Wall Street opens higher as trade optimism spreads

Summary:
- US GDP report shows weaker personal spending
- Dow Jones (US30) bounces off the short-term swing level
- Walgreens Boots Alliance (WBA.US) released fiscal Q3 earnings report

The G20 summit in Osaka that officially begins tomorrow is the key market event of the week. Optimistic comments relating to trade lifted equities during Asian and European trading hours causing the US stocks to open higher. Meanwhile, the third US GDP reading was released and it showed somewhat worrying details. Nevertheless, the US stock market did not seem to be too much concerned.

Contribution of the personal spending to the US GDP shrunk significantly in the first quarter of 2019. Note that in the previous years it was the major source of growth. Source: Macrobond, XTB Research

The US data pack, including third GDP print for Q1 2019 and jobless claims, was released at 1:30 pm BST. The headline GDP print came in at 3.1% YoY as expected and in line with the second release. However, details changed a bit. Compared to the previous reading, an upward revision was spotted for imports, exports, government consumption and gross private investments. Nevertheless, these improvements were offset by a significant downward revision to personal consumption. To make things worse, initial jobless claims for the past week came in at 227k against expected 220k and the previous reading was revised higher from 216k to 217k. A point to note is that a downward trend in jobless claims eased somewhat, what may hint at struggles in the US labour market. Combining today’s readings with disappointing survey and housing market data, shows that expected rate cut is justified and the Federal Reserve may commit to more easing in case the situation does not improve. However, the US dollar barely reacted to the release.

Dow Jones (US30) has been trading without clear direction for the past two days. The index bounced off the swing level at the 26510 handle at the beginning of Thursday’s session. The first near-term resistance can be found at the 50-hour moving average (green line) as the index respected it a few times during the past week (orange circles). Note that quarter’s end looms therefore some funds may engage in “window dressing” and boost trading volumes of the US blue chips. Source: xStation5

Walgreens Boots Alliance (WBA.US), the US retail pharmacy company and a member of the Dow Jones index, released earnings report for the fiscal Q3 2019 (ended 31 May 2019) today before the session open. The US company reported sales of $34.591 billion marking a 0.7% YoY increase. When it comes to earnings metrics, things are not looking as optimistic. Operating income decreased to $1.203 billion marking a 20.6% decrease while net income shrunk from $1.342 billion to $1.025 billion. The EPS of $1.47 was 3.9% YoY lower. Nevertheless, deterioration was expected and when we compare earnings with market forecasts we can see that the company actually managed to beat expectations in most cases. However, it does not look to be enough to calm shareholders as the stock is trading 1% lower at the beginning of Thursday’s session.

Dow Jones (US30) members at the beginning of Thursday’s session. Source: xStation5