Lingering Inflation Concerns May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to move back to the downside after rebounding to close out the previous week,

Lingering concerns about inflation and the outlook for monetary policy may lead to a pullback on Wall Street ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting on Wednesday.

Traders are likely to closely analyze the Fed minutes for indications officials are growing concerned about the recent acceleration in inflation and considering tapering asset purchases.

The Fed has repeatedly signaled that it believes the increase in inflation largely reflects “transitory factors,” although the spike in consumer prices reported by the Labor Department last week still helped trigger a sell-off on Wall Street.

Selling pressure may return this morning after the rebound seen last Thursday and Friday lifted the major averages off their lowest closing levels in over a month.

Stocks showed a strong move to the upside during trading on Friday, extending the rebound seen on Thursday. The major averages all climbed firmly into positive territory, with the tech-heavy Nasdaq showing a particularly strong advance.

The major averages ended the session near their best levels of the day. The Dow jumped 360.68 points or 1.1 percent to 34,382.13, the Nasdaq soared 304.99 points or 2.3 percent to 13,429.98 and the S&P 500 surged up 61.35 points or 1.5 percent at 4,173.85.

Despite the rally on the day, the major averages moved notably lower for the week. The Nasdaq tumbled by 2.3 percent, while the S&P 500 and the Dow slumped by 1.4 percent and 1.1 percent, respectively.

The strength on Wall Street came as traders continued to pick up stocks at somewhat reduced levels following the sell-off seen earlier in the week.

Before the rebound on Thursday, the major averages ended Wednesday’s trading at their lowest levels in over a month.

A report from the Commerce Department showing retail sales were virtually unchanged in April after soaring by an upwardly revised 10.7 percent in March may also have eased recent concerns about the Federal Reserve tightening monetary policy.

Economists had expected retail sales to jump by 1.0 percent compared to the 9.8 percent spike originally reported for the previous month.

“Retail sales cooled in April, with a flat reading, as the sugar rush from generous fiscal transfers, rapid vaccinations and warmer weather faded,” said Gregory Daco, Chief U.S. Economist at Oxford Economics.

He added, “But don’t be fooled, stronger consumer spending activity lies ahead as US households have the means and the motivation to spend freely.”

A separate report from the Federal Reserve showed industrial production in the U.S. increased by less than expected in the month of April.

The report said industrial production climbed by 0.7 percent in April after soaring by an upwardly revised 2.4 percent in March.

Economists had expected industrial production to surge up by 1.0 percent compared to the 1.4 percent jump originally reported for the previous month.

Meanwhile, University of Michigan released a report showing consumer sentiment in the U.S. has unexpectedly decreased in the month of May.

The report showed the consumer sentiment index dropped to 82.8 in May from 88.3 in April. The decrease surprised economists, who had expected the index to rise to 90.4.

Computer hardware stocks showed a substantial move to the upside on the day, driving the NYSE Arca Computer Hardware Index up by 4.2 percent.

Significant strength was also visible among airline stocks, as reflected by the 4.2 percent spike by the NYSE Arca Airline Index.

Energy stocks also saw considerable strength amid a rebound by the price of crude oil. Reflecting the strength in the energy sector, the Philadelphia Oil Service Index soared by 3.9 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index surged up by 3.6 percent and 3.4 percent, respectively.

Semiconductor, gold, and brokerage stocks also saw notable strength on the day, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.40 to $64.97 a barrel after jumping $1.55 to $65.37 a barrel last Friday. Meanwhile, after climbing $14.10 to $1,838.10 an ounce in the previous session, gold futures are rising $10.60 to $1,848.70 an ounce.

On the currency front, the U.S. dollar is trading at 109.23 yen versus the 109.35 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.2141 compared to last Friday’s $1.2141.

Asia

Asian stocks turned in a mixed performance on Monday as investors digested a slew of economic data from China and kept a wary eye on the COVID-19 surge across much of Asia.

Traders also eyed the minutes from the Federal Open Market Committee’s latest meeting, due out Wednesday, for further clues to officials’ views on the recovery.

China’s industrial output rose 9.8 percent year-on-year in April, matching expectations, while retail sales increased 17.7 percent, falling short of estimates of 24.9 percent, separate reports released earlier in the day showed. Fixed asset investment spiked an annual 19.9 percent, beating forecasts.

China’s Shanghai Composite Index climbed 27.24 points, or 0.8 percent, to 3,517.62, while Hong Kong’s Hang Seng Index rose 166.52 points, or 0.6 percent, to 28,194.09.

Meanwhile, Japanese shares retreated as the government enhanced its response to tackle the fourth wave of coronavirus infections with expanded and extended states of emergency in more areas. The Nikkei 225 Index ended down 259.64 points, or 0.9 percent, at 27,824.83, while the broader Topix closed 0.2 percent lower at 1,878.86.

SoftBank and Fast Retailing fell about 1 percent amid pandemic concerns. Tech stocks ended lower, with Tokyo Electron ending down as much as 3.7 percent.

