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Beyond the Numbers

Bargain Hunting May Lead To Initial Strength On Wall Street
10/27/2020 8:51 AM

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to regain ground following the sharp drop seen in the previous session.

The markets may benefit from bargain hunting following the sell-off seen on Monday, which came amid concerns about a renewed spike in coronavirus cases.

Traders may look to pick up stocks at reduced levels, as corporate results this earnings season have come in relatively strong despite the ongoing pandemic.

Buying interest may also be generated amid persistent optimism that lawmakers in Washington will eventually reach an agreement on a new stimulus bill.

Adding to the positive sentiment, the Commerce Department released a report showing new orders for U.S. manufactured durable goods jumped by much more than expected in the month of September.

Following the lackluster performance seen last Friday, stocks moved sharply lower during trading on Monday. With the steep drop on the day, the major averages added to the losses posted last week.

The major averages climbed off their worst levels in afternoon trading but remained firmly negative. The Dow plunged 650.19 points or 2.3 percent to 27,685.38, the Nasdaq slumped 189.34 points or 1.6 percent to 11,358.94 and the S&P 500 tumbled 64.42 points or 1.9 percent to 3,400.97.

The sell-off on Wall Street comes amid concerns about a resurgence in coronavirus cases, with new infections reaching a new record high last Friday.

Data from John Hopkins University showed that new coronavirus cases reached a new high of 83,757 last Friday and topped 83,000 again on Saturday.

In an interview with CNN on Sunday, White House chief of staff Mark Meadows argued that the pandemic could not be controlled and suggested the administration would focus on vaccines and therapeutics.

Meanwhile, President Donald Trump continued to downplay the pandemic in a post on Twitter, claiming the jump in new coronavirus cases is a "Fake News Media Conspiracy."

"Cases up because we TEST, TEST, TEST. A Fake News Media Conspiracy. Many young people who heal very fast. 99.9%. Corrupt Media conspiracy at all time high. On November 4th., topic will totally change. VOTE!" Trump tweeted.

The spike in new coronavirus cases comes as lawmakers in Washington appear to remain at an impasse over a new stimulus bill.

Negotiations continue, but traders appear pessimistic that an agreement on a new relief package will be reached before next week's elections.

Adding to the negative sentiment, the Commerce Department released a report showing an unexpected slump in new home sales in the month of September.

The report said new home sales tumbled by 3.5 percent to an annual rate of 959,000 in September after jumping by 3 percent to a revised rate of 994,000 in August. The pullback surprised economists, who had expected new home sales to surge up by 2.8 percent.

"We expect the pace of sales to moderate further in the fourth quarter," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, "While strong demand and low mortgage rates are supportive of home sales, the resurgence in Covid-19 cases, a recovery that may be shifting into reverse and a weak labor market pose downside risks."

Airline stocks turned in some of the market's worst performances on the day, with the NYSE Arca Airline Index plunging by 5.5 percent.

Significant weakness was also visible among energy stocks, which moved sharply lower along with the price of crude oil.

Reflecting the weakness in the energy sector, the NYSE Arca Oil Index slumped by 4 percent, the Philadelphia Oil Service Index dropped by 3.5 percent and the NYSE Arca Natural Gas Index fell by 3.4 percent.

Housing, computer hardware software chemical stocks also showed notable moves to the downside amid broad-based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are rising $0.19 to $38.75 a barrel after tumbling $1.29 to $38.56 a barrel on Monday. Meanwhile, after inching up $0.50 to $1,905.70 an ounce in the previous session, gold futures are slipping $2.50 to $1,903.20 an ounce.

On the currency front, the U.S. dollar is trading at 104.65 yen compared to the 104.84 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1826 compared to yesterday’s $1.1810.

Asia

Asian stocks fell on Tuesday as record daily jumps in coronavirus infections in the United States, Russia and France coupled with fading hopes for U.S. stimulus added to a gloomy economic outlook.

Chinese shares ended flat with a positive bias as investors awaited the outcome of a key policy meeting of the ruling Communist Party this week, where top leaders will set economic and social priorities. Hong Kong's Hang Seng Index dropped 0.5 percent to 24,787.19.

Japanese shares ended little changed as earnings optimism offset worries over a resurgence in coronavirus infections. The Nikkei 225 Index fell over 1 percent in early trading before ending the session marginally lower at 23,485.80. The broader Topix index closed 0.1 percent lower at 1,617.53.

