Bargain Hunting May Contribute To Initial Strength On Wall Street

The major U.S. index futures are pointing to a higher open on Thursday, with stocks likely to move back to the upside following the sell-off seen in the previous session.

Bargain hunting may contribute to initial strength on Wall Street after the steep drop on Wednesday dragged the major averages down to their lowest closing levels in over a month.

Tech stocks may help lead the rebound, with tech giants Facebook (FB), Apple (AAPL), Amazon (AMZN) and Netflix (NFLX) all moving higher in pre-market trading.

Buying interest may be somewhat subdued, however, as concerns about inflation continue to hang over the markets.

Potentially adding to inflation worries, the Labor Department released a report showing producer prices increased by more than expected in the month of April.

The Labor Department said its producer price index for final demand rose by 0.6 percent in April after jumping by 1.0 percent in March. Economists had expected producer prices to increase by 0.3 percent.

Excluding prices for food, energy, and trade services, core producer prices, advanced by 0.7 percent in April after climbing by 0.6 percent in March. Core prices were expected to rise by 0.4 percent.

The report also showed the annual rate of producer price growth accelerated to 6.2 percent in April from 4.2 percent in March, with prices showing the biggest annual increase since 12-month data were first calculated in November of 2010.

Meanwhile, a separate report from the Labor Department showed first-time claims for U.S. unemployment benefits fell by more than expected in the week ended May 8th.

Stocks moved sharply lower over the course of the trading day on Wednesday, extending the pullback seen earlier in the week. With the steep drop on the day, the major averages ended the session at their lowest closing levels in over a month.

The major averages saw further downside going into the close, ending the day just off their lows of the session. The Dow tumbled 681.50 points or 2 percent to 33,587.66, the Nasdaq plummeted 357.75 points or 2.7 percent to 13,031.68 and the S&P 500 plunged 89.06 points or 2.1 percent to 4,063.04.

The sell-off on Wall Street came amid concerns about the accelerating pace of inflation following the release of the Labor Department’s report on consumer prices in the month of April.

The Labor Department said its consumer price index climbed by 0.8 percent in April after rising by 0.6 percent in March. Economists had expected consumer prices to inch up by 0.2 percent.

Excluding food and energy prices, core consumer prices also advanced by 0.9 percent in April following a 0.3 percent uptick in March. Core prices were expected to rise by another 0.3 percent.

The much bigger than expected jump in core consumer prices reflected the largest increase since April of 1982.

With the much bigger than expected monthly increase, consumer prices in April were up by 4.2 percent compared to the same month a year ago, reflecting the biggest jump since September of 2008.

Core consumer prices also surged up by 3.0 percent year-over-year, marking the biggest annual increase since January of 1996.

The significantly faster price growth raised concerns about the outlook for monetary policy even though the Federal Reserve has repeatedly downplayed the risks of inflation.

The Fed has indicated that it won’t begin tightening monetary policy until inflation is moderately above its 2 percent target for “some time.”

Michael Pearce, Senior U.S. Economist at Capital Economics, described the numbers as “scary” but said muted gains in the cyclical components of the consumer price index lend weight to the Federal Reserve’s argument that the surge in inflation in April will be “largely transitory.”

“With employment still more than 8 million short of its pre-pandemic level, we expect the Fed to maintain its dovish line, even if, as we expect, inflation gains broaden out over the coming months,” Pearce said.

Interest rate-sensitive housing stocks moved sharply lower over the course of the session, dragging the Philadelphia Housing Sector Index down by 5.4 percent.

The index continued to give back ground after ending Monday’s trading at its best closing level since a two-for-one split in early 2006.

Steel stocks also showed a substantial move to the downside, resulting in a 4.7 percent nosedive by the NYSE Arca Steel Index. The index ended the previous session at its best closing level in almost ten years.

Semiconductor, computer hardware, and networking stocks also saw considerable weakness on the day, contributing to the steep drop by the tech-heavy Nasdaq.

Most of the other major sectors also moved to the downside on the day, with notable weakness visible among airline, retail and brokerage stocks.

Commodity, Currency Markets

Crude oil futures are slumping $1.33 to $64.75 a barrel after climbing $0.80 to $66.08 a barrel on Wednesday. Meanwhile, after slumping $13.30 to $1,822.80 an ounce in the previous session, gold futures are falling $4.80 to $1,818 an ounce.

On the currency front, the U.S. dollar is trading at 109.53 yen versus the 109.67 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2087 compared to yesterday’s $1.2072.

Asia

Asian stocks extended recent losses on Thursday as faster than expected U.S. inflation data raised concerns about tighter monetary policy and its impact on the global growth outlook.

Overnight data showed the U.S. annual inflation rate jumped to the highest in 13 years and well above forecasts, while the monthly gauge rose the most since 2009.

Chinese shares fell as bank lending data missed forecasts and U.S.-China tensions remained in focus, with the U.S. accusing the Chinese government of turning Xinjiang into an “open-air prison” by expanding surveillance in the north-western region.

The benchmark Shanghai Composite Index ended down 33.22 points, or 1 percent, at 3,429.54, while Hong Kong’s Hang Seng Index tumbled 512.37 points, or 1.8 percent, to 27,718.67.

Japanese shares hit a four-month low as inflation worries prompted a sell-off in expensive tech stocks. The Nikkei 225 Index plunged 699.50 points, or 2.5 percent, to 27,448.01, hitting its lowest level since early January. The broader Topix closed 1.5 percent lower at 1,849.04, hitting a three-month low.

