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LIVE MARKETS U.S.-Steel stocks: Relatively fragile on the charts

Mon, 11th Feb 2019 18:54

* Nasdaq edges up; Dow, S&P nudge down * U.S. dollar index rises for 8th straight day Feb 11 (Reuters) - Welcome to the home for real-time coverage of U.S. equity markets brought to you by Reuters stocks reporters and anchored today by April Joyner. Reach her on Messenger to share your thoughts on market moves: STEEL STOCKS: RELATIVELY FRAGILE ON THE CHARTS (1342 EST/1842 GMT) Steel stocks have been among the groups hit hard by ongoing trade disputes and global growth concerns. More recently, despite the VanEck Vectors Steel ETF's bounce off its late-2018 trough, it has lagged the S&P 500 on a relative strength basis. This as markets await the outcome of this week's U.S.-China trade talks. Indeed, despite the SLX advancing to multi-year highs into the early and middle parts of last year, the group ultimately buckled after President Trump first announced tariffs in early March. Highlighting the extent of steel stock underperformance last year, the SLX lost nearly a quarter of its value in 2018 versus a SPDR S&P 500 ETF Trust decline of just 6 percent. (Click on chart below.) More recently, since late December, the SLX/SPY ratio has struggled to rise above a resistance line from last May, and in fact is back down to test its low. Thus, this may be setting up as a pivotal week for steel stocks on a relative basis, in the event the ratio breaks out of its contracting range. Of note, the SLX has exposure to both U.S. and foreign-based steel stocks. About 61 percent of the ETF's weighting was in foreign companies versus 39 percent in the U.S. at the end of January. (Terence Gabriel) ***** MAKING INTERNATIONAL STOCKS GREAT AGAIN (1250 EST/1750 GMT) As investors await a U.S.-China trade agreement ahead of a March 1 deadline, maybe they should be careful what they wish for. According to Leuthold Group Chief Investment Strategist Jim Paulsen, if President Donald Trump secures a deal that narrows the U.S. trade deficit Wall Street will likely underperform overseas stock markets. A chart by Paulsen, below, shows a strong relationship going back to 1970 between changes in the trade deficit as a percentage of GDP and the relative performance of U.S. stocks versus foreign stocks. "They might both go up or both go down, but the way you want be tilted is toward international stocks if you think Trump's going to win," said Paulsen. According to Paulsen, the U.S.-China trade dispute has slowed foreign economies more than the U.S. economy and raised the value of the dollar. So a reversal of those two factors would provide greater relief for international stocks. (Sinéad Carew) ***** EARNINGS ESTIMATES FOR 2019 FAST SOURING (1101 EST/1601 GMT) The earnings forecast for the first quarter of 2019 turned negative on Friday, according to IBES data from Refinitiv , and today, it's ticked lower still. Analysts on average now project Q1 earnings to drop 0.2 percent year-over-year. A little over a month ago, on Jan. 1, they had projected a 5.3-percent year-over-year increase for the quarter. Morgan Stanley's strategists concur with the quickly souring consensus view of prospects for 2019. "Our earnings recession call is playing out even faster than we expected," they wrote in a note on Monday. They now project earnings growth of just 1 percent for all of 2019. To boot, they say, curb your enthusiasm for the second half of 2019. Analysts on average are still expecting a robust 9.5-percent earnings growth rate for the fourth quarter, according to Refinitiv. But such a jump is unlikely, according to Morgan Stanley's strategists, given the solid Q4 2018 earnings growth rate - currently at 16.5 percent - and the absence of the tax-cut boost that helped juice earnings last year. (April Joyner) ***** DOW JONES INDUSTRIAL AVERAGE: UP OFF THE MAT (0915 EST/1415 GMT) The Dow Jones Industrial Average proved its athleticism late last week. The Index went toe-to-toe with support and emerged victorious. That said, waning shorter-term momentum suggests there may be a few more rounds to come. Indeed, despite an intraday decline to 24,883.04 on Friday, the DJI managed to recover enough to close back over its 100 and 200-day moving averages (DMA) (24,949 and 25,004.81 Friday closes). That said, if the index is to resume its advance off the late-December trough, it will need to quickly thrust above last-week's high (25,439.04). However, one issue may be waning daily momentum. The MACD is threatening to roll under its January 2018 high and turn down. Another break of the 100-DMA may prove too much to bear as the still open January 30 gap may then beckon. A drop to 24,674.87 is needed to close this window on the daily chart. However, such a turn can lead to a weaker momentum picture, and see the index threaten the 50-DMA (24,239.85). Closing below the 50-DMA can suggest risk a bear trend from the October peak is resuming as these intermediate and longer-term moving averages will then remain in gear to the downside. (Terence Gabriel) ***** FUTURES POINT TO HIGHER OPEN (0908 EST/1308 GMT) Wall Street's main indexes looked set to rise at open on Monday as the latest round of trade talks between the world's largest economies began in Beijing, while U.S. lawmakers attempted to hammer out a deal to avoid another government shutdown after talks collapsed Sunday. China struck an upbeat note on Monday as trade talks resumed with the United States, but also expressed anger at a U.S. Navy mission through the disputed South China Sea, casting a shadow over the prospect for improved Beijing-Washington ties. Talks on border security funding collapsed after Democratic and Republican lawmakers clashed over immigrant detention policy as they worked to avert another U.S. government shutdown, a Republican senator said on Sunday. (Sinéad Carew) *****

Next Article: GLOBAL MARKETS-World stocks edge higher ahead of trade talks, Brexit

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