U.S. Stocks May See Further Downside In Early Trading

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside after turning lower over the course of the previous session.

Concerns about inflation and the outlook for monetary policy may weigh on Wall Street ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

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.

U.S. stocks failed to hold early gains and ended lower on Tuesday, as disappointing data on housing starts and a sell-off in the technology sector weighed on the markets.

Strong earnings announcements from Walmart (WMT) and Home Depot (HD) helped keep the undertone positive early on in the session, but the mood turned cautious as the day progressed and stocks started paring gains on selling pressure.

The Dow ended down by 267.13 points or 0.8 percent at 34,060.66 after having advanced to 34,408.99 in early trading. The Nasdaq, which rose to 14,485.34, settled at 13,303.64, recording a loss of 75.41 points or 0.6 percent, while the S&P 500 slid 35.46 points or 0.9 percent to settle at 4,127.83.

Shares of Walmart gained more than 2 percent after the retail giant’s adjusted earnings per share and quarterly revenues topped analysts’ expectations and the company raised its guidance for the second quarter and for the full-year 2022. The company reported a 31.6 percent drop in profit for the first quarter.

Macy’s Inc. (M) shares edged down marginally. The company reported that its net income for the first quarter was $103 million or $0.32 per share compared to a net loss of $3.58 billion or $11.53 per share in the prior year. Macy’s has raised its fiscal-year 2021 guidance due to improved macroeconomic trends and strength of Polaris strategy execution.

Home Depot shares failed to hold early gains and ended lower by about 1 percent, despite the company reporting higher earnings in the latest quarter. The company posted a profit of $3.86 per share in the first quarter versus forecasts for earnings of $3.08 a share.

On the economic front, data from the Commerce Department showed housing starts in the U.S. tumbled 9.5 percent to an annualized rate of 1.569 million in April, sliding from a 15-year high of 1.733 million recorded a month earlier. Economists had expected housing starts to come in at 1.71 million in April.

The report also showed building permits in the U.S. rose by 0.3 percent to 1.76 million in April from the previous month’s 1.755 million. Economists had expected building permits to rise to 1.77 million in April.

Commodity, Currency Markets

Crude oil futures are tumbling $1.25 to $64.24 a barrel after falling $0.78 to $65.49 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,865.20, down $2.80 compared to the previous session’s close of $1,868. On Tuesday, gold inched up $0.40.

On the currency front, the U.S. dollar is trading at 109.19 yen compared to the 108.90 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.2210 compared to yesterday’s $1.2222.

Asia

Asian stocks fell broadly on Wednesday as inflation worries persisted and investors awaited the Fed meeting minutes to figure out officials’ view on the economic recovery and inflation.

Chinese shares closed lower amid increased tensions between Beijing and Washington. China has accused the United States of threatening the peace and stability of the Taiwan Strait after a U.S. warship sailed through the sensitive waterway that separates Taiwan from China.

In another development, the U.S. Treasury said it was postponing a ban on trading shares of companies with alleged links to the Chinese military.

The benchmark Shanghai Composite index ended down 18.05 points, or 0.51 percent, at 3,510.96. Markets in South Korea and Hong Kong were closed for Buddha’s birthday and National Day, respectively.

Japanese shares ended lower as the country struggled with a renewed outbreak of coronavirus amid a shortage of medical staff hospital beds in some areas. The Nikkei average fell 362.39 points, or 1.28 percent, to 28,044.45 as a top medical organization threw its weight behind calls to cancel the Tokyo Olympics. The broader Topix index closed 0.66 percent lower at 1,895.24.

Air-conditioner maker Daikin Industries, construction equipment maker Komatsu and farm equipment major Kubota all fell around 4 percent.

Toyota Motor dropped 1.4 percent. The automaker announced it would halt production on three production lines at two factories next month due to a chip shortage.

Australian markets tumbled after Wall Street’s weak lead amid renewed inflation fears. The benchmark S&P/ASX 200 slumped 134.30 points, or 1.90 percent, to 6,931.70, while the broader All Ordinaries index closed 1.83 percent lower at 7,165.70.

