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Stocks just about hold on to gains

China has said it will stay neutral if North Korea strikes first in any dispute with the USA
Missiles in flight
War: what is it good for?
  • Dow Jones up 14 at 21,858

  • S&P 500 up 3 at 2,441

  • Latest reports suggest President Trump is now setting his sights on Venezuela

Leading stocks finished the week on a high note, but it was a close run thing, with gains severely trimmed towards the close.

The S&P 500 closed at 2,441, up 3 points on the day but down 1.43% on the week.

The Dow closed at 21,858, up 14 on Friday but down 1.1% on the week.

On a week when the world became very nervous about the deterioration in the relationship between North Korea and the US, the tendency was to opt for defensive stocks; that used to include retailers, but not any more – at least, not bricks & mortar retailers such as J C Penney Inc (NYSE:JCP), which lost one-sixth of its value in response to a trading update.

Second quarter losses were worse than expected and like-for-like sales headed south again, falling 1.3% from a year earlier.

Among the second-liners, DryShips Inc (NASDAQ:DRYS) caught the eye, rising just over a dollar to US$3.10 after raised US$100mln by placing a pile of shares at US$2.75.

In contrast, EnteroMedics Inc (NASDAQ:ETRM) plunged 40% to US$2 on news of its stock issue.

The medtech firm plans to offer units at US$1,000 a pop, with each unit comprising one convertible B share (convertible into 435 common shares at a conversion price of US$2.30 each) and one seven-year warrant to purchase 435 common shares, also at US$2.30 a share.

Mid-session: Market reassured by reports of "back channel" diplomatic communications with North Korea

Blue-chips held on to opening gains, raising hopes that a bad week might at least finish on a high note.

The S&P 500 was up 6 at 2,445 in lunchtime trading, while the Dow Jones was up 46 at 21,890.

Despite the rebound, gold was still in demand, rising US$3.10 to US$1,293.20 an ounce.

“This has been a week of two halves, with complaints over a lack of volatility giving way to complaints over unpredictable volatility,” declared Joshua Mahony, a market analyst at spread betting firm IG Group.

“The volatility was caused by the ratcheting up of tensions between the US and North Korea, with US President Donald Trump and the North Korean regime both threatening military action. Today we have seen China step into the fray, promising to stay neutral if North Korea attacks first but to intervene if the US or South Korea attacks first. This essentially gives North Korea free reign to further develop their nuclear programme,” Mahony said.

“The problem is that time is not on the side of the US, with every passing year heightening the military challenge that would be faced in the event of any conflict,” he added.

Somewhat more reassuringly, the Associated Press reports that even as they posture and threaten in the public eye, North Korean and US diplomats have been engaged in discussions away from the madding crowd.

While stocks had a good morning, two tech stocks were coming under heavy selling pressure after earnings update.

Snap Inc (NYSE:SNAP) shed 11% at US$12.26 as analysts raised concern at the growth in user numbers on its Snapchat platform.

Graphics chip colossus Nvidia Corporation (NASDAQ:NVDA), meanwhile, fell back 6% to US$154.87 after the market picked holes in what looked like a strong set of second quarter figures, alighting on slower-than-expected progress in the group's assault on the data centers market.

Open: Stocks rally as inflation data dampens fears over interest rate hike

The concerns over escalating tensions between the US and North Korea remain, but after three days of falls, buyers returned to grab bargains.

The S&P 500 was up 8 at 2,446 after an hour or so of trading, while the Dow Jones 30-share was up 51 at 21,897.

The so-called “fear gauge”, the CBOE Volatility Index (the “Vix”) hit its highest level on Friday since the day of the US presidential election, but has since retreated to 15.09, down 5.9% on the day.

A weaker-than-expected consumer prices (CPI) reading led to the dollar pulling back; central banks tend to respond to rising inflation by hiking interest rates, which in turn supports a nation's currency as higher interest rates suck in foreign money to the overnight money markets, so a lukewarm CPI makes a rate hike less likely.

Low interest rates are generally regarded as good for business, so the portents were evidently good enough to lure back a few stock market bulls.

The year-on-year inflation rate for July came in at 1.7%, versus forecasts of 1.8%, and up from 1.6% in June.

“Today’s US CPI reading ... rounds off what has already been four consecutive months of sub-par readings and furthermore, could signal that the US Inflation slowdown may take a little longer than the Fed would have us believe,” suggested Anthony Kurukgy, senior sales trader at Foenix Partners.

“Whilst the Fed has succeeded in driving unemployment lower with its gradual approach to raising borrowing costs, the central bank policy makers have remained divided in the time-frames on Inflation reaching its 2% target. With average earnings still remaining sluggish, Fed Chair Yellen will be hoping a pick-up in GDP for next month may keep wages pressure in the ascendancy in her pursuit to tighten monetary policy,” he speculated.

Shares in high-flying graphics chip designer Nvidia Corporation (NASDAQ:NVDA) failed to participate in the market rebound, as investors mulled last night's results statement.

“The group’s quarterly results overnight were closely watched. Whilst it easily beat on both the top and bottom line, its shares extended a fall from earlier in the day to about 6% in the ‘after hours’ market," noted Ken Odeluga at spread betting outfit City Index.

“This was widely seen as due to a ‘miss’ by its relatively small and new data centre and automotive businesses. These had been expected to pick up the baton for profits and revenue growth.

“The auto-facing unit generated Q2 revenues of $142m, up 19% but this missed market expectations of $146.2m. With a forward market rating of 44 times its next financial year’s earnings vs. a chip sector average of around 15, there was little margin for error for Nvidia earnings in order to justify its valuation,” Odeluga noted, as Nvidia's shares retreated 5.7% in the first hour of trading.

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