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Profit Taking May Contribute To Initial Weakness On Wall Street
US Market
The major U.S. index futures are currently pointing to a modestly lower open on Monday, with stocks likely to give back ground following the rally seen last week.
Profit taking may contribute to initial weakness on Wall Street, as some traders look to cash in on the recent strength in the markets.
With the upward move seen last Friday, the Dow reached a nearly three-month closing high, while the Nasdaq and the S&P 500 jumped to their best closing levels in almost two months.
Trading activity may be somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.
Reports on producer prices, retail sales, import and export prices, industrial production, housing starts and existing home sales are likely to attract attention in the coming days.
Traders are likely to look to the reports for additional clues about the strength of the economy and the outlook for interest rates.
Following the remarkable rally seen over the course of Thursday’s session, stock saw further upside during trading on Friday.
The tech-heavy Nasdaq surged 209.18 points or 1.9 percent to 11,323.33 and the S&P 500 shot up 36.56 points or 0.9 percent to 3,992.93.
Meanwhile, the Dow underperformed due to steep losses by UnitedHealth (UNH) and Merck (MRK) but still crept up 32.49 points or 0.1 percent to 33,747.86.
For the week, the Nasdaq skyrocketed by 8.1 percent, the S&P 500 soared by 5.9 percent and the Dow jumped 4.2 percent.
The extended rally on Wall Street came as stocks continued to benefit from optimism about the Federal Reserve slowing the pace of interest rate hikes following yesterday’s tamer than expected inflation data.
On the heels of the inflation data, CME Group’s FedWatch Tool is currently indicating an 80.6 percent chance the Fed will raise rates by 50 basis points next month compared to the recent 75 basis point rate hikes.
Buying interest was also generated in reaction to news that China is loosening some Covid restrictions, reducing quarantine times for inbound travelers.
The loosening of curbs came a day after President Xi Jinping led his new Politburo Standing Committee in a meeting on Covid.
Meanwhile, traders largely shrugged off a report from the University of Michigan showing U.S. consumer sentiment has pulled back much more than expected in November after seeing modest improvements in recent months.
The University of Michigan said its consumer sentiment index slumped to 54.7 in November after inching up 59.9 in October. Economists had expected the index to edge down to 59.5.
The report also showed a continued rebound in inflation expectations following the decreases in August and September.
One-year inflation expectations crept up to 5.1 percent in November from 5.0 percent in October, while five-year inflation expectations inched up to 3.0 percent from 2.9 percent.
Steel stocks showed a substantial move to the upside on the news of China easing Covid restrictions, driving the NYSE Arca Steel Index up by 4.3 percent to a five-month closing high.
A sharp increase by the price of crude oil also contributed to significant strength among energy stocks, as crude for December delivery surged $2.49 to $88.96 a barrel.
Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 3.8 percent and the NYSE Arca Oil Index shot up by 2.9 percent.
Computer hardware and semiconductor stocks also saw considerable strength on the day, contributing to the strong upward move by the tech-heavy Nasdaq.
Transportation, retail and chemical stocks also showed notable moves to the downside, while weakness was visible among pharmaceutical and utilities stocks.
U.S. Economic Reports
New York Federal Reserve President John Williams is scheduled to serve as moderator and participate in a discussion before the Economic Club of New York 115th Anniversary Celebration Dinner at 6:30 pm ET.
Stocks in Focus
Shares of Oatly (OTLY) are moving sharply lower in pre-market trading after the maker of oat-based drinks reported a wider than expected third quarter loss on revenues that missed analyst estimates.
Toymaker Hasbro (HAS) may also move to the downside after Bank of American downgraded its rating on the company’s stock to Underperform from Buy.
On the other hand, shares of Advanced Micro Devices (AMD) are likely to see initial strength Baird and UBS both upgraded their ratings on the chipmaker’s stock.
Europe
European stocks have moved to the upside on Monday after China unveiled a sweeping rescue package to salvage its real estate market.
The upside, however, remained limited after a top Federal Reserve official warned against bets of the U.S. central bank turning too dovish.
