Reaction To Georgia Runoffs May Lead To Mixed Open On Wall Street

The major U.S. index futures are pointing to a mixed open on Wednesday, as the Dow futures have edged higher but the Nasdaq futures have moved sharply lower.

The mixed performance by the futures comes as the results of the Georgia runoffs currently point to Democrats taking over control of the U.S. Senate.

Democratic candidate Rev. Raphael Warnock is projected to win his race against Republican Senator Kelly Loeffler, while the race between Jon Ossoff and GOP Senator David Perdue is too close to call but the Democrat is in the lead.

If Ossoff holds onto his narrow lead, the Senate would be split 50-50, with a tie-breaking vote by Vice President-elect Kamala Harris giving Democrats control of the chamber.

The uptick by the Dow futures comes as Democratic control of the House, Senate and White House is seen as a positive for cyclical stocks due to the likelihood of additional fiscal stimulus.

Meanwhile, the Nasdaq futures are under pressure, as tech stocks could be hurt by the move into cyclical stocks as well as the higher taxes sought by many Democrats.

Early trading may also be impacted by reaction to a report from payroll processor ADP showing an unexpected drop in private sector employment in the U.S. in the month of December.

Following the sharp pullback seen on the first trading day of the New Year, stocks showed a strong move back to the upside during trading on Tuesday. The major averages fluctuated early in the session but climbed firmly into positive territory as the day progressed.

The major averages finished the session near their best levels of the day. The Dow rose 167.71 points or 0.6 percent to 30,391.60, the Nasdaq jumped 120.51 points or 1 percent to 12,818.96 and the S&P 500 climbed 26.21 points or 0.7 percent to 3,726.86.

Energy stocks helped to lead the rebound on Wall Street, benefiting from a substantial increase by the price of crude oil.

Crude for February delivery spiked $2.31 to $49.93 a barrel as Saudi Arabia said it would cut oil production by 1 million barrels a day as part of a deal with OPEC and its allies to keep overall production levels largely unchanged.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index skyrocketed by 7.5 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index surged up by 5.1 percent and 4.8 percent, respectively.

Significant strength also emerged among steel stocks, as reflected by the 3.7 percent jump by the NYSE Arca Steel Index. The index ended the session at its best closing level in well over two years.

Chemical stocks also turned in a strong performance on the day, driving the S&P Chemical Sector Index up by 2.6 percent to a record closing high.

Airline, tobacco and semiconductor stocks also showed notable moves to the upside, while gold stocks gave back some ground after Monday’s rally.

The strength on Wall Street also came as traders generally remain optimistic about an economic recovery despite the recent spike in coronavirus cases.

Adding to the positive sentiment, a report released by the Institute for Supply Management showed an unexpected acceleration in the pace of growth in manufacturing activity in the month of December.

The ISM said its manufacturing PMI climbed to 60.7 in December after dipping to 57.5 in November, with a reading above 50 indicating growth. Economists had expected the index to edge down to 56.6.

With the unexpected increase, the manufacturing index reached its highest level since hitting 61.3 in August of 2018.

However, economists noted the headline index was artificially boosted by a jump by the supplier deliveries index, which suggested deliveries slowed at a faster rate.

Buying interest was also kept somewhat in check as traders await the results of two key Senate runoffs in Georgia.

The outcome of the runoff elections will determine which party controls the Senate and could have a major impact on what President-elect Joe Biden is able to accomplish.

Even with a Democratic-controlled Senate, Biden may still face difficulty pushing through his proposed tax policies but could have more success on issues like government spending, including increasing the size of stimulus checks.

Commodity, Currency Markets

Crude oil futures are inching up $0.03 to $49.96 a barrel after spiking $2.31 to $49.93 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,939, down $15.40 compared to the previous session’s close of $1,954.40. On Tuesday, gold climbed $7.80.

On the currency front, the U.S. dollar is trading at 103.06 yen compared to the 102.72 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.2328 compared to yesterday’s $1.2298.

Asia

Asian stocks ended mixed on Wednesday amid rising U.S.-China tensions and ahead of the results of two key Senate runoffs in Georgia that will determine how much U.S. President-elect Joe Biden can push through Democrats’ agenda.

The Trump administration has signed an executive order banning transactions with eight Chinese apps, saying they are a threat to U.S. national security.

Adding to market uncertainty was the New York Stock Exchange’s back-and-forth deliberations over whether to delist Chinese stocks on security grounds.

China’s Shanghai Composite Index rose 22.20 points, or 0.6 percent, to 3,550.88. The services sector in China continued to expand in December, albeit at a slower pace, the latest survey from Caixin showed with a services PMI score of 56.3, down from 57.8 in November. The composite index fell to 55.8 from 57.5 in November.

Hong Kong’s Hang Seng Index ended 0.2 percent higher at 27, 692.30 even as a survey showed the private sector in Hong Kong fell deep into contraction territory in December, with a PMI score of 43.5.

Japanese shares fell for a third straight session as investors fretted about the economic impact from the month-long state of emergency planned by the Japanese government to fight a surge in coronavirus cases.