Honda Motor lost 2.7 percent after the carmaker forecast a 10.3 percent drop in net profit in the current business year through next March.

Australian markets saw modest strength, with gold miners and energy companies leading the way higher. The benchmark S&P/ASX 200 Index edged up 9.40 points, or 0.1 percent, to 7,023.60 despite fears of escalating Aussie-China tussles. The broader All Ordinaries Index ended up 16.40 points, or 0.2 percent, at 7,255.80.

Evolution Mining and Northern Star Resources jumped 5-7 percent as bullion prices hit over three-month highs on worries over surging coronavirus infections in some Asian countries.

Ampol surged 6.1 percent and Viva Energy soared 7 percent after both fuel suppliers received massive government funding to keep their refineries open.

Casino giant Crown Resorts rose 0.9 percent after its board officially rejected the improved $8.3 billion takeover offer from U.S. private equity group Blackstone.

Incitec Pivot shares fell 1.7 percent after the fertilizer and chemical company reported a profit for the first half that halved from last year.

Seoul stocks ended lower as caution prevailed amid spikes in coronavirus cases in parts of Asia, with Taiwan and Singapore imposing new restrictions against the virus. The benchmark Kospi dropped 18.80 points, or 0.6 percent, to 3,134.52.

Market bellwether Samsung Electronics shed 0.6 percent and No. 2 chipmaker SK Hynix dipped 0.8 percent. Drug maker SK Bioscience jumped 9.3 percent after its production facility for AstraZeneca and Novavax COVID-19 vaccines received certification approval from the European Medicines Agency.

Europe

European stocks are mostly lower on Monday as investors digest mixed economic data from China and keep a wary eye on the COVID-19 surge across much of Asia, with Taiwan imposing strict social curbs to stem its worst virus outbreak.

Traders also eyed the minutes from the Federal Open Market Committee’s latest meeting, due out Wednesday, for any discussion about accelerating price pressures and hints of a timeline for reducing asset purchases.

While the U.K.’s FTSE 100 Index has fallen by 0.6 percent, the French CAC 40 Index is down by 0.4 percent and the German DAX Index is down by 0.2 percent.

The pound edged has higher against its rivals as Britain took a big step towards reopening its economy, lifting a number of social restrictions imposed to combat the COVID-19 outbreak.

Bayer AG shares have fallen. The German company lost its second appeal of the three jury verdicts finding that the company’s Roundup weed killer causes cancer.

Aareal Bank AG has also moved lower after announcing certain changes to its management board aiming to reduce its size.

Saint-Gobain has also dipped after the French building materials group agreed to buy Romanian group Duraziv, specialized in the production of adhesives and other construction chemicals solutions.

GlaxoSmithKline shares are modestly lower in London. The drug giant and France’s Sanofi have reported “strong immune responses” in early tests of their COVID-19 vaccine.

On the other hand, Ryanair Holdings have edged higher. After posting a record annual loss, the discount carrier pointed to a strong recovery in the second half.

Diploma Plc shares have surged in London. The seal and cables maker reinstated its dividend and upped its annual guidance after a very strong first-half performance.

U.S. Economic Reports

After jumping to a more than three-year high in the previous month, the New York Federal Reserve’s index of regional manufacturing activity showed a modest pullback in the month of May.

The New York Fed released a report on Monday showing its general business conditions index dipped to 24.3 in May from 26.3 in April, although a positive reading still indicates growth in regional manufacturing activity.

Economists had expected the index to slip to 23.9 after reaching its highest level since October of 2017 in the previous month.

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of May. The housing market index is expected to come in unchanged at 83.

Atlanta Federal Reserve President Raphael Bostic is also due to give welcome and introductory remarks before a virtual “Fostering a Resilient Economy and Financial System: The Role of Central Banks” conference at 10 am ET.

At 10:05 am ET, Federal Reserve Vice Chair Richard Clarida is scheduled to speak before the virtual “Fostering a Resilient Economy and Financial System: The Role of Central Banks” conference hosted by the Atlanta Fed.

Bostic is due to give a preview of day two of the virtual “Fostering a Resilient Economy and Financial System: The Role of Central Banks” conference at 12:30 pm ET.

At 6 pm ET, Dallas Federal Reserve President Robert Kaplan is scheduled to participate in a virtual Town Hall “Discussion of Economic Developments and Implications for Monetary Policy” hosted by Dallas Fed.

Stocks In Focus

Shares of Discovery (DISCA) are moving sharply higher in pre-market trading after the media company announced an agreement to merge with AT&T’s (T) WarnerMedia unit. Discovery shareholders would own 29 percent of the new company.

Restaurant chain Texas Roadhouse (TXRH) are also likely to see initial strength after Deutsche Bank upgraded its rating on the company’s stock to Buy from Hold.

Shares of Hostess Brands (TWNK) may also be in focus after the maker of Twinkies and other snacks reported better than expected first quarter results.

Meanwhile, shares of MicroStrategy (MSTR) are seeing notable pre-market weakness as the price of bitcoin drops to a three-month low. The business analytics company holds approximately $5 billion worth of the cryptocurrency.