Renewed Trade Deal Uncertainty Weigh on Wall Street

By Investors Hub

The major U.S. index futures are pointing to a pointing to a lower opening on Thursday, with stocks likely to move back to the downside after ending the previous session moderately higher.

Renewed uncertainty about the potential for a long-term U.S.-China trade deal may contribute to initial weakness on Wall Street.

Optimism about phase one of a trade deal has contribute to recent strength on Wall Street, but a new report from Bloomberg said Chinese officials are casting doubts about reaching a comprehensive long-term trade agreement.

People familiar with the matter told Bloomberg that Chinese officials have warned in private conversations that they are unwilling to budge on the thorniest issues.

Early selling pressure may be somewhat subdued, however, with better than expected earnings news from tech giant Apple (AAPL) likely to help limit the downside.

With traders reacting positively to the Federal Reserve’s monetary policy decision, stocks moved moderately higher over the course of the trading session on Wednesday. With the upward move, the S&P 500 reached a new record closing high.

The major averages pulled back off their highs going into the close but remained in positive territory. The Dow climbed 115.27 points or 0.4 percent to 27,186.69, the Nasdaq rose 27.12 points or 0.3 percent to 8,303.98 and the S&P 500 ended the day up 9.88 points or 0.3 percent at 3,046.77.

Stocks showed a lack of direction for most of the day until the Fed announced its decision to lower interest rates for the third straight meeting.

The Fed announced its widely expected decision to lower the target range for the federal funds rate by 25 basis points to 1-1/2 to 1-3/4 percent.

The quarter point rate cut follows two matching moves at the Fed’s meetings in September and July, which marked the first rate cuts in over a decade.

Traders seemed unfazed by a change to the accompanying statement suggesting the central bank may put further monetary policy easing on hold.

The Fed’s accompanying statement removed a key line indicating the central bank would continue to “act as appropriate to sustain the expansion.”

The line was included in each of the Fed’s three previous statements and was seen as pointing toward a near-term rate cut.

The Fed said it would continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

“It’s a small change, but suggests less willingness to continue cutting rates in future,” FHN Financial Chief Economist Chris Low said about removing the line.

Low added, “In other words, while the FOMC was previously in the midst of a mid-cycle series of rate cuts and assessing whether to end it, the new language suggests they are ready to end it, but alert for evidence it should continue.”

The Fed is scheduled to hold its next monetary policy meeting on December 10-11, with CME Group’s FedWatch tool currently indicating a 79.1 percent chance the central bank will leave rates unchanged.

In his post-meeting press conference, Fed Chairman Jerome Powell said the current stance of monetary policy is “likely to remain appropriate” as long as “the outlook remains broadly in keeping with our expectations.”

Powell also told reporters the Fed would need to see a “really significant move up in inflation that’s persistent” before the central bank would consider raising interest rates.

With the focus on the Fed, traders largely shrugged off the release of some upbeat U.S. economic data, including the Commerce Department’s first reading on third quarter GDP.

The Commerce Department report showed U.S. economic growth slowed much less than expected in the third quarter.

The report said real gross domestic product increased by 1.9 percent in the third quarter after climbing by 2.0 percent in the second quarter. Economists had expected GDP growth to slow to 1.7 percent.

Payroll processor ADP released a separate report showing U.S. private sector employment increased by slightly more than anticipated in the month of October.

ADP said private sector employment climbed by 125,000 jobs in October compared to economist estimates for an increase of about 120,000 jobs.

However, the report also showed private sector job growth in September was downwardly revised to 93,000 from the previously reported addition of 135,000 jobs.

“Job growth has throttled way back over the past year,” said Mark Zandi, chief economist of Moody’s Analytics. “If hiring weakens any further, unemployment will begin to rise.”

Gold stocks showed a strong move to the upside over the course of the session, driving the NYSE Arca Gold Bugs Index up by 1.5 percent. The strength among gold stocks came amid an increase by the price of the precious metal.

Notable strength also emerged among software and pharmaceutical stocks, with the Dow Jones U.S. Software Index and the NYSE Arca Pharmaceutical Index both rising by 1.4 percent.

On the other hand, energy stocks moved sharply lower as the price of crude oil fell following the release of a report showing a much bigger than expected weekly jump in crude oil inventories.

Reflecting the weakness in the sector, the Philadelphia Oil Service Index plummeted by 4.4 percent, the NYSE Arca Natural Gas Index plunged by 3.7 percent and the NYSE Arca Oil Index tumbled by 2.2 percent.

Considerable weakness also remained visible among transportation stocks, as reflected by the 1.8 percent slump by the Dow Jones Transportation Average.

C.H. Robinson Worldwide (CHRW) led the sector lower after the trucking company reported third quarter results that missed analyst estimates.