Uncertainty About Trade Talks May Weigh On Wall Street

Uncertainty About Trade Talks May Weigh On Wall Street

The major U.S. index futures are pointing to a lower opening on Thursday, with stocks likely to see further downside after coming under pressure late in the previous session.

The downwardly momentum on Wall Street comes as traders are keeping a close eye on trade talks between the U.S. and China.

The U.S. delegation led by Treasury Secretary Steven Mnuchin is expected to raise concerns with Chinese Vice Premier Liu He about a number of China’s trade practices.

In a post to Twitter, President Donald Trump said, “Our great financial team is in China trying to negotiate a level playing field on trade!”

“I look forward to being with President Xi in the not too distant future,” he added. “We will always have a good (great) relationship!”

Stocks came under pressure in late-day trading on Wednesday following the Federal Reserve’s announcement of its latest monetary policy decision. The major averages pulled back firmly into negative territory, with the Dow falling to its lowest closing level in a month.

The major averages ended the day just off their lows of the session. The Dow slumped 174.07 points or 0.7 percent to 23,924.98, the Nasdaq fell 29.81 points or 0.4 percent to 7,100.90 and the S&P 500 slid 19.13 points or 0.7 percent to 2,635.67.

The sharp decline seen late in the session came after the Federal Reserve announced its widely expected decision to maintain the target range for the federal funds rate at 1.5 to 1.75 percent.

Selling pressure may have been generated by the Fed’s comments about inflation, which signaled that an interest rate hike is likely in June.

Economists pointed to a comment from the Fed indicating that the annual rate of inflation is expected to run near its symmetric 2 percent objective over the medium term.

The Fed also said risks to the economic outlook appear roughly balanced and reiterated its expectation that economic conditions will evolve in a manner that will warrant further gradual increases in interest rates.

“Officials remain on course to raise rates again in June and we expect two further 25bp rate hikes in the second half of this year,” said Andrew Hunter, U.S. Economist at Capital Economics.

The release of the Fed statement overshadowed the release of a report from payroll processor ADP showing private sector employment increased by slightly more than anticipated in the month of April.

ADP said private sector employment surged up by 204,000 jobs in April after spiking by a revised 228,000 jobs in March.

Economists had expected private sector employment to shoot up by about 200,000 jobs compared to the jump of 241,000 jobs originally reported for the previous month.

“Despite rising trade tensions, more volatile financial markets, and poor weather, businesses are adding a robust more than 200,000 jobs per month,” said Mark Zandi, chief economist of Moody’s Analytics.

He added, “At this pace, unemployment will soon be in the threes, which is rarified and risky territory, as the economy threatens to overheat.”

While the broader markets came under pressure, Apple (AAPL) held on to a strong gain after the tech giant reported fiscal second quarter results that beat analyst estimates on both the top and bottom lines.

Apple also said its board approved a new $100 billion share repurchase authorization and a 16 percent increase in its quarterly dividend.

Telecom stocks showed a significant move to the downside on the day, dragging the NYSE Arca Telecom Index down by 1.6 percent. With the drop, the index fell to its lowest closing level in six months.

Within the telecom sector, T-Mobile (TMUS) posted a steep loss despite the wireless carrier reporting better than expected first quarter results.

Considerable weakness was also visible among pharmaceutical stocks, as reflected by the 1.3 percent loss posted by the NYSE Arca Pharmaceutical Index. The index fell to a one-month closing low.

Biotechnology and transportation stocks also saw notable weakness, while some strength was visible among oil service and gold stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.23 to $67.70 a barrel after climbing $0.68 to $67.93 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,316.20, up $10.60 compared to the previous session’s close of $1,305.60. On Wednesday, gold dipped $1.20.

On the currency front, the U.S. dollar is trading at 109.25 yen compared to the 109.84 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1981 compared to yesterday’s $1.1951.

Asia

Asian stocks turned in another mixed performance on Thursday after the Federal Reserve left interest rates unchanged in a widely expected move and senior U.S. officials arrived in Beijing for trade talks. The Japanese market was closed for a public holiday.

China’s Shanghai Composite Index rose 19.96 points or 0.7 percent to 3,101.13 as top U.S. and Chinese officials prepared to kick off crucial trade talks in Beijing. Meanwhile, Hong Kong’s Hang Seng Index tumbled 410.51 points or 1.3 percent to 30,313.37.

A breakthrough in the trade talks is seen as highly unlikely as the U.S. Embassy in Beijing said the delegation planned to leave Friday evening.

Australian shares gained ground as the Aussie dollar struggled and commodity prices firmed up. The benchmark S&P/ASX 200 Index hit its highest level in nearly three months before finishing up 48.10 points or 0.8 percent at 6,098.30. The broader All Ordinaries Index climbed 50.30 points or 0.8 percent to 6,187.

