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Futures Pointing To Initial Rebound On Wall Street
US Market
The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to regain ground following the sell-off seen in the previous session.
Some traders may see the steep drop seen on Wednesday as a buying opportunity amid optimism the markets will resume the upward trend seen throughout much of January.
While the Federal Reserve’s signals that an interest rate cut in March is unlikely contributed to yesterday’s nosedive, economists continue to believe it is a matter of “when, not if” the central bank will eventually lower rates.
CME Group’s FedWatch Tool is currently indicating a relatively modest 37.5 percent chance of a March rate cut but a nearly 100 percent chance rates will be lower by early May.
A continued decrease by treasury yields may also generate buying interest on Wall Street, with the yield on the benchmark ten-year note falling to its lowest levels in almost a month
Potentially adding to optimism about the outlook for rates, the Labor Department released a report showing first-time claims for U.S. unemployment benefits unexpectedly saw a modest increase in the week ended January 27th.
The Labor Department said initial jobless claims rose to 224,000, an increase of 9,000 from the previous week’s revised level of 215,000.
Economists had expected jobless claims to edge down to 212,000 from the 214,000 originally reported for the previous week.
On Friday, the Labor Department is scheduled to release its more closely watched report on employment in the month of January.
Economists currently expect employment to increase by 180,000 jobs in January after jumping by 216,000 jobs in December, while the unemployment rate is expected to inch up to 3.8 percent from 3.7 percent.
Stocks moved sharply lower over the course of the trading day on Wednesday, with the major averages all moving to the downside following the mixed performance seen in the previous session. The tech-heavy Nasdaq posted a particularly steep loss, extending the notable pullback seen on Tuesday.
The major averages finished the session near their worst levels of the day. The Nasdaq plunged 345.89 points or 2.2 percent to 15,164.01, the S&P 500 tumbled 79.32 points or 1.6 percent to 4,845.65 and the Dow slid 317.01 points or 0.8 percent to 38,150.30.
Tech stocks led the way lower early in the session, but selling pressure became more broad based following the Federal Reserve’s highly anticipated monetary policy announcement.
The Fed announced its widely expected decision to maintain the target range for the federal funds rate at 5.25 to 5.50 percent in support of its dual goals of maximum employment and inflation at the rate of 2 percent over the longer run.
The decision to leave rates unchanged came as the Fed acknowledged inflation has eased over the past year but said it remains elevated.
The central bank also described economic growth as solid while noting job gains have moderated since early last year but remain strong.
The Fed’s statement notably removed the reference to “any additional policy firming that may be appropriate.”
However, the Fed also said it does not expect it will be appropriate to lower rates until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
Fed Chair Jerome Powell reiterated those sentiments in his post-meeting press conference and said he doesn’t think it’s likely the central bank will reach that level of confidence by the time of the March meeting.
A steep drop by shares of Alphabet (GOOGL) weighed on the tech sector early in the session, with the Google parent tumbling by 7.6 percent.
Alphabet came under pressure after reporting fourth quarter results that beat estimates on the top and bottom lines but weaker than expected ad revenue.
Chipmaker Advanced Micro Devices (AMD) also slumped by 2.5 percent after reporting fourth quarter earnings in line with estimates but providing disappointing first quarter guidance.
Shares of Microsoft (MSFT) also moved to the downside after the software giant reported better than expected fiscal second quarter results but forecast third quarter revenues below estimates.
Meanwhile, a strong gain by Boeing (BA) limited the downside for the Dow, with the aerospace giant surging by 5.3 percent after reporting a narrower than expected fourth quarter loss.
In U.S. economic news, payroll processor ADP released a report showing private sector job growth in the U.S. slowed by more than expected in the month of January.
ADP said private sector employment rose by 107,000 jobs in January after climbing by a downwardly revised 158,000 jobs in December.
Economists had expected private sector employment to increase by 145,000 jobs compared to the addition of 164,000 jobs originally reported for the previous month.
Networking stocks turned in some of the worst performances on the day, resulting in a 3.5 percent nosedive by the NYSE Arca Networking Index. The index pulled back further off the six-month closing high set on Monday.
Substantial weakness was also visible among software stocks, as reflected by the 2.5 percent slump by the Dow Jones U.S. Software Index.
Financial stocks also came under pressure in reaction to the Fed announcement, with the NYSE Arca Broker/Dealer Index and the KBW Bank Index tumbling by 2.4 percent and 2.3 percent, respectively.
Energy, biotechnology and transportation stocks also saw considerable weakness, moving lower along with most of the other major sectors.
U.S. Economic Reports
First-time claims for U.S. unemployment benefits unexpectedly saw a modest increase in the week ended January 27th, according to a report released by the Labor Department on Thursday.
The Labor Department said initial jobless claims rose to 224,000, an increase of 9,000 from the previous week’s revised level of 215,000.
Economists had expected jobless claims to edge down to 212,000 from the 214,000 originally reported for the previous week.
The report said the less volatile four-week moving average also crept up to 207,750, an increase of 5,250 from the previous week’s revised average of 202,500.
The Labor Department also released a separate report showing U.S. labor productivity surged by more than expected in the fourth quarter of 2023.
The report said labor productivity shot up by 3.2 percent in the fourth quarter after soaring by a downwardly revised 4.9 percent in the third quarter.
Economists had expected labor productivity to jump by 2.5 percent compared to the 5.2 percent spike that had been reported for the previous quarter.
Meanwhile, the Labor Department said unit labor costs rose by 0.5 percent in the fourth quarter after falling by 1.1 percent in the third quarter.