The U.S. Federal Reserve may consider slowing the pace of rate increases at its next meeting but that should not be seen as a “softening” of its battle against inflation, Federal Reserve Gov. Christopher Waller said on Sunday.
While the German DAX Index has climbed by 0.5 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 0.4 percent.
The British pound has eased ahead of the U.K. Chancellor’s Autumn Statement on Thursday, when he is expected to set out tax increases and spending cuts.
Rheinmetall AG, a German automotive and arms maker, has jumped. The company announced an agreement with Spain’s MaxamCorp. Holding S.L. to acquire Expal Systems S.A, a Madrid-based ammunition maker.
Orange, a French telecom major, has also risen. The company said that its cyber-security arm, Orange Cyberdefense, has acquired SCRT and Telsys, two Swiss sister firms with expertise in cyber-security and related services for an undisclosed amount.
Miners Antofagasta and Glencore have also moved to the upside as London copper prices hover near a five-month high on China demand hopes.
Indivior has also moved notably higher after it inked a deal to acquire Opiant for $20 per share or around $145 million in cash.
Informa, a publishing, business intelligence, and exhibitions company, has also jumped after raising its full-year earnings guidance.
On the other hand, Swiss pharmaceutical company Roche has tumbled after its much-awaited drug for Alzheimer’s disease failed two long-awaited trials.
John Wood Group, an engineering and consulting firm, has also plunged after saying it has reached a settlement agreement with Enterprise Products Operating LLC on a legacy lawsuit.
Asia
Asian stocks ended mostly lower on Monday, as hawkish comments from a Federal Reserve official offset investor optimism over China’s sweeping rescue package to salvage its real estate market.
Meanwhile, several Chinese cities reported record COVID-19 cases, days after top health officials began refining rules around control of the virus.
China’s Shanghai Composite Index ended 0.1 percent lower at 3,083.40, giving up early gains after authorities unveiled sweeping measures to rescue the country’s struggling property sector.
Investors also awaited the outcome of a rare face-to-face meeting between the leaders of the world’s two largest economies taking place on the sidelines of this week’s Group of 20 Summit in Bali.
Hong Kong’s Hang Seng Index rallied 1.7 percent to 17,619.71, led by gains by property stocks.
Japanese shares fell sharply after SoftBank Corp reported a heavy loss at its Vision Fund investment arm for a third consecutive quarter.
Shares of the tech investor plunged 12.7 percent, while the Nikkei 225 Index slumped 1.1 percent to 27,963.47 ahead of GDP, trade and consumer inflation data due this week. The broader Topix closed 1.1 percent lower at 1,956.90.
Banks declined, with Sumitomo Mitsui Financial, Mitsubishi UFJ Financial and Mizuho Financial falling 1-2 percent.
Seoul stocks gave up early gains to end modestly lower, dragged down by tech stocks. The Kospi eased 0.3 percent to end at 2,474.65. Samsung Electronics, SK Hynix, LG Energy Solutions and Naver lost 2-3 percent.
Australian markets reversed early gains to end slightly lower for the day. The benchmark S&P/ASX 200 Index slipped 0.2 percent to 7,146.30 while the broader All Ordinaries Index finished marginally higher at 7,350.20.
Financials succumbed to profit taking, offsetting gains among commodity stocks.
Champion Iron shares jumped 12.9 percent, tracking gains in iron ore prices as China showed signs of relaxing its zero-COVID policy. Mining heavyweights BHP and Rio Tinto surged 3-4 percent.
Agribusiness Elders plunged almost 23 percent, hit by the news of its CEO’s departure and fears of a flooded winter crop harvest.
Commodities
Crude oil futures are falling $0.76 to $88.20 a barrel after surging $2.49 to $88.96 a barrel last Friday. Meanwhile, after climbing $15.70 to $1,769.40 an ounce in the previous session, gold futures are slipping $6.80 to $1,762.60 an ounce.
On the currency front, the U.S. dollar is trading at 140.31 yen versus the 138.81 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0316 compared to last Friday’s $1.0347.
