MARKET ANALYSIS: Upbeat Economic Data May Lead To Strength On Wall Street

WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on ...

Alliance News 14 June, 2018 | 2:04PM
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WASHINGTON (Alliance News) - The major US index futures are pointing to a higher opening on Thursday, with stocks likely to move back to the upside following the pullback seen late in the previous session.

Early buying interest may be generated in reaction to some upbeat economic data, including a report from the Commerce Department showing a much bigger than expected increase in retail sales in the month of May.

Meanwhile, traders are also digesting the European Central Bank's highly anticipated monetary policy announcement.

Following its monetary policy meeting, the ECB announced plans to begin winding down its massive bond-buying program.

The ECB said it plans to reduce the monthly pace of its net asset purchases to 15 billion from 30 billion after September before completely ending the program at the end of December.

Meanwhile, the ECB left interest rates unchanged and said it expects rates to remain at their present levels at least through the summer of 2019.

"The ECB's announcement that it will end its asset purchases in December is probably a little bolder than markets had expected, but this is tempered by the pledge to keep interest rates on hold for more than a year," said Jennifer McKeown, Chief European Economist at Capital Economics.

Stocks saw modest strength for much of the trading session on Wednesday but came under pressure following the Federal Reserve's monetary policy announcement. The Nasdaq reached a record intraday high but pulled back into negative territory along with the other major averages.

The major averages all closed in the red, although the tech-heavy Nasdaq edged down just 8.10 points or 0.1% to 7,695.70. The Dow slid 119.53 points or 0.5% to 25,201.20 and the S&P 500 fell 11.22 points or 0.4% to 2,775.63.

The pullback by stocks came after the Fed announced its decision to raise interest rates by 25 basis points to a range of 1.75% to 2%.

While the rate hike was widely expected, the Fed seemed to surprise investors by forecasting two additional rate hikes this year after previously predicting one rate increase.

"With growth rebounding following the typical first quarter soft patch, and inflation continuing to accelerate, we have been penciling in a total of four hikes for this year," said ING economist James Smith. "Looking at the latest 'dot plot,' it seems the Fed is increasingly heading in this direction too."

The Fed reiterated that it expects further gradual rate increases but dropped language predicting rates are likely to remain below levels that are expected to prevail in the longer run.

The central bank said data received since its May meeting indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate.

Annual overall inflation and core inflation have moved close to 2%, the Fed said and noted indicators of longer-term inflation expectations are little changed.

On the US economic front, the Labor Department released a report showing a bigger than expected increase in producer prices in the month of May.

The Labor Department said its producer price index for final demand climbed by 0.5% in May after inching up by 0.1% in April. Economists had expected producer prices to rise by 0.3%.

Excluding food and energy prices, core producer prices rose by 0.3% in May after edging up by 0.2% in April. Core prices had been expected to show another 0.2% increase.

The report said the annual rate of producer price growth accelerated to 3.1% in May from 2.6% in April, reaching its highest level in over six years.

The annual rate of growth in core producer prices also ticked up to 2.6% in May from 2.5% in the previous month.

"The rebound in producer price inflation in May supports our view that core consumer price inflation will trend higher over the rest of this year," said Michael Pearce, Senior US Economist at Capital Economics.

He added, "That will keep the pressure on the Fed to keep raising interest rates once a quarter over the next year or so."

Housing stocks moved sharply lower over the course of the session, with the Philadelphia Housing Sector Index plunging by 2.9%. The steep drop by the index came after it ended the previous session at its best closing level in almost two months.

The pullback by housing stocks partly reflected concerns about the impact of higher interest rates following the Fed announcement.

Rate-sensitive commercial real estate stocks also came under pressure, dragging the Dow Jones Retail Index down by 2%. The index ended the previous session at a five-month closing high.

Telecom and chemical stocks also saw notable weakness on the day, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are climbing USD0.45 to USD67.09 a barrel after rising USD0.28 to USD66.64 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at USD1,311.50, up USD10.20 compared to the previous session's close of USD1,301.30. On Wednesday, gold rose USD1.90.

On the currency front, the US dollar is trading at 110.16 yen compared to the 110.34 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at USD1.1714 compared to yesterday's USD1.1791.

Asia

Asian stocks fell on Thursday as trade war fears resurfaced and the US Federal Reserve sounded slightly more hawkish after raising interest rates for the second time this year.

Investors also adopted a cautious stance ahead of the European Central Bank's monetary policy announcement later in the day amid expectations the central bank will signal a winding down of its vast bond-buying program by the end of this year.

China's Shanghai Composite Index dipped 5.33 points or 0.2% to 3,044.46 after reports suggested the Trump administration is preparing to proceed with tariffs on Chinese goods.

Hong Kong's Hang Seng Index fell 284.98 points or 0.9% to close at 30,440.17 after a slew of economic data from China disappointed investors.

Industrial production in China was up an annual 6.8% in May, the National Bureau of Statistics said. That was shy of expectations for 7.0%, which would have been unchanged from April.

Chinese retail sales grew an annual 8.5% in May - also missing expectations for 9.6% and down from 9.4% in the previous month.

Fixed asset investment gained 6.1% year-on-year, missing forecasts for 7.0%, which would have been unchanged from the April reading.

Japanese shares lost ground as a firmer yen on worries about global trade and a faster pace of interest rate hikes sapped investors' appetite for risk.