Higher base metal prices helped lift miners, with BHP Billiton, Fortescue Metals Group and Rio Tinto rising 1-2 percent. South32 shares jumped as much as 4 percent.

Grocery giant Woolworths Group rallied 2.2 percent after it reported a 4.4 percent increase in third quarter same-store food sales.

Lender Commonwealth Bank advanced 0.6 percent despite news that it had lost backup data of almost 20 million accounts. ANZ and Westpac also closed higher, while NAB shed 0.6 percent after posting a drop in half-year cash profit due to restructuring costs.

AMP declined 0.7 percent after global ratings agency S&P put the financial services company’s credit rating at risk of a downgrade over scandals exposed at the banking royal commission.

On the data front, readings on the Australian trade balance, service sector activity and building approvals all painted a positive picture of the economy.

Seoul stocks fell amid selling by foreign investors after the Fed reaffirmed the outlook for more rate hikes this year. The benchmark Kospi dropped 18.36 points or 0.7 percent to 2,487.25.

Europe

European stocks have moved to the downside on Thursday as the euro has bounced back from four-month lows against the dollar and investors await the outcome of U.S.-China trade talks.

While the U.K.’s FTSE 100 Index has edged down by 0.1 percent, the French CAC 40 Index is down by 0.3 percent and the German DAX Index is down by 0.4 percent.

The British pound weakened slightly after the release of disappointing services sector data. The IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers’ Index rose to 52.8 in April from 51.7 in March. Nonetheless, the reading was below the forecast of 53.5.

Separately, Eurozone inflation eased slightly in April on slower increase in services cost, Eurostat reported. Inflation eased to 1.2 percent in April from 1.3 percent in March. The rate was expected to remain unchanged at 1.3 percent.

Smith & Nephew shares have plummeted after the British firm cut its forecast for full-year underlying revenue growth and profit margin.

Germany’s Vonovia, Fresenius and Fresenius Medical Care have also moved to the downside after reporting disappointing results.

Meanwhile, Logitech International has soared. After posting better-than-expected quarterly results, the Swiss provider of personal computer and mobile accessories said it aims to increase its profitability target in the future.

Deutsche Bank has also advanced on a Wall Street Journal report that the bank has agreed to pay former executive Colin Fan roughly $6 million to settle his suit against the firm.

Osram has rallied on news the German lighting manufacturer is acquiring U.S.-based Vixar Inc., which has specialist capabilities in the field of VCSEL.

In the mining sector, Glencore has advanced after saying it expects 2018 earnings from its trading division to be at the top end of its previously forecast range.

U.S. Economic Reports

With exports climbing and imports falling, the Commerce Department released a report showing a significantly narrower U.S. trade deficit in the month of March.

The Commerce Department said the trade deficit narrowed to $49.0 billion in March from a revised $57.7 billion in February.

Economists had expected the trade deficit to narrow to $50.0 billion from the $57.6 billion originally reported for the previous month.

Meanwhile, the Labor Department released a report showing a modest increase in initial jobless claims in the week ended April 28th.

The report said initial jobless claims inched up to 211,000, an increase of 2,000 from the previous week’s unrevised level of 209,000. Economists had jobless claims to climb to 225,000.

The modest uptick came after jobless claims fell to their lowest level since December of 1969 in the previous week.

A separate report from the Labor Department showed labor productivity rose by less than expected in the first quarter of 2018.

The report said labor productivity climbed by 0.7 percent in the first quarter after rising by 0.3 percent in the fourth quarter. Economists had expected productivity to increase by 0.9 percent.

The Labor Department said unit labor costs surged up by 2.7 percent in the first quarter following a 2.1 percent jump in the fourth quarter. Costs had been expected to spike by 2.9 percent.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of April.

The ISM’s non-manufacturing index is expected to dip to 58.1 in April from 58.8 in March, although a reading above 50 would still indicate growth in the service sector.

The Commerce Department is also due to release its report on factory orders in the month of March at 10 am ET. Factory orders are expected to jump by 1.4 percent.

Stocks In Focus

Shares of Fitbit (FIT) are moving sharply lower in pre-market trading after the wearable fitness device maker reported a narrower than expected first quarter loss but provided disappointing guidance for the current quarter.

Music streaming service Spotify (SPOT) is also likely to come under pressure after its first quarterly results as a public company came in below analyst estimates.

Shares of AIG (AIG) are also seeing notable pre-market weakness after the insurer reported weaker than expected first quarter earnings.

On the other hand, shares of Regeneron Pharmaceuticals (REGN) are likely to see early strength after the biotechnology company reported first quarter results that exceeded expectations.

Computer accessories maker Logitech (LOGI) may also move to the upside after reporting fiscal fourth quarter results that beat analyst estimates on both the top and bottom lines.

Shares of Kraft Heinz (KHC) are also seeing pre-market strength after the food producer reported better than expected first quarter earnings.

by RTTNews Staff Writer

For comments and feedback: editorial@rttnews.com

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