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Beyond the Numbers

Wall Street May Continue To Benefit From Optimism About Stimulus
10/23/2020 8:57 AM

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to add to the gains posted in the previous session.

The markets may benefit from continued optimism that lawmakers in Washington will eventually reach an agreement on a new stimulus bill.

House Speaker Nancy Pelosi has recently suggested that negotiations with Treasury Secretary Steven Mnuchin are making progress, although it seems unlikely a bill will be passed before the elections early next month.

During the final presidential debate Thursday night, President Donald Trump accused Pelosi of stalling a new relief package until after the elections for political purposes.

Trump also claimed that he could get reluctant Senate Republicans to support a broader stimulus bill if an agreement is finally reached.

Positive sentiment may also be generated in reaction to news that the FDA has approved Gilead Sciences’ antiviral drug remdesivir, also known as Veklury, for the treatment of patients with COVID-19 requiring hospitalization.

On the other hand, a notable drop by shares of Intel (INTC) may weigh on the tech sector, with the semiconductor giant falling sharply in pre-market trading after reporting third quarter earnings that beat analyst estimates but on weaker than expected revenues for its Data Center Group.

Credit card giant American Express (AXP) is also likely to come under pressure after reporting third quarter earnings that missed expectations.

Stocks fluctuated over the course of the trading session on Thursday but managed to end the day mostly higher. After bouncing back and forth across the unchanged line in morning trading, the major averages largely remained positive throughout the afternoon.

The major averages all closed higher, although the Nasdaq posted a relatively modest gain, edging up 21.31 points or 0.2 percent to 11,506.01. The Dow climbed 152.84 points or 0.5 percent to 28,363.66 and the S&P 500 rose 17.93 points or 0.5 percent to 3,453.49.

The strength on Wall Street came as Pelosi indicated Democrats and the White House continue to make progress toward an agreement on a new stimulus bill.

Pelosi told reporters the two sides are "just about there" on certain provisions but noted they have not agreed on issues such as state and local aid.

While Pelosi acknowledged it will "take a while to write the bill," she said she believes "both sides want to reach an agreement."

The latest comments from Pelosi came after her deputy chief of staff Drew Hammill revealed the Speaker spoke with Mnuchin again on Wednesday, saying the conversation brought the two sides closer to being able to put pen to paper to write legislation.

"With the exchange of legislative language, we are better prepared to reach compromise on several priorities," Hammill said in a post on Twitter.

He added, "Differences continue to be narrowed on health priorities, including language providing a national strategic testing and contract tracing plan, but more work needs to be done to ensure that schools are the safest places in America for children to learn."

Upbeat U.S. economic data added to the positive, with a report from the Labor Department showing initial jobless claims came in well below economist estimates in the week ended October 17th.

The Labor Department said initial jobless claims fell to 787,000, a decrease of 55,000 from the previous week's revised level of 842,000.

Economists had expected jobless claims to drop to 860,000 from the 898,000 originally reported for the previous week.

A separate report from the National Association of Realtors showed existing home sales spiked by much more than anticipated in the month of September.

NAR said existing home sales soared by 9.4 percent to an annual rate of 6.54 million in September after jumping by 2 percent to a revised rate of 5.98 million in August.

Economists had expected existing home sales to surge up by 5.0 percent to a rate of 6.30 million from the 6.00 million originally reported for the previous month.

Airline stocks have moved sharply higher over the course of the session, with the NYSE Arca Airline Index soaring by 6.3 percent to its best closing level in a month.

Southwest Airlines (LUV) posted a standout gain after reporting a narrower than expected third quarter loss on revenues that exceeded analyst estimates.

Substantial strength was also visible among natural gas stocks, as reflected by the 4.7 percent spike by the NYSE Arca Natural Gas Index. The rally came despite a decrease by the price of natural gas.

Banking stocks also showed a strong move to the upside on the day, driving the KBW Bank Index up by 3.7 percent.

Oil service and oil producer stocks also saw considerable strength amid an increase by the price of crude oil, moving notably higher along with utilities, healthcare and biotechnology stocks.

On the other hand, housing stocks moved sharply lower despite the upbeat existing home sales data, dragging the Philadelphia Housing Sector Index down by 2.4 percent.

Gold stocks also came under pressure, with the NYSE Arca Gold Bugs Index slumping by 1.9 percent amid a steep drop by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are inching up $0.17 to $40.81 a barrel after climbing $0.61 to $40.64 a barrel on Thursday. Meanwhile, after plunging $24.90 to $1,904.60 an ounce in the previous session, gold futures are jumping $10.90 to $1,915.50 an ounce.

On the currency front, the U.S. dollar is trading at 104.72 yen versus the 104.86 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1850 compared to yesterday’s $1.1818.

Asia

Asian stocks turned in a mixed performance on Friday, with uncertainty over a U.S. stimulus deal and worries about a continued surge in coronavirus cases in several parts of Europe and the U.S. keeping investors worried.

Chinese shares tumbled as traders monitored coronavirus developments and progress on the U.S. stimulus talks. The benchmark Shanghai Composite Index slumped 34.50 points, or 1 percent, to 3,278, while Hong Kong's Hang Seng Index ended up 132.65 points, or 0.5 percent, at 24,918.78.