Japan Airlines slumped 4.3 percent on a Nikkei report that it was likely to post a record net loss of about 230 billion yen ($2.20 billion) for the business year ending March 2021. ANA Holdings lost 3.2 percent.

Canon shares surged 8 percent. The camera and copy machine maker raised its financial outlook for fiscal 2020 despite reporting a 37 percent decrease in third-quarter profit.

Similarly, legal portal service operator Bengo4.com jumped 7.5 percent after posting upbeat quarterly results.

Australian markets hit a three-week low as soaring global coronavirus cases and signs that talks over a U.S. coronavirus relief package have slowed dented investor sentiment.

The benchmark S&P/ASX 200 Index fell 104.60 points, or 1.7 percent, to 6,051, extending losses for the fourth straight session. The broader All Ordinaries Index ended down 110.10 points, or 1.7 percent, at 6,247.20.

Mining heavyweights BHP and Rio Tinto dropped over 2 percent, while energy stocks Woodside Petroleum, Santos and Oil Search all fell over 3 percent.

Building materials supplier Boral edged up slightly after announcing a 50 percent stake sale in USG Boral to Germany's Gebr Knauf for A$1.43 billion ($1.02 billion).

Seoul stocks ended lower for the second straight session amid concerns over a global resurgence in Covid-19 cases and anxiety ahead of the U.S. presidential election. The benchmark Kospi slid 13.07 points, or 0.6 percent, to 2,330.84.

Investors ignored data showing that the country's GDP grew a seasonally adjusted 1.9 percent sequentially in the third quarter of 2020. That beat estimates for an increase of 1.7 percent following the 3.2 percent decline in the three months prior.

Europe

European stocks have fallen on Tuesday to extend losses from the previous session, as coronavirus-related worries as well as widespread uncertainty over the U.S. presidential election have overshadowed encouraging earnings news from the likes of HSBC, BP and Banco Santander.

While the French CAC 40 Index has slid by 0.8 percent, the German DAX Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is down by 0.1 percent.

Swiss drug maker Novartis has moved to the downside after it posted lower third-quarter net profit, hit by legal provisions.

easyJet has also come under pressure after the airline confirmed the sale and leaseback of nine aircraft with two counterparties.

Miner Anglo American and Glencore have also fallen after data showed profits at China's industrial firms rose at a slower pace in September.

On the other hand, French IT services provider Capgemini has rallied after confirming its full-year targets.

Spanish lender Banco Santander has also moved to the upside after reporting an earnings rebound from its worst-ever quarter.

HSBC Holdings has also jumped. After reporting a 35 percent fall in quarterly profit, the bank said it would embark on a pandemic-induced overhaul of its business model.

Oil major BP Plc has also moved notably higher after narrowly avoiding a third-quarter loss. Brenntag, a chemical distribution company, has also spiked after announcing it will cut 1,300 jobs.

Rational AG has also surged higher. The company said that sales revenues have stabilized at lower levels due to relaxation of Covid-19 restrictions in many markets.

U.S. Economic Reports

Partly reflecting a rebound in orders for transportation equipment, the Commerce Department released a report showing new orders for U.S. manufactured durable goods jumped by much more than expected in the month of September.

The report said durable goods orders surged up by 1.9 percent in September after rising by rising by 0.4 percent in August. Economists had expected durable goods orders to increase by 0.5 percent.

Excluding the spike in orders for transportation equipment, durable goods orders climbed by 0.8 percent in September compared to a 1.0 percent jump in the previous month. Ex-transportation orders were expected to rise by 0.4 percent.

At 9 am ET, Standard & Poor’s is scheduled to release its report on home prices in major metropolitan areas in the month of August.

The Conference Board is due to release its report on consumer confidence in the month of October at 10 am ET. The consumer confidence index is expected to inch up to 102.0 in October from 101.8 in September.

At 1 pm ET, the Treasury Department is scheduled to announce the results of its auction of $54 billion worth of two-year notes.

Stocks In Focus

Shares of Xilinx (XLNX) are moving sharply higher in pre-market trading after the chipmaker agreed to be acquired by Advanced Micro Devices (AMD) for $35 billion in stock.

Motorcycle maker Harley-Davidson (HOG) is also likely to see initial strength after reporting third quarter earnings that came in well above analyst estimates.

Shares of JetBlue (JBLU) may also move to the upside after the airline reported a narrower than expected third quarter loss on revenues that exceeded expectations.

On the other hand, shares of Eli Lilly (LLY) are likely to come under pressure after the drug maker reported weaker than expected third quarter earnings.
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