day on Friday before coming under pressure going into the close. The major averages pulled back sharply in the final hour of trading, with the tech-heavy Nasdaq sliding into negative territory.

The major averages ended the session on opposite sides of the unchanged line. While the Nasdaq fell 42.32 points or 0.4 percent to 11,671.56, the Dow rose 112.11 points or 0.4 percent to 28,606.31 and the S&P 500 inched up 0.47 points or less than a tenth of a percent to 3,483.81.

Despite the mixed close on the day, the major averages all moved higher for the week. The Nasdaq climbed by 0.8 percent, while the Dow and the S&P 500 edged up by 0.1 percent and 0.2 percent, respectively.

The late-day pullback on Wall Street may have reflected lingering uncertainty about a new stimulus bill, with the slump also being attributed to the expiration of equity options.

The rally seen in early trading came as much better than expected retail sales data partly offset recent concerns the economic recovery may be stalling.

A report from the Commerce Department said retail sales spiked by 1.9 percent in September after rising by 0.6 percent in August. Economists had expected retail sales to climb by 0.7 percent.

Excluding a jump in sales by motor vehicles and parts dealers, retail sales still surged up by 1.5 percent in September after climbing by a downwardly revised 0.5 percent in August.

Ex-auto sales were expected to rise by 0.5 percent compared to the 0.7 percent increase originally reported for the previous month.

Closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, jumped by 1.4 percent in September after dipping by 0.3 percent in August.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the strong retail sales growth "suggests the economy was carrying more momentum into the fourth quarter than anticipated, defying fears that the expiry of enhanced unemployment benefits in the summer would harm the economy."

Adding to the positive sentiment, the University of Michigan released a report showing a bigger than expected improvement in consumer sentiment in the month of October.

The preliminary report said the consumer sentiment index rose to 81.2 in October from the final September reading of 80.4. Economists had expected the index to inch up to 80.5.

Meanwhile, traders largely shrugged off a report from the Federal Reserve showing an unexpected decrease in industrial production in the month of September.

Buying interest was also generated after Pfizer (PFE) Chairman and CEO Albert Bourla said the drug giant will apply for emergency use of the Covid-19 vaccine it is developing with BioNTech (BNTX) soon after the safety milestone is achieved in the third week of November.

"All the data contained in our U.S. application would be reviewed not only by the FDA's own scientists but also by an external panel of independent experts at a publicly held meeting convened by the agency," Bourla said in an open letter.

The Dow benefited from an advance by shares of Boeing (BA), which moved notably higher after Europe's top aviation regulator told Bloomberg he's satisfied changes made to the aerospace giant's 737 Max have made the aircraft safe to fly.

Energy stocks showed a substantial move to the downside on the day even though the price of crude oil closed only modestly. Crude for November delivery edged down $0.08 to $40.88 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 4.8 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index tumbled by 2.3 percent and 2 percent, respectively.

Significant weakness was also visible among gold stocks, as reflected by the 1.4 percent drop by the NYSE Arca Gold Bugs Index. The weakness in the sector came amid a modest decrease by the price of the precious metal.

Transportation stocks also saw notable weakness on the day, while pharmaceutical, utilities and brokerage stocks showed strong moves to the upside.

Commodity, Currency Markets

Crude oil futures are slipping $0.19 to $40.69 a barrel after edging down $0.08 to $40.88 a barrel last Friday. Meanwhile, after slipping $2.50 to $1,906.40 an ounce in the previous session, gold futures are climbing $12.80 to $1,919.20 an ounce.

On the currency front, the U.S. dollar is trading at 105.32 yen versus the 105.40 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1782 compared to last Friday’s $1.1718.


Asian stocks ended mixed on Monday as lingering hopes for a new U.S. stimulus package were offset by data showing that China's economy expanded at a slower rate than expected in July-September.

Chinese shares fell notably as marked improvement in consumer spending and industrial output doused the chances for major stimulus measures.

The benchmark Shanghai Composite Index slid 23.69 points, or 0.7 percent, to 3,312.67, while Hong Kong's Hang Seng index rose 0.6 percent to 24,542.26.

China's GDP grew 4.9 percent year-on-year in the third quarter of 2020, the National Bureau of Statistics said, missing forecasts for a gain of 5.2 percent but still up from 3.2 percent in the three months prior.

On a quarterly basis, GDP rose 2.7 percent - again shy of expectations for 3.2 percent and down sharply from the 11.5 percent gain in the previous three months.