Heavyweight SoftBank Group dropped 7.8 percent on valuation concerns, while Advantest, Tokyo Electron and Screen Holdings gave up about 5 percent in the tech sector.

Sumitomo Mitsui Trust Holdings climbed 3.2 percent on a Nikkei report the banking group planned to sell down all of its cross-holding shares.

In economic news, Japan posted a current account surplus of 2,650.1 billion yen in March, the Ministry of Finance said, up 37.3 percent from last year.

Australian markets fell notably, dragged down by technology stocks. The benchmark S&P/ASX 200 Index fell 62.20 points, or 0.9 percent, to 6,982.70, while the broader All Ordinaries Index ended down 72.10 points, or 1 percent, at 7,209.

Accounting software platform Xero slumped 13 percent after revenue growth slowed in its full-year results. Heavyweight Afterpay lost 5.4 percent.

Gold miners Evolution and Northern Star Resources fell about 2 percent as a rise in U.S. Treasury yields and a firmer dollar dented the metal’s safe-haven appeal.

Winemaker Treasury Wine Estates gained 2.7 percent after its full-year operating profit forecast came in ahead of market expectations.

Graincorp shares surged 5.2 percent after the agribusiness reported a 30.8 percent jump in total revenue for the first half.

Seoul stocks extended losses for the third day amid concerns that rising inflationary expectations could impact the global economic recovery from COVID-19. The benchmark Kospi dropped 39.55 points, or 1.3 percent, to settle at 3,122.11.

LG Chem, Naver, SK Hynix and Samsung Electronics all fell around 2 percent, while rechargeable battery maker Samsung SDI plunged 4.9 percent.

Europe

European stocks have moved sharply lower on Thursday after data showed U.S. consumer inflation rose at its fastest rate since 2008 last month, raising worries about whether the Federal Reserve will have to tighten policy sooner than it would like.

U.S.-China tensions also remained in focus, with the U.S. accusing the Chinese government of turning Xinjiang into an “open-air prison” by expanding surveillance in the north-western region.

While the U.K.’s FTSE 100 Index has tumbled by 1.4 percent, the German DAX Index is down by 0.6 percent and the French CAC 40 Index is down by 0.5 percent.

BP Plc and Royal Dutch Shell have come under pressure as oil snapped a four-day gain on news the largest U.S. gasoline pipeline has resumed service.

Insurance company Prudential has also slumped after announcing business and Jackson demerger update in advance of its Annual General Meeting.

Burberry shares have also plummeted as the luxury brand reported a 10 percent drop in sales for the year to end-March.

U.K.’s biggest broadband and mobile provider, BT Group, has also fallen after reporting a decrease in revenue and profit for the full year.

On the other hand, Spanish telecoms group Telefonica has advanced 1 after posting a profit rise and backing its full-year outlook.

French food and beverage company Danone is little changed on news it is selling a potential $2 billion stake in China Mengniu Dairy Company.

In economic news, U.K. house prices climbed notably in April as the increase in demand increasingly outstripped supply, monthly survey results from the Royal Institution of Chartered Surveyors showed.

U.S. Economic Reports

After yesterday’s report showing much faster than expected consumer price growth, the Labor Department released a report on Thursday showing producer prices also increased by more than expected in the month of April.

The Labor Department said its producer price index for final demand rose by 0.6 percent in April after jumping by 1.0 percent in March. Economists had expected producer prices to increase by 0.3 percent.

Excluding prices for food, energy, and trade services, core producer prices, advanced by 0.7 percent in April after climbing by 0.6 percent in March. Core prices were expected to rise by 0.4 percent.

The report also showed the annual rate of producer price growth accelerated to 6.2 percent in April from 4.2 percent in March, with prices showing the biggest annual increase since 12-month data were first calculated in November of 2010.

Meanwhile, a separate report from the Labor Department showed first-time claims for U.S. unemployment benefits fell by more than expected in the week ended May 8th.

The report said initial jobless claims dipped to 473,000, a decrease of 34,000 from the previous week’s revised level of 507,000.

Economists had expected jobless claims to edge down to 490,000 from the 498,000 originally reported for the previous week.

With the bigger than expected decrease, jobless claims once again fell to their lowest level since hitting 256,000 in the week ended March 14, 2020.

At 10 am ET, Richmond Federal Reserve President Thomas Barkin is due to speak on the economy before a virtual Central Maryland Chamber event.

The Treasury Department is scheduled to announce the results of this month’s auction of $27 billion worth of thirty-year bonds at 1 pm ET.

Also at 1 pm ET, Federal Reserve Governor Christopher Waller is due to speak on the U.S. economic outlook and monetary policy before the virtual Global Interdependence Center 39th Annual Monetary and Trade Conference.

St. Louis Federal Reserve President James Bullard is scheduled to speak on the U.S. economy and monetary policy before a Greater Memphis Chamber Chairman’s Circle Virtual Event at 4 pm ET.

Stocks In Focus

Shares of Vroom (VRM) are moving sharply higher in pre-market trading after the online used car retailer reported a narrower than expected first quarter loss on revenues that exceeded analyst estimates.

Speaker and audio products maker Sonos (SONO) is also likely to see initial strength after reporting an unexpected fiscal second quarter profit and raising its full-year guidance.

On the other hand, shares of Poshmark (POSH) are seeing significant pre-market weakness even though the online retailer of used luxury goods reported better than expected first quarter results.