Earnings, M&A News May Lead To Strength On Wall Street

Earnings, M&A News May Lead To Strength On Wall Street

The major U.S. index futures are pointing to a higher opening on Monday following the lackluster performance seen last Friday.

Early buying interest may be generated in reaction to upbeat earnings news, with fast food giant McDonald’s (MCD) moving sharply higher in pre-market trading after reporting better than expected first quarter results.

The markets may also benefit from news on the merger-and-acquisition front, as T-Mobile (TMUS) announced an agreement to buy Sprint (S) for $26 billion.

Overall trading activity may be somewhat subdued, however, as traders look ahead to several key economic events later this week.

Stocks showed a lack of direction over the course of the trading day on Friday following the rally seen in the previous session. The major averages spent the day bouncing back and forth across the unchanged line before closing roughly flat.

The major averages ended the session on opposite sides of the unchanged line. While the Dow edged down 11.15 points or 0.1 percent to 24,311.19, the Nasdaq crept up 1.12 points or less than a tenth of a percent to 7,119.80 and the S&P 500 inched up 2.97 points or 0.1 percent to 2,669.91.

For the week, the S&P 500 closed marginally lower, while the Dow fell by 0.6 percent and the Nasdaq dipped by 0.4 percent.

The choppy trading on Wall Street came as traders digested a mixed batch of earnings news from several big-name companies.

While tech giants Amazon (AMZN), Microsoft (MSFT), and Intel (INTC) reported better than expected quarterly results, energy giant ExxonMobil (XOM) reported first quarter earnings that came in below analyst estimates.

Uncertainty about the outlook for interest rates may also have kept traders on the sidelines following the release of a Commerce Department reporting showing stronger than expected economic growth in the first quarter.

The report showed GDP growth slowed to 2.3 percent in the first quarter from 2.9 percent in the fourth quarter, although the increase still exceeded economist estimates for 2.0 percent growth.

The slowdown in GDP growth came as consumer spending rose by just 1.1 percent in the first quarter compared to the 4.0 percent jump seen in the fourth quarter.

Meanwhile, a reading on core consumer prices, which exclude food and energy prices, showed that the pace of price growth surged up to 2.5 percent in the first quarter from 1.9 percent in the fourth quarter.

“With clear signs that inflation is rising pretty rapidly now, the Fed will need to tighten more aggressively this year and that will lay the seeds for an economic slowdown starting next year,” said Paul Ashworth, Chief U.S. Economist at Capital Economics.

A separate report from the University of Michigan showed consumer sentiment in the deteriorated by less than initially estimated in the month of April.

The report said the consumer sentiment index for April was upwardly revised to 98.8 from the preliminary reading of 97.8.

The upwardly revised reading exceeded economist estimates of 98.0 but still came in below the final March reading of 101.4.

Reflecting the lackluster performance by the broader markets, most of the major sectors ended the day showing only modest moves.

Retail stocks saw considerable strength, however, with the Dow Jones Retail Index climbing by 1.6 percent. With the gain, the index reached its best closing level in over a month.

Online retail giant Amazon led the retail sector higher after reporting first quarter results that exceeded analyst estimates on both the top and bottom lines.

Significant strength was also visible among telecom stocks, as reflected by the 1.3 percent gain posted by the NYSE Arca Telecom Index. The index is bounced off its lowest closing level in over four months.

While real estate and transportation stocks also saw notable strength, steel stocks showed a substantial move to the downside, dragging the NYSE Arca Steel Index down by 2.1 percent. The index pulled back off its best closing level in well over a month.

U.S. Steel (X) led the sector lower after reporting better than expected first quarter earnings but providing disappointing guidance for the current quarter.

Energy stocks also saw considerable weakness on the day amid a modest decrease by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are falling $0.58 to $67.52 a barrel after slipping $0.09 to $68.10 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,314, down $9.40 from the previous session’s close of $1,323.40. On Friday, gold rose $5.50.

On the currency front, the U.S. dollar is trading at 109.36 yen compared to the 109.05 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.2084 compared to last Friday’s $1.2130.

Asia

Asian stocks closed broadly higher on the last trading day of the month as tensions on the Korean Peninsula faded and investors digested a slew of earnings releases and economic reports.

