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Dow Poised To Extend Recent Downward Trend
US Market
The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to see initial weakness after ending the previous session mixed.
The Dow appears poised to extend a recent downtrend, which has seen the blue chip index close lower for four straight sessions and seven out of the past nine.
The drop seen on Thursday pulled the Dow down to its lowest closing level in over a month, down 3.6 percent from the record intraday high set last month.
Concerns about the outlook for monetary policy may continue to weigh on the markets following the Federal Reserve’s announcement on Wednesday.
The Fed’s forecast for two interest rates hikes in 2023 has led to speculation that the central bank will soon start tapering its asset purchases.
Fed Chair Jerome Powell said the central bank would provide “advance notice” before making any changes to its asset purchases, but traders remain on edge about stocks losing a key layer of support.
Overall trading activity may be somewhat subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.
Looking ahead, next week’s trading may be impacted by reaction to reports on new and existing home sales, durable goods orders and personal income and spending as well as Congressional testimony by Powell.
Stocks turned in a mixed performance during trading on Thursday following the broad-based weakness seen on Wednesday. The tech-heavy Nasdaq showed a notable rebound, while the Dow extended a recent downward trend.
The major averages ended the day on opposite sides of the unchanged line. While the Nasdaq advanced 121.67 points or 0.9 percent to 14,161.35, the Dow slid 210.22 points or 0.6 percent to 33,823.45 and the S&P 500 edged down 1.84 points or less than a tenth of a percent to 4,221.86.
With the drop on the day, the Dow closed lower for the fourth consecutive session, ending the day at its lowest closing level in a month.
The mixed performance on Wall Street came as traders moved out of cyclicals and into tech stocks following yesterday’s announcement from the Federal Reserve, which saw the central bank move up its timeline for raising interest rates.
The Fed previously predicted that interest rates would remain at near-zero levels through 2023, but the latest projections point to two rate hikes during that year.
The shift in the timeline comes as the Fed also forecast much faster core consumer price inflation this year, although the accompanying statement still attributed the increase in inflation to “transitory factors.”
The statement did not hint at a shift in Fed officials’ thinking about the central bank’s asset purchase program, but the new interest rate forecast still suggests tapering is likely in the coming months.
The Fed’s asset purchase program has been credited with helping to prop up the stock markets during the coronavirus pandemic, with stocks reaching record highs despite significant economic hardship.
On the economic front, the Labor Department released a report showing an unexpected uptick in initial jobless claims in the week ended June 12th.
The report said initial jobless claims rose to 412,000, an increase of 37,000 from the previous week’s revised level of 375,000.
The increase surprised economists, who had expected jobless claims to edge down to 359,000 from the 376,000 originally reported for the previous week.
Jobless claims had declined in eight out of the nine previous weeks, falling to their lowest levels since March of 2020.
A separate report from the Federal Reserve Bank of Philadelphia showed Philadelphia-area manufacturing activity expanded at a slightly slower rate in the month of June.
Meanwhile, the Conference Board released a separate report showing another significant increase by its index of leading U.S. economic indicators.
Gold stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 5.9 percent to its lowest closing level in well over a month. The sell-off by gold stocks came amid a steep drop by the price of the precious metal.
A sharp decline by the price of crude oil also weighed on energy stocks. Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 5.6 percent, while the NYSE Arca Natural Gas Index and the NYSE Arca Oil Index slumped by 3.4 percent and 3.3 percent, respectively.
Banking, steel and transportation stocks also saw considerable weakness on the day, while notable strength among software and semiconductor stocks contributed to the advance by the tech-heavy Nasdaq.
U.S. Economic Reports
No major U.S. economic data is scheduled to be released today.
Stocks in Focus
Shares of Smith & Wesson (SWBI) are seeing significant pre-market strength after the gun maker reported fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.
Software company Adobe (ADBE) is also likely to move to the upside after reporting better than expected fiscal second quarter results and providing upbeat guidance.
Shares of Biogen (BIIB) may also see initial strength after Piper Sandler upgraded its rating on the biotechnology company’s stock to Overweight from Neutral.
Toy makers Hasbro (HAS) and Mattel (MAT) may also be in focus after a report from the New York Post said a toy shortage is threatening the holiday sales season.
Europe
European stocks have moved sharply lower on Friday, with a hawkish policy outlook from the U.S. Federal Reserve and signs of credit tightening in China weighing on markets.
While the U.K.’s FTSE 100 Index has tumbled by 1.5 percent, the German DAX Index is down by 1.3 percent and the French CAC 40 Index is down by 1 percent.
Banks have underperformed as 10-year Treasury yields fell by nearly 3 basis points to 1.475 percent, coming back to levels seen going into the Fed meeting earlier in the week.
BP Plc, Total SE and Royal Dutch Shell have also moved notably lower as the price crude oil extends losses on dollar strength.
