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Fed Chair Powell’s Comments Likely to be in Focus on Wall Street
US Market
The major U.S. index futures are pointing to a roughly flat open on Thursday, with stocks likely to show a lack of direction following the steep drop seen over the two previous sessions.
Traders may be reluctant to make significant amid a continued focus on activity in the bond markets, which has been a key driver of trading in recent sessions.
The yields on ten-year notes and thirty-year bonds are currently edging higher, extending the rebound seen in the previous session.
The strong upward move by yields in recent weeks has led to concerns about inflation and the possibility of higher interest rates.
Later in the day, Federal Reserve Chair Jerome Powell is due to have a conversation on the U.S. economy at The Wall Street Journal Jobs Summit.
Traders are likely to keep a close eye on Powell’s remarks for any comments about the recent increase in yields and the outlook for monetary policy.
Powell has repeatedly sought to assure investors that the Fed intends to maintain ultra-easy monetary policy for the foreseeable future as the economy recovers from the coronavirus pandemic.
Stocks moved mostly lower over the course of the trading day on Wednesday, extending the pullback seen during trading on Tuesday. The tech-heavy Nasdaq showed another particularly steep drop, tumbling to its lowest closing level in nearly two months.
The major averages saw further downside going into the close, ending the session at their worst levels of the day. The Nasdaq plunged 361.04 points or 2.7 percent to 12,997.75, the S&P 500 slumped 50.57 points or 1.3 percent to 3,819.72 and the Dow fell 121.43 points or 0.4 percent to 31,270.09.
The continued weakness on Wall Street came as bond yields showed a notable rebound after trending lower over the past few sessions.
Yields remain well off the highs set last week, but renewed concerns about the outlook for interest rates and inflation weighed on highly-flying tech stocks.
The rebound by yields came amid optimism about the coronavirus vaccine rollouts, which had also contributed to an advance by stocks futures before the bond markets opened.
President Joe Biden announced Tuesday the U.S. will have enough vaccine supply for every adult in America by the end of May.
Biden cited the emergency use authorization issued for Johnson & Johnson’s (JNJ) vaccine as well as a collaboration between J&J and Merck (MRK) to expand production of the single-dose vaccine.
On the U.S. economic front, payroll processor ADP released a report showing much weaker than expected private sector job growth in the month of February.
ADP said private sector employment rose by 117,000 jobs in February after climbing by an upwardly revised 195,000 jobs in January.
Economists had expected employment to increase by 177,000 jobs compared to the addition of 174,000 jobs originally reported for the previous month.
On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.
The Institute for Supply Management also released a report showing a slowdown in the pace of growth in U.S. service sector activity in the month of February
The ISM said its services PMI dropped to 55.3 in February from 58.7 in January, although a reading above 50 still indicates growth in the sector. Economists had expected the index to come in unchanged.
The pullback by the services PMI came after the index reached its highest level since hitting 58.8 in February of 2019.
Reflecting weakness in the broader tech sector, software stocks showed a substantial move to the downside on the day. The Dow Jones U.S. Software Index plunged by 3.3 percent to its lowest closing level in well over a month.
Biotechnology, semiconductor and networking stocks also saw significant weakness, contributing to the steep drop by the Nasdaq.
Considerable weakness also emerged among retail stocks, as reflected by the 2.4 percent slump by the Dow Jones U.S. Retail Index. The index tumbled to a nearly four-month closing low.
Gold, healthcare and housing stocks also saw notable weakness on the day, while oil, airline and banking stocks bucked the downtrend.
U.S. Economic Reports
Ahead of Friday’s more closely watched monthly employment report, the Labor Department released a report on Thursday showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended February 27th.
The report said initial jobless claims inched up to 745,000, an increase of 9,000 from the previous week’s revised level of 736,000.
Economists had expected jobless claims to rise to 750,000 from the 730,000 originally reported for the previous week.
A separate report released by the Labor Department on Thursday showed U.S. labor productivity plunged by less than initially estimated in the fourth quarter of 2020.
The Labor Department said labor productivity tumbled by 4.2 percent in the fourth quarter compared to the previously reported 4.8 percent nosedive. Economists had expected the slump in productivity to be revised to 4.7 percent.
Meanwhile, the report showed the spike in unit labor costs in the fourth quarter was downwardly revised to 6.0 percent from the previously reported 6.8 percent. The revised data was expected to show a 6.7 percent surge in labor costs.
At 10 am ET, the Commerce Department is scheduled to release its report on new orders for manufactured goods in the month of January. Economists expect factory orders to surge up by 2.1 percent.
The Treasury Department is due to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds at 11 am ET.
At 12:05 pm ET, Federal Reserve Chair Jerome Powell is due to have a conversation on the U.S. economy at The Wall Street Journal Jobs Summit.
Stocks in Focus
Shares of Vroom (VRM) are moving sharply lower in pre-market trading after the online used-car retailer reported a wider than expected fourth quarter loss.
Identity management software provider Okta (OKTA) may also come under pressure after reporting better than expected fourth quarter results but providing disappointing guidance. Okta also agreed to acquire security software maker Auth0 for $6.5 billion.