The Nikkei 225 Index ended down 102.69 points, or 0.4 percent, at 27,055.94, while the broader Topix closed 0.3 percent higher at 1,796.18.

Tech shares fell, with Advantest losing 2.4 percent and Tokyo Electron falling 1.6 percent. Heavyweight Fast Retailing lost 2.5 percent, while SoftBank Group rose 1.3 percent.

On the economic front, the latest survey from Jibun Bank revealed that the services sector in Japan contracted at a faster rate in December, with a PMI score of 47.7, down slightly from 47.8 in November.

Australian markets fell sharply amid fears that tougher lockdown restrictions will hurt growth. The benchmark S&P/ASX 200 slumped 74.80 points, or 1.1 percent, to 6,607.10 as the country’s largest city Sydney continued to battle a number of virus clusters. The broader All Ordinaries Index ended down 74.30 points, or 1.1 percent, at 6,881.40.

Healthcare stocks fell broadly, with heavyweight CSL falling 2.5 percent. Banks ANZ, Westpac and NAB fell between 0.8 percent and 1.2 percent.

Meanwhile, Insurance Australia Group climbed 1.1 percent after it announced a finalized catastrophe reinsurance program for 2021.

Energy stocks also bucked the weak trend after oil prices jumped around 5 percent overnight on news of proposed output cuts by major producer Saudi Arabia. Woodside Petroleum, Origin Energy and Santos rose about 2 percent, while Oil Search soared 5.7 percent.

In economic news, the latest survey from Markit Economics revealed that the services sector in Australia expanded at a faster pace in December, with a five-month high PMI score of 57.0.

Seoul stocks ended lower to snap a seven-day winning streak. The benchmark Kospi slid 22.36 points, or 0.8 percent, to 2,968.21 after closing at record highs for six sessions in a row.

Market bellwether Samsung Electronics dropped 2 percent and Hyundai Motor, the country’s largest automaker, tumbled 3.1 percent.

Europe

European stocks have moved notably higher on Wednesday after Democrats won one hotly contested U.S. Senate race in Georgia and pulled ahead in a second, raising hopes for larger stimulus in the world’s largest economy.

Winning both seats would allow Democrats to avert gridlock in Congress and give President-elect Joe Biden a chance to enact his legislative agenda.

While the U.K.’s FTSE 100 Index has spiked by 3 percent, the German DAX Index is up by 1 percent and the French CAC 40 Index is up by 0.8 percent.

Cyclicals such as banks and automakers are broadly higher as Democrats claimed the first of two key election runoffs.

Oil heavyweights BP Plc, Royal Dutch Shell and Total SE have also jumped after Saudi Arabia agreed to reduce output more than expected in a meeting with allied producers.

Informa has also advanced. The publishing company said the Group’s performance for 2020 will be in line with the revenue guidance provided at the half-year results in September 2020.

Aggreko has also surged higher. The supplier of temporary power generation equipment confirmed that it has agreed and signed the necessary contract revisions with The Tokyo Organizing Committee of the Olympic and Paralympic Games to reflect both scope changes and the impact of the delay of the Games into this year.

Bakery chain Greggs has also spiked even though the company said it does not expect profits to return to pre-Covid levels until 2022 at the earliest.

In economic news, U.K. shop prices continued to fall in December, data from the British Retail Consortium revealed. The shop price index declined 1.8 percent on a yearly basis in December, the same rate as seen in November.

French consumer prices remained stable on a yearly basis in December after rising 0.2 percent in November, the provisional estimate revealed. Final data is due on January 15.

IHS Markit’s final December Composite Purchasing Managers’ Index rose to 49.1 from November’s 45.3 but that was below a flash reading of 49.8. The services PMI came in at 46.4, far weaker than the 47.3 preliminary estimate.

U.S. Economic Reports

With the impact of the coronavirus pandemic on the labor market intensifying, payroll processor ADP released a report on Wednesday showing an unexpected drop in private sector employment in the U.S. in the month of December.

ADP said private sector employment fell by 123,000 jobs in December after jumping by a downwardly revised 304,000 jobs in November.

The decrease surprised economists, who had expected employment to climb by about 88,000 jobs compared to the addition of 307,000 jobs originally reported for the previous month.

At 10 am ET, the Commerce Department is scheduled to release its report on new orders for manufactured goods in the month of November. Factory orders are expected to climb by 0.7 percent.

The Energy Information Administration is due to release its report on oil inventories in the week ended January 1st at 10:30 am ET.

Crude oil inventories are expected to decrease by 1.5 million barrels after tumbling by 6.1 million barrels in the previous week.

At 2 pm ET, the Federal Reserve is scheduled to release the minutes of its latest monetary policy meeting held in mid-December.

Stocks In Focus

Shares of Change Healthcare (CHNG) are skyrocketing in pre-market trading after the healthcare technology company agreed to be acquired by UnitedHealth (UNH) for $25.75 per share in cash.

Egg producer Cal-Maine Foods (CALM) is also likely to see initial strength after reporting an unexpected fiscal second quarter profit on revenues that exceeded analyst estimates.

Shares of Tesla (TSLA) may also move to the upside after Morgan Stanley raised its price target for the electric car maker’s stock to a Street-high $810 per share.