Wall Street gains, US could be ready to impose sanctions on China

Summary:

• Wall Street posts solid gains after Walmart’s earnings and better performance of tariff-vulnerable companies

• Dow Jones (US30) records its biggest percentage gain in over four months

• US signals that it could impose sanctions on countries which keep buying Iranian oil after 4 November

Following slightly lowered frictions related to a trade war between the US and China, US stocks got a boost on Thursday. The Dow Jones (US30) saw undoubtedly the largest and most impressive gain surging as much as 1.6%. The SP500 (US500) added 0.8% while the NASDAQ (US100) rose 0.4%. Notice that a 1.6% increase seen in one of the world’s oldest index resulted particularly from a tremendous pick-up of Walmart’s shares in response to splendid earnings. The company reported its earnings for the second quarter showing adjusted EPS of $1.29 and revenue of $128.03 billion - both values exceeded expectations by a large margin as the median estimates had pointed to $1.22 and $125.97 billion respectively. Notice that the retailer’s growth in terms of sales was the strongest in more than a decade (taking into account those stores being open at least 12 months). The company added that US online sales climbed 40% over the quarter which could be a sign that implemented changes like a new website redesign as well as grocery delivery options have already paid off. Moreover, Walmart expects that in the full year it will be able to report a 40% increase as well. In response to these excellent numbers Walmart shares closed the Thursday’s session up 9.3% being by far the best stocks within the Dow Jones.

Beside Walmart we had some other gainers which significantly contributed to better performance of the entire index. There were Boeing, Caterpillar and Cisco. While Cisco’s gains came as a result of upbeat earnings reported earlier this week, both Boeing and Caterpillar cheered due to lowered trade tensions. Keep in mind that both stocks are particularly vulnerable to tariffs hence earlier information that China and the US will meet later in August gave these stocks some relief. Aircrafts producer’s shares surged 4.3% whereas Caterpillar closed the day with a decent 3.2% rise. Overall, there were just four stocks which lost some traction on Thursday - Intel, Walt Disney, Chevron and Microsoft, however, falls were not painful with the largest one registered by Intel equal 0.6%.

Technically, the Dow Jones bounced off its crucial support and confirmed it yesterday- the 50MA as well as the upper limit of the broken triangle formation. Thus, one may expect that the index could move north trying to crack 25800 points in the nearest future. Source: xStation5

Yesterday we had a successful day for riskier assets on the back of an announcement that the US and China would start ‘low-level’ negotiations. However, over the past hours the US new special representative for Iran said that the Trump administration is basically ready to impose sanctions on all countries purchasing Iranian oil after a deadline on 4 November - the date when the US will reimpose sanctions on Iran’s energy sector. This new could be especially relevant for China as the country is unlikely to dial back its crude imports from Iran unlike India and South Korea - both countries have already trimmed their imports and are hoping to obtain waiver from the US to buy more time to replace Iranian crude. Note that the most recent data for July showed that Chinese oil imports account for 36% of Iranian total exports signalling that China is the large player there. By and large, even as both China and the US are expected to resume negotiations later this month, revelations related to Iran signal that we may be still a long way off from the ultimate termination of the trade row.

Brent prices (OIL) bounced on Thursday after reaching their critical support slightly below $71. Should this level be finally broken, one may be ready to see much deeper falls. However, until the price stays above $70 the base scenario is a pullback at least toward a 38.2% retracement. Source: xStation5