Geopolitical Uncertainty May Lead To Choppy Trading

Geopolitical Uncertainty May Lead To Choppy Trading

The major U.S. index futures are pointing to a roughly flat opening on Wednesday following the sharp pullback seen in the previous session.

Geopolitical uncertainty may keep some traders on the sidelines after North Korea threatened to cancel an historic meeting between leader Kim Jong Un and President Donald Trump.

In a statement published by the state-run Korean Central News Agency, North Korean First Vice Minister of Foreign Affairs Kim Kye Gwan suggested that Trump must accept the reclusive communist country as a nuclear power.

“If the U.S. is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue and cannot but reconsider our proceeding to the DPRK-U.S. summit,” Kim said.

Kim pointed to “unbridled remarks” by U.S. officials such as National Security Adviser John Bolton calling on North Korea to abandon nuclear weapons first and be compensated afterward.

The statement from Kim comes after North Korea canceled high-level talks with South Korea planned for Wednesday over U.S.-South Korean military drills.

Despite the threats, White House Press Secretary Sarah Sanders told Fox News that Trump remains “ready to meet” with the North Korean leader.

After ending Monday’s trading modestly higher, stocks showed a significant move back to the downside during trading on Tuesday. The major averages pulled back sharply in morning trading and remained firmly negative throughout the afternoon.

The major averages regained some ground going into the close but still ended the day notably lower. Dow slumped 193.00 points or 0.8 percent to 24,706.41, the Nasdaq fell 59.69 points or 0.8 percent to 7,351.63 and the S&P 500 slid 18.68 points or 0.7 percent to 2,711.45.

Profit taking may have contributed to the weakness on Wall Street following a recent upward trend. The modest gains posted on Monday lifted the major averages to their best closing levels in two months.

Negative sentiment was also generated in reaction to react to earnings news from home improvement retailer Home Depot (HD).

Shares of Home Depot moved notably lower after the company reported first quarter earnings that beat analyst estimates but weaker than expected sales.

Traders were also reacting to a jump in U.S. treasury yields, with the yield on the benchmark ten-year note surging up to its highest levels since 2011.

The increase in treasury yields came after a report from the Commerce Department showed retail sales increased in line with economist estimates in the month of April.

The Commerce Department said retail sales rose by 0.3 percent in April after climbing by an upwardly revised 0.8 percent in March.

Economists had expected sales to rise by 0.3 percent compared to the 0.6 percent increase originally reported for the previous month.

Excluding a modest increase in auto sales, retail sales still rose by 0.3 percent in April following an upwardly revised 0.4 percent increase in March.

Ex-auto sales have been expected to climb by 0.5 percent compared to the 0.2 percent uptick originally reported for the previous month.

A separate report from the National Association of Home Builders showed an unexpected improvement in homebuilder confidence in the month of May.

The report said the NAHB/Wells Fargo Housing Market Index rose to 70 in May from a downwardly revised 68 in April. Economists had expected the index to come in unchanged compared to the 69 originally reported for the previous month.

Housing stocks moved sharply lower over the course of the trading session, as concerns about the impact of higher interest rates overshadowed the upbeat homebuilder confidence data.

Reflecting the weakness in the housing sector, the Philadelphia Housing Sector Index plunged by 2.6 percent on the day.

Substantial weakness was also visible among gold stocks, as reflected by the 2.2 percent slump by the NYSE Arca Gold Bugs Index. With the drop, the index fell to its lowest closing level in a month.

The weakness in the gold sector came amid a sharp decline by the price of the precious metal, with gold for June delivery plummeting $27.90 to $1,290.30 an ounce.

Real estate, healthcare, telecom, and semiconductor stocks also moved significantly lower, reflecting broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are slipping $0.26 to $71.05 a barrel after rising $0.35 to $71.31 a barrel on Tuesday. Meanwhile, after plunging $27.90 to $1,290.30 an ounce in the previous session, gold futures are falling $3.80 to $1,286.50 an ounce.

On the currency front, the U.S. dollar is trading at 110.11 yen compared to the 110.35 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1768 compared to yesterday’s $1.1838.

Asia

Asian stocks ended broadly lower on Wednesday after U.S. government bond yields surged on expectations for further interest rate hikes from the Federal Reserve and North Korea suspended talks with South Korea scheduled for later in the day, citing joint South Korea-U.S. military exercises.

Chinese stocks closed lower, with the benchmark Shanghai Composite Index sliding 22.41 points or 0.7 percent at 3,169.71. Hong Kong’s Hang Seng Index edged down 41.83 points or 0.1 percent to 31,110.20.

Japanese shares fell amid renewed geopolitical uncertainty on the Korean Peninsula. Weak GDP data also weighed on markets.

Data showed that the world’s third-biggest economy contracted a more than expected 0.6 percent in the January-March period on an annualized basis to suffer its first contraction since 2015.