Miners Anglo American, Antofagasta and Glencore are modestly lower as copper heads for its biggest weekly loss since March 2020.
Tesco, Britain’s biggest retailer, has also moved to the downside after reporting a sharp slowdown in underlying U.K. sales growth in its first quarter.
Danish rare disease company Orphazyme AS has nosedived after it failed to win support from the U.S. health regulator for its arimoclomol drug.
Meanwhile, Inchcape shares have jumped after the automotive distributor delivered a better than expected performance in the first half and said full-year pre-tax profit will be “significantly ahead” of market consensus.
Irish food company Kerry has also advanced. The company has agreed to sell its Meats and Meals business in the U.K. and Ireland to Pilgrim’s Pride for €819 million.
German chemical distribution company Brenntag AG has also moved to the upside after raising its operating EBITDA forecast for the 2021 financial year.
In economic news, the euro area current account surplus totaled 23 billion euros in April versus the 18 billion euro surplus in the previous month, the European Central Bank reported.
The visible trade surplus widened to 27 billion euros from 24 billion euros, while the surplus on services trade held steady at 8 billion euros.
U.K. retail sales dropped unexpectedly in May after seeing sharp growth in April, when retail restrictions were eased, data from the Office for National Statistics revealed.
Retail sales dropped 1.4 percent month-on-month in May, reversing a 9.2 percent spike in April and confounding expectations for an increase of 1.6 percent.
On a yearly basis, retail sales volume growth moderated to 24.6 percent in May from 42.4 percent in the previous month. This was slower than the expected expansion of 29 percent.
Asia
Asian stocks ended Friday’s session on a mixed note after crude oil and bullion prices tumbled amid dollar strength. A retreat in U.S. Treasury yields helped limit regional losses, if any.
Chinese shares swung between gains and losses before ending on a flat note. Hong Kong’s Hang Seng index climbed 242.68 points, or 0.9 percent, to 28,801.27.
Japanese shares ended a choppy session lower as the Bank of Japan kept its ultra-lax monetary policy intact, as widely expected, and data showed overall consumer prices in the country slipped an annual 0.1 percent in May.
The Bank of Japan maintained its massive monetary stimulus and extended the duration of the special funding program to help pandemic-hit firms.
The Nikkei 225 Index dipped 54.25 points, or 0.2 percent, to 28,964.08, while the broader Topix settled 0.9 percent lower at 1,946.56.
Financials led losses, with Dai-ichi Life Holdings plunging 5.7 percent. Banks Mizuho Financial, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial ended down between 2 percent and 2.6 percent. Automaker Toyota Motor fell 3.9 percent from a record high.
Eisai surged almost 6 percent after it reached a strategic collaboration agreement with Bristol-Myers Squibb for the co-development and co-commercialization of MORAb-202, an antibody drug conjugate.
Australian markets ended slightly higher as technology stocks followed their U.S. peers higher on optimism over the strength of the economic recovery.
The benchmark S&P/ASX 200 Index inched up 9.90 points, or 0.1 percent, to 7,368.90, while the broader All Ordinaries Index ended up 23.80 points, or 0.3 percent, at 7,624.30.
Tech heavyweight Afterpay surged 6.5 percent, while software firm Altium rallied 3 percent after announcing its business returned with double-digit growth in the second half. Xero and Wisetech Global rose about 3 percent.
Lower copper prices weighed on the mining sector, with BHP ending down 2.5 percent. Gold miners Northern Star Resources and Newcrest fell 2-3 percent as bullion prices tumbled after the Fed’s hawkish surprise.
Banks also ended lower after an internet outage briefly disrupted access to several banking websites. ANZ gave up 0.9 percent and Commonwealth lost 2 percent.
Beach Energy, Oil Search, Santos and Woodside Petroleum tumbled 2-4 percent as oil extended losses for the second straight day on demand worries.
Bubs Australia soared 29.3 percent on news that its Aussie Bubs branded formulas will enter the lucrative U.S. infant formula market through the e-commerce platform of retail giants Walmart and Amazon.com.
Seoul stocks ended little changed with a positive bias amid hopes for a swift economic recovery. The Kospi average ended up 2.97 points at 3,267.93.
Battery maker Samsung SDI rallied 3.7 percent and internet portal operator Naver advanced 2.2 percent, while chipmaker SK Hynix and chemical firm LG Chem both declined around 1.6 percent.
Commodities
Crude oil futures are sliding $0.70 to $70.34 a barrel after tumbling $1.11 to $71.04 a barrel on Thursday. Meanwhile, after plummeting $86.60 to $1,774.80 an ounce in the previous session, gold futures are rising $3.60 to $1,778.40 an ounce.
On the currency front, the U.S. dollar is trading at 110.23 yen versus the 110.21 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1886 compared to yesterday’s $1.1907.