Unit labor costs were expected to increase by 1.7 percent compared to the 1.2 percent slump that had been reported for the previous quarter.
At 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of January.
The ISM’s manufacturing PMI is expected to edge down to 47.0 in January from 47.4 in December, with a reading below 50 indicating a contraction.
The Commerce Department is also due to release its report on construction spending in the month of December at 10 am ET. Construction spending is expected to increase by 0.5 percent.
Europe
European stocks are turning in a mixed performance on Thursday following the release of eurozone inflation data as well as the Bank of England’s latest monetary policy decision.
While the U.K.’s FTSE 100 Index is up by 0.1 percent, the German DAX Index is down by 0.1 percent and the French CAC 40 Index is down by 0.6 percent.
Eurozone inflation weakened in January after accelerating in December, flash data from Eurostat showed on Thursday.
The harmonized index of consumer prices rose 2.8 percent on a yearly basis, slightly slower than the 2.9 percent increase in December. The rate came in line with expectations.
Excluding energy, food, alcohol and tobacco, core inflation eased to 3.3 percent in January from 3.4 percent. The rate was seen at 3.2 percent.
Meanwhile, the Bank of England left its benchmark rate unchanged for the fourth straight meeting on Thursday and suggested rate cuts this year.
The Monetary Policy Committee voted 6-3 to hold the bank rate at 5.25 percent. Two members preferred a 25 basis point increase to 5.50 percent, while one member sought a quarter point reduction.
S&P Global and Hamburg Commercial Bank (HCOB) reported earlier in the day that the euro zone manufacturing PMI improved to a 10-month high of 46.6 in January 2024.
In corporate news, Stora Enso has slumped after the Finnish pulp and paper manufacturer reported significant declines in its Q4 and annual profits.
Biotech giant Roche has also moved sharply lower after forecasting a sluggish recovery in sales and earnings this year.
ING Group has also plummeted. The Dutch lender said that total income for 2024 would likely be lower than 2023 due to interest-rate development.
BNP Paribas has also plunged. The lender reported pre-tax income of 1.476 billion euros for the fourth quarter, lower than 2.790 billion euros a year ago.
German sportswear maker Adidas has also shown a steep drop after its operating profit guidance missed consensus estimate.
Sanofi has also fallen after posting fourth-quarter earnings below estimates. The French healthcare firm also announced that François-Xavier Roger will take over as Chief Financial Officer and join its Executive Committee starting April 1, 2024
On the other hand, mining giant Glencore has moved to the upside despite reporting lower copper, nickel and cobalt production in 2023 and signaling a further decline in output.
Ricardo has also jumped after maintaining its guidance for the full year, while oil giant Shell has also rallied after its full-year profit beat forecasts.
Telecoms giant BT Group has also moved notably higher after reporting a surge in profit due to price increases.
Deutsche Bank has also jumped after the lender lifted its revenue and payout targets and unveiled plans to cut 3,500 jobs.
Asia
Asian stocks turned in a mixed performance on Thursday as the U.S. Federal Reserve sought to temper expectations on rate cuts and China reported mixed economic data.
A cautious undertone prevailed after the Fed kept key rates unchanged but indicated that cuts to interest rates are not imminent in light of elevated inflation.
A private survey showed activity in China’s manufacturing sector continued to grow in January, thanks to stable growth in output, quicker logistics and the first rise in new export orders since June.
On the flip side, the sharp slowdown in China’s home sales dragged on in January, piling pressure on policymakers to step up efforts to arrest the slump.
China’s Shanghai Composite Index fell 0.6 percent to 2,770.74 amid persisting signs of economic weakness in the country.
Hong Kong’s Hang Seng Index rose 0.5 percent to 15,566.21 following a two-day plunge as data showed Hong Kong’s economy expanded at a faster pace at the end of the year.
Japanese markets fell notably, while the yen strengthened as the Bank of Japan laid the ground for an end to its negative-rate policy and hopes for early rate cuts in the U.S. receded.
The Nikkei 225 Index dropped 0.8 percent to 36,011.46, snapping a three-day winning streak. The broader Topix Index settled 0.7 percent lower at 2,534.04, with insurance, rubber product and machinery shares pacing the decliners.
In economic news, a survey revealed that business conditions across the Japanese manufacturing sector deteriorated at a modest rate at the start of 2024.
Seoul stocks posted strong gains, with auto, tech and financial shares leading the surge. The Kospi jumped 1.8 percent to 2,542.46 after a survey showed factory activity in the country increased in January for the first time in 19 months.
Australian markets fell sharply after reaching a record high in the previous session. The benchmark S&P ASX 200 Index slumped 1.2 percent to 7,588.20, with mining, tech, energy and financial stocks leading losses. The broader All Ordinaries Index closed 1.2 percent lower at 7,818.80.
Tech major Xero hit its lowest since January 18 before closing 1.3 percent lower. Origin Energy shed 1.2 percent as the power retailer announced the retirement of its Chief Financial Officer Lawrie Tremaine.
On the data front, activity across Australia’s manufacturing sector stabilized in January, while the total number of dwellings approved fell 9.5 percent in December, separate reports revealed.
Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index rose 0.4 percent to 11,916.78.
Commodities
Crude oil futures are climbing $0.82 to $76.67 a barrel after plunging $1.97 to $75.85 a barrel on Wednesday. Meanwhile, after rising $16.50 to $2,067.40 an ounce in the previous session, gold futures are falling $15.70 to $2,051.70 an ounce.
On the currency front, the U.S. dollar is trading at 146.51 yen versus the 146.92 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0822 compared to yesterday’s $1.0818.