The Nikkei 225 Index dropped 100.79 points or 0.4 percent to 22,717.23, while the broader Topix Index closed 0.3 percent lower at 1,800.35.

Mitsubishi UFJ Financial Group lost 2.4 percent after its net profit for the year ended in March missed analyst estimates. Nisshin Steel rallied 15.6 percent on news it will become Nippon Steel & Sumitomo Metal Corp.’s subsidiary next January via a share exchange.

Meanwhile, Australian shares eked out modest gains, led by mining and financial stocks. The benchmark S&P/ASX 200 Index rose 9.20 points or 0.2 percent to 6,107, while the broader All Ordinaries Index edged up 9.40 points at 6,208.10.

Firmer commodity prices helped lift miners, with heavyweights BHP Billiton and Rio Tinto climbing over 1 percent each. Westpac Banking Corp advanced 0.7 percent, while the other three major banks closed narrowly mixed.

Origin Energy, Santos and Woodside Petroleum climbed 1-2 percent after crude oil prices advanced overnight, but gold miners Newcrest and Evolution fell around 2 percent after gold prices tumbled overnight.

Myer Holdings soared as much as 16 percent even as the embattled department store chain reported a 2.7 percent decline in third quarter sales and warned that unseasonably warm weather may hurt its fourth-quarter profits.

Investors shrugged off figures from the Australian Bureau of Statistics showing Australia’s wages grew less than expected in the three months ended in March.

Europe

European stocks are holding steady on Wednesday as firmer commodity prices and some solid earnings updates helped investors shrug off North Korea’s threat to scrap a historic summit next month between its leader Kim Jong Un and U.S. President Donald Trump.

While the German DAX Index has risen by 0.3 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 0.1 percent.

Burberry has rallied after the British luxury fashion house announced another share buyback after reporting full-year adjusted operating profits above analyst estimates.

Software company Micro Focus International has also jumped on saying the signing of a new $40 million (29 million pounds) licensing deal would help bolster its first-half revenue.

Leoni shares have moved to the upside in Frankfurt. The provider of energy and data management solutions in the automotive market reiterated its full-year outlook after its consolidated net income for the first quarter rose 19.1 percent.

Meanwhile, French catering and foodservice firm Elior has slumped after issuing a full-year profit warning.

In economic news, Eurozone inflation eased slightly in April, as estimated, final data from Eurostat showed. Inflation slowed to 1.2 percent in April from 1.3 percent in March. The rate came in line with the estimate published on May 3rd.

German consumer price inflation held steady in April, as previously estimated, final data from Destatis showed. Consumer prices climbed 1.6 percent year-on-year in April, the same rate of growth as seen in March and in line with the estimate released on April 30th.

U.S. Economic Reports

New residential construction in the U.S. pulled back by much more than anticipated in the month of April, according to a report released by the Commerce Department on Wednesday.

The report said housing starts plunged by 3.7 percent to an annual rate of 1.287 million in April after jumping by 3.6 percent to an upwardly revised 1.336 million in March.

Economists had expected housing starts to drop to an annual rate of 1.310 million from the 1.319 million originally reported for the previous month.

The Commerce Department said building permits also tumbled by 1.8 percent to an annual rate of 1.352 million in April after surging up by 4.1 percent to an upwardly revised 1.377 million in March.

Building permits, an indicator of future housing demand, had been expected to edge down to 1.350 million from the 1.354 million originally reported for the previous month.

At 9:15 pm ET, the Federal Reserve is scheduled to release its report on industrial production in the month of April. Industrial production is expected to climb by 0.6 percent in April following a 0.5 percent increase in March.

The Energy Information Administration is due to release its report on oil inventories in the week ended May 11th at 10:30 am ET.

Crude oil inventories are expected to decrease by 1.5 million barrels after slumping by 2.2 million barrels in the previous week.

At 6:30 pm ET, St. Louis Fed President James Bullard is scheduled to give opening remarks at the Homer Jones Memorial Lecture in St. Louis, Missouri.

Stocks In Focus

Shares of Macy’s (M) are moving sharply higher in pre-market trading after the department store operator reported better than expected first quarter results and provided upbeat guidance.

Generic drug maker Teva Pharmaceutical (TEVA) may also see early strength on news Warren Buffett’s Berkshire Hathaway has more than doubled its investment in the company.

On the other hand, shares of Party City (PRTY) is seeing notable pre-market weakness after the party supplies retailer announced one of its stockholders intends to offer 12 million shares of its common stock.

Industrial conglomerate 3M (MMM) may also move to the downside after Jefferies downgraded its rating on the company’s stock to Hold from Buy and cut its price target to $220 per share.

by RTTNews Staff Writer

For comments and feedback: editorial@rttnews.com

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