Industrial production jumped 6.9 percent from a year earlier in September, beating forecasts for a gain of 5.8 percent and up from 5.6 percent in August.

Retail sales climbed an annual 3.3 percent, exceeding expectations for a rise of 1.8 percent following the 0.5 percent gain in the previous month.

Fixed asset investment was up an annual 0.8 percent to date in September, matching forecasts following the 0.3 percent fall a month earlier. The jobless rate came in at 5.4 percent in September, down from 5.6 percent in August.

Japanese shares posted strong gains as the dollar was firmer in the lower 105-yen range and data showed the country posted a merchandise trade surplus in September that increased from the previous month.

The Nikkei 225 Index jumped 260.50 points, or 1.1 percent, to 23,671.13, while the broader Topix index closed 1.3 percent higher at 1,637.98. Sony advanced 2.2 percent on reports the electronics giant will supply its micro displays to U.S. titan Apple.

Australian markets hit a fresh seven-month high amid loosening Covid-19 restrictions in Victoria. The benchmark S&P/ASX 200 ended up 52.60 points, or 0.9 percent, at 6,229.40, climbing for the ninth time in eleven sessions and marking a new high after March’s market crash. The broader All Ordinaries index rose 50.60 points, or 0.8 percent, to 6,435.60.

Tech stocks posted broad-based gains, with WiseTech surging 4.4 percent and Computershare adding 2.8 percent.

In the healthcare sector, heavyweight CSL gained 1.7 percent, Cochlear added 2.2 percent, ResMed rose 1.5 percent and Sonic Healthcare advanced 1 percent.

Banks ANZ, Commonwealth and NAB rose about 1 percent while mining heavyweight BHP rose 0.7 percent and smaller rival Fortescue Metals Group climbed 1.1 percent.

Crown Resorts slumped 8.2 percent on news that Australia's financial crime watchdog AUSTRAC will investigate possible money laundering and other breaches at the gaming and hotel group's operations in Melbourne.

Seoul stocks eked out modest gains to snap a four-session losing streak amid signs that China's economic recovery from the pandemic slump is broadening out. The benchmark Kospi inched up 5.21 points, or 0.2 percent, to 2,346.74.

Market bellwether Samsung Electronics rose 0.8 percent, No. 2 chipmaker SK Hynix advanced 1.6 percent and steelmaker POSCO rallied 3.2 percent. Chemical maker LG Chem lost 3.9 percent and automaker Hyundai Motor fell 2.3 percent.


European stocks are turning in a mixed performance on Monday as encouraging earnings news from the likes of Julius Baer and Philips coupled with renewed hopes for more U.S. stimulus outweighed worries about fresh restrictions across the continent due to rising Covid-19 numbers.

Italy announced new measures after the country recorded a record daily increase of the Covid-19 cases for the fifth day in a row on October 18.

Elsewhere, Britain's government scientific adviser Jeremy Farrar said the country needs to impose a three-week period of national lockdown restrictions to prevent the continued spread of the virus.

While the French CAC 40 Index is up by 0.2 percent, the German DAX Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is down by 0.3 percent.

Julius Baer shares have surged higher after the Swiss wealth manager reported an improvement in profitability for the first nine months of 2020.

Philips has also moved to the upside. After posting better-than-expected third-quarter net profit, the Dutch medical-technology group said it is targeting accelerated sales growth and higher profitability in the 2021-2025 period.

Danone has also advanced. The world's largest yoghurt maker reinstated its forecasts for 2020 and said it's planning to sell assets.

John Laing Group has also risen. The British infrastructure investor has agreed to sell its portfolio of Australian wind farm assets to First Sentier Investors for a total consideration of approximately 157 million pounds.

On the other hand, Swedish defense company Saab has moved sharply lower after reporting a decrease in third-quarter profit.

Online fashion group Boohoo has also plunged after its auditor PwC confirmed it was resigning amid reputational concerns.

French carmaker Renault has also declined on news that it would unveil an eight-year turnaround plan next year to cope up with a demand slump exacerbated by the coronavirus crisis.

U.S. Economic Reports

The National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of October at 10 am ET. Economists expect the housing market index to come in unchanged after jumping to a record high of 83 in September.

At 11:45 am ET, Federal Reserve Vice Chair Richard Clarida is due to deliver a speech on the U.S. economic outlook and monetary policy at the American Bankers Association Convention virtual meeting.
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