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Stocks Give Back Ground But Remain Modestly Higher - U.S. Commentary

wallstreet july16 13feb19 lt

After moving mostly higher early in the session, stocks have given back some ground over the course of the trading day on Wednesday. The major averages have pulled back after reaching their best intraday levels in over two months.

In recent trading, the major averages have moved back to the upside. The Dow is up 104.23 points or 0.4 percent at 25,529.99, the Nasdaq is up 14.98 points or 0.2 percent at 7,429.59 and the S&P 500 is up 8.33 points or 0.3 percent at 2,753.06.

The early strength on Wall Street partly reflected optimism about avoiding another government shutdown, as President Donald Trump said he was "not happy" with a tentative deal reached by lawmakers but did not specifically reject the proposal.

The agreement includes far less money for physical barriers on the border than Trump has demanded, although political observers have suggested the president will likely want to avoid another damaging shutdown.

Trump has argued Democrats would be to blame for another shutdown, although the public may disagree as his controversial border wall remains the key sticking point in negotiations.

The markets also benefited from continued optimism about U.S.-China trade talks after Trump indicated he is willing to delay raising tariffs on Chinese goods if the two sides are close to a deal.

A report from the South China Morning Post said Chinese President Xi Jinping is scheduled to meet U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin during this week's talks in Beijing.

The meeting with Xi as well as a banquet for the U.S. delegation would be a sign of goodwill to cement a trade deal between the world's two biggest economies, the SCMP said.

Buying interest has waned over the course of the session, however, as traders may want to see more concrete developments before making more significant moves.

On the U.S. economic front, the Labor Department released a report showing consumer prices were unchanged for the third straight month in January.

The Labor Department said its consumer price index was unchanged in January, matching the revised reading for December. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices rose by 0.2 percent for the fifth consecutive month. The uptick in core prices matched economist estimates.

The Labor Department said the annual rate of consume price growth slowed to 1.6 percent in January from 1.9 percent in December, showing the slowest rate of growth since June of 2017.

Meanwhile, the report said the annual rate of core consumer price growth was unchanged from the two previous months at 2.2 percent.

"Overall, these data support our baseline view of a well-behaved inflationary environment that provides the Fed room to pause before raising rates again," said Gregory Daco, Chief U.S. Economist at Oxford Economics.

He added, "We look for the Fed to pause throughout the first half of the year to assess the economic landscape before likely raising rates again in Q3."

Most of the major sectors are showing only modest moves in mid-day trading, although considerable strength remains visible among energy stocks.

The strength in the energy sector comes as the price of crude oil for March delivery has pulled back off its best levels but remains up $0.93 at $53.10 a barrel.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Natural Gas Index are both up by 1.5 percent and the NYSE Arca Oil Index is up by 1.4 percent.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index shot up by 1.3 percent, while China's Shanghai Composite Index spiked by 1.8 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.8 percent, the French CAC 40 Index and the German DAX Index both rose by 0.4 percent.

In the bond market, treasuries have climbed off their worst levels but remain modestly lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 1.3 basis points at 2.697 percent.

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