Japanese shares closed higher as investors held out hopes that a U.S. stimulus package would eventually be passed. The Nikkei 225 Index inched up 42.32 points, or 0.2 percent, to 23,516.59 ahead of a string of earnings reports due next week. The broader Topix closed 0.3 percent higher at 1,625.32.

Mitsubishi Heavy Industries soared 6.6 percent after reports that it will freeze development of its SpaceJet regional jet. Online games developer Nexon jumped 17.2 percent on news that it will join the Nikkei stock average, replacing FamilyMart Co.

Advantest fell over 1 percent and Tokyo Electron lost 2.7 percent after Intel reported a surprise drop in data center sales and issued a tepid forecast.

The manufacturing sector in Japan continued to contract in October, albeit at a slower pace, the latest survey from Jibun Bank revealed with a manufacturing PMI score of 48.0, up from 47.7 in September.

The report also showed that the services index fell to 46.6 from 46.9, while the composite index ticked up to 46.7 from 46.6.

Separately, government data showed that consumer prices in Japan were down a seasonally adjusted 0.1 percent month-on-month in September. That was in line with expectations and unchanged from the August reading.

Australian stocks ended on a flat note as manufacturing data disappointed and the second U.S. presidential debate ended up being a much calmer affair. The benchmark S&P/ASX 200 Index edged down 6.80 points, or 0.1 percent, to 6,167, while the broader All Ordinaries Index ended down 10 points, or 0.2 percent, at 6,373.70.

Miners BHP and Rio Tinto fell 1.3 percent and 0.9 percent, respectively, after a survey showed the manufacturing sector in Australia expanded at a slower pace in October with a PMI score of 54.2, down from 55.4 in September. However, services activity rose solidly in the month, building on a mild gain in September.

Mineral sands producer Iluka Resources plunged more than 48 percent as the stock traded on a demerger basis after spinning off its unit Deterra Royalties.

Gold miners Evolution Mining, Newcrest Mining and Resolute Mining lost 2-3 percent after an overnight slump in bullion prices.

Meanwhile, BlueScope Steel surged nearly 11 percent after giving a positive FY21 update. Energy stocks Woodside Petroleum, Beach Energy, Oil Search and Santos climbed 1-4 percent. Qantas Airways jumped 2.7 percent. The airline said it aims to save A$600 million this year to stay viable.

Seoul stocks ended a choppy session higher on optimism for improved corporate earnings in the third quarter. The benchmark Kospi inched up 5.76 points, or 0.2 percent, to 2,360.81, with automakers and banks pacing the gainers ahead of flurry of earnings reports scheduled for next week.

Europe

European stocks have advanced on Friday as Brexit optimism and positive earnings updates from the likes of Daimler and Barclays have helped investors shrug off renewed concerns about the economic impact of surging Covid-19 cases.

European Union and British negotiators will meet today for intensive negotiations on a last-minute trade deal that could stave off a tumultuous finale to the five-year-old Brexit crisis.

While the German DAX Index has jumped by 1.2 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 1.6 percent.

Barclays has surged after the British bank posted a pre-tax profit of £1.1 billion in the third quarter compared with £200 million a year ago as bad debt provisions eased.

Shares of Daimler AG have also rallied after the auto giant reported a higher profit in its third quarter despite weakness in revenues and sales volume.

Swiss elevator maker Schindler Holding has also shown a strong move to the upside after raising its 2020 guidance.

L'Oreal, the French company behind Maybelline cosmetics and Garnier shampoo, has also advanced after it reported a return to growth in its fiscal third quarter.

Groupe ADP, an international airport operator, has also moved notably higher after updating its traffic forecast for 2020.

Industrial gases provider Air Liquide has also jumped. The company sees 2020 net profit at almost the same level as the previous year.

On the other hand, InterContinental Hotels Group has dropped after the Holiday Inn-owner posted a plunge in third quarter hotel room revenue.

In economic news, the euro area private sector returned to negative territory for the first time since June as accelerating growth in manufacturing was offset by a sharp deterioration in the service sector amid rising Covid-19 worries, flash survey data from IHS Markit showed. The composite output index fell to a four-month low of 49.4 in October from 50.4 in September.

In the U.K., the flash reading of the IHS Markit/CIPS UK Composite Purchasing Managers' Index fell to a four-month low of 52.9 in October from 56.5 in September.

Meanwhile, U.K. retail sales grew for a fifth consecutive month in September and exceeded expectations by a wide margin, supported by food and online sales as well as a recovery in non-food sales, preliminary data from the Office for National Statistics showed.

The volume of retail sales grew 1.5 percent month-on-month in September, which was much bigger than the 0.4 percent increase economists had forecast. The growth for August was upwardly revised to 0.9 percent from 0.8 percent.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Mattel (MAT) are moving sharply higher in pre-market trading after the toy maker reported third quarter results that exceeded analyst estimates on both the top and bottom lines.

Financial company Capital One (COF) is also likely to see initial strength after reporting better than expected third quarter results.

Shares of Bloomin’ Brands (BLMN) may also move to the upside after the Outback Steakhouse parent reported narrower than expected third quarter loss on revenues that exceeded expectations.

On the other hand, shares of Seagate Technology (STX) may come under pressure after the data storage company reported fiscal first quarter earnings that beat estimates but on weaker than expected revenues.
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