Woodside Petroleum, Santos, Origin Energy and Oil Search lost 2-5 percent as oil extended losses after falling over 1 percent overnight ahead of an expected announcement on Iran’s nuclear deal.

Payment provider EML Payments plummeted as much as 45.6 percent after the Central Bank of Ireland flagged additional regulation for a subsidiary previously monitored by British authorities.

Mining heavyweights BHP and Rio Tinto gave up 3-4 percent while the big four banks fell between 1.1 percent and 2.5 percent. On the positive side, artificial intelligence crowdsourcing provider Appen soared 17.4 percent on restructuring news.

In economic news, the latest survey from Wetspac Bank and the Melbourne Institute revealed that the consumer confidence index in Australia fell 4.7 percent sequentially to a score of 113.1 in May from an eleven-year high of 118.8 in April.

Europe

European stocks were moving lower on Wednesday amid concerns that a persistent overshoot in inflation might force central banks to tighten their easy monetary policies.

Euro zone government bonds yields rose, with the benchmark German Bund yield hitting a two-year high on concerns that the European Central Bank could decide to scale back its emergency bond-buying program as early as next month.

Euro zone inflation accelerated as expected in April because of a sharp rise in the costs of energy and services, Eurostat reported earlier today.

Consumer prices in the 19 countries sharing the euro rose 0.6 percent sequentially and 1.6 percent from a year earlier, up from the 1.3 percent annual increase in March.

U.K. consumer price inflation exceeded expectations in April on higher energy prices, separate data showed.

Consumer prices advanced 1.5 percent year-on-year in April, more than double the March’s 0.7 percent increase. A similar higher rate was last seen in March 2020.

Investors wait for more clues on policymakers’ views on inflation when the U.S. Federal Reserve releases minutes of its most recent policy meeting later in the day.

The pan European Stoxx 600 dropped 1.2 percent to 437.79 after closing up 0.2 percent on Tuesday. The German DAX fell 1.4 percent, France’s CAC 40 index fell a little over 1 percent and the U.K.’s FTSE 100 was down 0.8 percent.

Swiss wealth manager Julius Baer advanced 1.5 percent after saying it was on track to deliver on financial targets.

ASM International and Infineon Technologies fell around 2 percent on concerns about a global semiconductor shortage and disruption of supply chains due to COVID-19.

Ferguson shares climbed 3 percent as the British plumbing and heating products supplier raised annual guidance after reporting strong revenue growth in its third quarter.

Weaker copper and iron prices weighed on the mining sector, with Anglo American, Antofagasta and Glencore falling 2-3 percent. Oil firm BP Plc and Royal Dutch Shell both were down around 1.6 percent.

Infrastructure investor John Laing Group soared 11.2 percent after U.S. private equity firm KKR & Co. agreed to buy the company for about 2 billion pounds ($2.8 billion).

Premier Foods surged 4.3 percent. The company declared a payout to shareholders after a 13-year break.

Automakers BMW, Daimler, Volkswagen and Renault fell 1-2 percent despite positive data.

European new car registrations rose 24.4 percent year-on-year in the January to April period to 3.4 million units due to the low base of comparison amid coronavirus restrictions, data from the European Automobile Manufacturers Association/ACEA showed.

U.S. Economic Reports

Federal Reserve Vice Chair Randal Quarles is scheduled to testify on Supervision and Regulation before a virtual hearing of the House Financial Services Committee at 10 am ET.

Also at 10 am ET, St. Louis Federal Reserve President James Bullard is due to speak on the U.S. economy and monetary policy before a virtual Official Monetary and Financial Institutions Forum fireside chat.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 14th at 10:30 am ET.

Crude oil inventories are expected increase by 1.6 million barrels after edging down by 0.4 million barrels in the previous week.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $27 billion worth of twenty-year bonds.

The Federal Reserve is scheduled to release the minutes of the April 27-28 meeting of the Federal Open Market Committee at 2 pm ET.