The Nikkei 225 Index slumped 227.77 points or 1% to 22,738.61, while the broader Topix Index closed 0.9% lower at 1,783.89.

Toyota shed 0.9% after saying it will invest USD1 billion in Asia ride-sharing company Grab. Honda Motor, Nissan, Panasonic and Sony declined 1-2%. Toshiba jumped 2.7% after announcing a share buyback.

Japanese industrial production climbed 0.5% month-over-month in April, faster than the 0.3% estimated earlier, final data from the Ministry of Economy, Trade and Industry showed. This marked the third successive monthly increase.

Australian shares fluctuated before closing slightly lower, dragged down by banks. The benchmark S&P/ASX 200 Index edged down 6.90 points or 0.1% to 6,016.60, while the broader All Ordinaries Index ended little changed with a negative bias.

The big four banks fell between half a % and 1.1% ahead of ECB and BoJ meetings. Atlas Iron slumped 18.2% after the government said it doesn't have priority rights to develop certain ship berths in Port Hedland.

Material stocks bucked the downward trend, with heavyweights BHP Billiton and Rio Tinto rising 0.4% and 0.6%, respectively.

Gold miner Newcrest advanced 1% to snap a four-session losing streak. Telstra Corp, Australia's largest telecom company, jumped over 5% after an upgrade from J.P. Morgan.

DroneShield's shares climbed almost 14% after the drone security firm won its biggest ever order for DroneGuns from an unspecified Middle Eastern country.

The unemployment rate in Australia came in at a seasonally adjusted 5.4% in May, a tad below expectations for 5.5% and down from 5.6% in April. The economy added 12,000 jobs last month, shy of expectations for 19,000 after an addition of 22,600 a month earlier.

Europe

European stocks have moved mostly higher on the day as investors digest the European Central Bank's monetary policy announcement.

While the French CAC 40 Index has climbed by 0.7%, German DAX Index is up by 0.4% and the UK's FTSE 100 Index is up by 0.3%.

On the data front, German consumer price inflation climbed 2.2% year-on-year in May, faster than the 1.6% increase in April but in line with the estimate published on May 30th, final data from Destatis showed.

French consumer price inflation accelerated as initially estimated in May, while UK retail sales growth accelerated more than expected.

The pound spiked higher after data showed UK retail sales volume including auto fuel grew 1.3% month-on-month following April's 1.8% increase. This was the second consecutive rise in sales and much bigger than the expected 0.5%.

Volkswagen has moved to the downside after German prosecutors imposed a 1 billion euro fine on the automaker in connection with its emissions-cheating scandal.

Bertrandt Group has also fallen after posting disappointing first-half financial results. Leasing company Grenke has also slumped after announcing a capital increase.

Meanwhile, Rolls Royce Holdings shares have advanced on a Bloomberg report that the jet engine manufacturer plans to eliminate about 4,000 jobs as part of efforts to simplify its business and boost profit margins.

Renault has also moved higher after the Financial Times reported that Carlos Ghosn is likely to step down as chief executive of the company before his term ends in 2022.

US Economic Reports

Reflecting strong sales growth throughout much of the sector, the Commerce Department released a report showing a much bigger than expected increase in US retail sales in the month of May.

The Commerce Department said retail sales jumped by 0.8% in May after climbing by an upwardly revised 0.4% in April.

Economists had expected retail sales to rise by 0.4% compared to the 0.3% increase originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales still surged up by 0.9% in May following a 0.4% increase in April. Ex-auto sales had been expected to climb by 0.5%.

A separate report from the Labor Department unexpectedly showed a modest decrease in initial jobless claims in the week ended June 9th.

The report said initial jobless claims edged down to 218,000, a decrease of 4,000 from the previous week's unrevised level of 222,000. Economists had expected initial jobless claims to inch up to 224,000.

The Labor Department also released a report showing import and export prices both increased by more than anticipated in the month of May.

The report said import prices climbed by 0.6% in May, matching the upwardly revised increase in April. Economists had expected import prices to rise by 0.5%.

Export prices also increased by 0.6% in May, matching the growth reported for the previous month. Export prices had been expected to rise by 0.3%.

At 10 am ET, the Commerce Department is scheduled to release its report on business inventories in the month of April. Business inventories are expected to rise by 0.3%.

Stocks In Focus

Shares of Tailored Brands (TLRD) are moving sharply lower in pre-market trading after the parent of Men's Wearhouse and Jos. A. Bank reported better than expected fiscal first quarter earnings and revenues but weaker than expected same-store sales growth.

Arts and crafts retailer Michaels (MIK) is also likely to come under pressure after reporting fiscal first quarter earnings that exceeded analyst estimates but providing disappointing guidance.

Shares of Mylan (MYL) may also move to the downside after US health regulators were unable to approve the drug maker's generic version of asthma medication Advair due to "minor deficiencies."

On the other hand, shares of 21st Century Fox (FOXA) may extend the upward seen in the previous session after Comcast (CMCSA) announced a USD65 billion bid for most of the company's media assets, igniting a potential bidding war with Disney (DIS).

Tax preparation firm H&R Block (HRB) may regain some ground following yesterday's sell-off after Barrington Research initiated coverage of the company's stock with an Outperform rating.

Copyright RTT News/dpa-AFX

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