The dollar held below three-month highs amid a pullback in Treasury yields and ahead of the Fed’s policy decision and a jobs report due this week, while oil prices slipped as investors waited for signs on whether the U.S. would re-impose sanctions on Iran. Trading volumes remained thin across Asia amid holidays in China and Japan.

Investors shrugged off official data from China showing that the country’s manufacturing sector grew at a slower pace in April. The official manufacturing PMI fell slightly to 51.4 in April from 51.5 in March. However, the non-manufacturing PMI that covers services and construction, improved to 54.8 from 54.6 a month ago.

Hong Kong’s Hang Seng Index jumped 527.78 points or 1.7 percent to 30,808.45 after the leaders of North and South Korea vowed “complete denuclearization” and U.S. Secretary of State Mike Pompeo said the U.S. has an “obligation” to pursue a diplomatic solution with North Korea.

Australian shares rose as financials and property developers gained ground, offsetting losses in the mining sector on weaker commodity prices.

The benchmark S&P/ASX 200 Index rose 29.10 points or 0.5 percent to 5,982.70, while the broader All Ordinaries Index ended up 28.70 points or 0.5 percent at 6,071.60.

Wealth manager AMP rose half a percent following recent heavy losses after its chairwoman resigned amid a widening scandal. ANZ, NAB and Westpac rose between 0.8 percent and 1.3 percent ahead of the Reserve Bank of Australia’s monetary policy decision on Tuesday.

Realty firm Stockland Corporation rallied 3.2 percent after reaffirming its fiscal year 2017 guidance. Goodman Group Pty advanced 1.2 percent.

Power producer AGL Energy added 1.3 percent after it received a non-binding, highly conditional $250 million offer to acquire the Liddell coal-fired power station.

Miners BHP Billiton and South 32 dropped half a percent and 0.3 percent, respectively, while BlueScope Steel fell over 2 percent to register its biggest intraday percentage loss in nearly four weeks.

Seoul stocks rallied to close near three-month highs after Friday’s summit between the leaders of the two Koreas concluded. The benchmark Kospi climbed 22.98 points or 0.9 percent to finish at 2,515.38, the highest closing level since February 2nd.

South Korean industrial production fell 4.3 percent year-over-year in March, slower than the 6.8 percent decline in February, preliminary data showed. Economists had expected a 1.6 percent drop for the month.

Europe

European stocks have moved higher on Monday as geopolitical tensions faded and investors looked ahead to a slew of U.S. data releases this week for hints on the interest rate outlook.

While the German DAX Index is just above the unchanged line, the French CAC 40 Index is up by 0.3 percent and the U.K.’s FTSE 100 Index is up by 0.4 percent.

Sainsbury shares have soared in London after the retailer agreed to a 13.3 billion pound merger with Walmart’s ASDA and said it plans to maintain both brands.

Advertising giant WPP Group has also jumped after reporting better-than-expected earnings for the first quarter.

French hotel group Accor has advanced after it signed a pact to buy Mövenpick Hotels & Resorts for a cash amount of 560 million Swiss francs or 482 million euros.

In economic news, German retail sales dropped by real 0.6 percent month-on-month in March, bigger than the revised 0.2 percent decrease in February, official data showed. This was the fourth consecutive decrease in sales.

The U.K. private sector output grew at the weakest pace since late 2016, the growth indicator from the Confederation of British Industry showed.

The balance of firms reporting a rise in output came in at +3 percent in the three months to April, the weakest growth since September 2016, down from +8 percent in the three months to March.

U.S. Economic Reports

Personal income in the U.S. increased by slightly less than expected in the month of March, according to a report released by the Commerce Department.

The report said personal income rose by 0.3 percent in March, matching the downwardly revised increase in February. Economists had expected income to climb by 0.4 percent.

Meanwhile, the Commerce Department said personal spending climbed by 0.4 percent in March after coming in unchanged in the previous month. The increase in spending matched economist estimates.

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of April.

The Chicago business barometer is expected to inch up to 57.9 in April from 57.4 in March, with a reading above 50 indicating growth.

The National Association of Realtors is scheduled to release its report on pending home sales in the month of March at 10 am ET. Pending home sales are expected to climb by 0.9 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

by RTTNews Staff Writer

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