On the other hand, shares of Burlington Stores (BURL) are likely to see initial strength after the apparel retailer reported fourth quarter results that exceeded analyst estimates on both the top and bottom lines.
General Electric (GE) may also move to the upside after Morgan Stanley raised its price target on the conglomerate’s stock to $17 per share from $13 per share.
Europe
European stocks have fallen on Thursday as resurgent worries about rising U.S. bond yields dented investors’ appetite for riskier assets.
Traders await a speech from Federal Reserve Chair Jerome Powell later today for any hints about the recent jump in bond yields.
Powell is expected to reaffirm his commitment to an ultra-easy monetary policy while stressing that the Fed won’t raise rates to head off inflation.
While the U.K.’s FTSE 100 Index is down by 0.4 percent, the German DAX Index is down by 0.2 percent and the French CAC 40 Index is down by 0.1 percent.
Rio Tinto and BHP have shown notable moves to the downside after their Australia-listed stocks went ex-dividend.
Travel-related stocks have also declined, with Lufthansa under pressure after the airline posted record losses for 2020.
Thales shares have also fallen. The aerospace company reported that its net income group share for fiscal year 2020 dropped 56.9 percent to 483 million euros from 1.12 billion euros last year.
On the other hand, insurer Aviva has jumped after exiting its Italian businesses in a pair of deals totaling 873 million euros.
Shares of software company Sage Group have also shown a strong move to the upside on share buyback news.
Energy generation and energy trading company Uniper SE has also risen. The company closed the financial year 2020 with EBIT at upper range of guidance.
In economic news, German construction activity contracted sharply in February as severe bad weather caused widespread disruption to work on sites, survey results from IHS Markit showed earlier today. The construction Purchasing Managers’ Index fell to 41.0 from 46.6 in January.
Asia
Asian stocks saw notable weakness on Thursday as rising yields on U.S. Treasury bonds fanned worries about inflation and the economic outlook.
Investors awaited U.S. Federal Reserve Chairman Jerome Powell’s speech at a Wall Street Journal conference later today, where he may address concerns about the risk of a rapid rise in long-term borrowing costs.
Chinese stocks fell the most in over seven months on concerns over high valuations. The benchmark Shanghai Composite Index tumbled 73.41 points, or 2.1 percent, to 3,503.49, while Hong Kong’s Hang Seng Index plunged 643.63 points, or 2.2 percent, to 29,236.79.
Japanese shares hit one-month low amid increased uncertainty across the equity and bond markets. The Nikkei 225 Index slumped 628.99 points, or 2.1 percent, to close at 28,930.11, the lowest since February 5th. The broader Topix ended 1 percent lower at 1,884.74.
Heavyweights including SoftBank Group and Fast Retailing plunged 5.2 percent and 5.5 percent, respectively. Screen Holdings, Tokyo Electron and Advantest declined 2-3 percent in the tech sector.
Hitachi Zosen soared 19.5 percent on reports that the energy and infrastructure company had developed a high-performance solid-state battery.
Australian stocks followed Wall Street lower to snap a three-day winning streak. The benchmark S&P/ASX 200 Index dropped 57.30 points, or 0.8 percent, to 6,760.70 amid across-the-board selling. The broader All Ordinaries Index ended down 67.30 points, or 1 percent, at 7,000.60.
Healthcare stocks succumbed to selling pressure, with heavyweight CSL losing 4.2 percent. Losses on the tech-heavy Nasdaq pulled down local peers, with Afterpay and Appen declining 2-3 percent.
Mining heavyweights BHP and Rio Tinto fell 3.1 percent and 6.2 percent, respectively, while gold miners Evolution and Newcrest gave up 3-4 percent after gold prices touched a nine-month low overnight.
The total value of retail sales in Australia rose 0.5 percent sequentially in January, a government report showed, while the trade balance of goods and services hit a record $10.1 billion in the month after a surge in exports of iron ore and coal.
Seoul stocks snapped a two-day winning streak amid increased concerns over climbing U.S. Treasury yields, which is seen as a sign of an economic recovery and a precursor of inflation.
The Kospi dropped 39.50 points, or 1.3 percent, to 3,043.49 amid massive selling by foreign investors. Chip giants Samsung Electronics and SK Hynix gave up 1.9 percent and 3.4 percent, respectively.
South Korea’s gross domestic product expanded a seasonally adjusted 1.2 percent sequentially in the fourth quarter of 2020, the Bank of Korea said in a final reading. That beat forecasts for an increase of 1.1 percent following the 2.1 percent gain in the previous three months.
On a yearly basis, GDP was down 1.2 percent – again exceeding expectations for a decline of 1.4 percent following the 1.1 percent drop in the three months prior.
Commodities
Crude oil futures are climbing $0.52 to $61.80 a barrel after jumping $1.53 to $61.28 a barrel on Wednesday. Meanwhile, after slumping $17.80 to $1,715.80 an ounce in the previous session, gold futures are slipping $2.30 to $1,713.50 an ounce.
On the currency front, the U.S. dollar is trading at 107.44 yen versus the 107.01 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2028 compared to yesterday’s $1.2063.
