Futures Pointing To Continued Strength On Wall Street

The major U.S. index futures are currently pointing to a modestly higher open on Tuesday, with stocks likely to add to the strong gains posted in the previous session.

Traders may continue to look for bargains as the Dow remains well off its recent highs despite seeing its best day since March on Monday.

However, the broader Nasdaq and S&P 500 have recently outperformed the Dow and are back within striking distance of the record closing highs set last Monday.

Overall trading activity may be somewhat subdued as traders look ahead to Federal Reserve Chair Jerome Powell’s testimony before the House Select Subcommittee on the Coronavirus Crisis this afternoon.

In prepared remarks, Powell noted the economy has shown sustained improvement since he last appeared before the committee, citing widespread Covid-19 vaccinations as well as unprecedented monetary and fiscal policy actions.

Powell acknowledged inflation has increased notably in recent months but reiterated the view that the jump is due to “transitory” factors and predicted inflation would drop back toward the Fed’s longer-run goal of 2 percent price growth.

The Fed chief warned the coronavirus pandemic continues to pose risks to the economic outlook, pointing to the slowing pace of vaccinations and new strains of the virus.

Powell stressed that the Fed will do “everything we can to support the economy for as long as it takes to complete the recovery.”

Traders are likely to keep an eye on the question-and-answer portion of Powell’s testimony for further clarity about the outlook for monetary policy.

Stocks showed a strong move back to the upside during trading on Friday, partly offsetting the weakness that was seen last week. The major averages all moved notably higher, with the Dow showing a particularly strong upward move.

The major averages moved roughly sideways going into the close, holding on to significant gains. The Dow spiked 586.89 points or 1.8 percent to 33,876.97, the Nasdaq advanced 111.10 points or 0.8 percent to 14,141.48 and the S&P 500 jumped 58.34 points or 1.4 percent to 4,224.79.

The rebound on Wall Street partly reflected bargain hunting after the steep drop seen last Friday dragged the Dow down to its lowest closing level in well over two months.

The Dow closed lower for five straight sessions and tumbled 3.4 percent last week, marking the worst week for the blue chip index since last October.

Last week’s sell-off came amid concerns about the outlook for monetary policy after the Federal Reserve latest projections called for two interest rates hikes in 2023.

St. Louis Fed President Jim Bullard told CNBC’s “Squawk Box” the first rate hike by the Fed could come as soon as next year.

Energy stocks turned in some of the market’s best performances on the day, moving sharply higher along with the price of crude oil.

Reflecting the strength in the energy sector, the Philadelphia Oil Service Index skyrocketed by 5.5 percent, the NYSE Arca Oil Index soared by 4.6 percent and the NYSE Arca Natural Gas Index surged up by 3.5 percent.

Substantial strength was also visible among banking stocks, as reflected by the 2.9 percent jump by the KBW Bank Index. The index rebounded off a two-month closing low.

Steel stocks also saw significant strength on the day, with the NYSE Arca Steel Index shooting up by 2.6 percent after ending the previous session at its lowest closing level in two months.

Airline, chemical and commercial real estate stocks also showed strong moves to the upside, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are falling $0.47 to $73.19 a barrel after spiking $2.02 to $73.66 a barrel on Monday. Meanwhile, after jumping $13.90 to $1,782.90 an ounce in the previous session, gold futures are sliding $6.40 to $1,776.50 an ounce.

On the currency front, the U.S. dollar is trading at 110.57 yen compared to the 110.27 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1882 compared to yesterday’s $1.1919.

Asia

Asian stocks advanced on Tuesday after New York Fed President John Williams noted the recent inflation surge is likely a temporary phase, helping ease investor concerns about the pace of expected monetary tightening.

Chinese shares ended notably higher, with the benchmark Shanghai Composite Index climbing 28.23 points, or 0.8 percent, to 3,557.41. Hong Kong’s Hang Seng Index dropped 179.24 points, or 0.6 percent, to 28,309.76.

Japanese shares posted strong gains on economic recovery hopes. The Nikkei 225 Index spiked 873.20 points, or 3.1 percent, to 28,884.13, marking its biggest percentage gain since last June. The broader Topix closed 3.2 percent higher at 1,959.53, reversing Monday’s 2.4 percent slide.

Shipping stocks surged, with Mitsui OSK Lines jumping more than 10 percent after the company more than tripled its half-yearly net profit forecast. Rivals Kawasaki Kisen and Nippon Yusen also gained more than 10 percent each.

Automaker Suzuki Motor surged 7.4 percent, Honda Motor rallied 3.6 percent and Toyota Motor added 3.3 percent as the yen fell against the dollar on improved risk sentiment.

Market heavyweight SoftBank Group advanced 1.9 percent and Uniqlo operator Fast Retailing climbed 3.1 percent.

Australian markets rallied as investors favored value stocks on hopes they will do well in an economic recovery. The benchmark S&P/ASX 200 Index surged 106.90 points, or 1.5 percent, to 7,342.20, while the broader All Ordinaries Index ended up 107.50 points, or 1.4 percent, at 7,592.70.

Energy stocks such as Woodside Petroleum and Santos jumped 2-3 percent as Brent oil hit $75 a barrel for the first time in more than two years amid signs of a rapidly tightening market.

The big four banks rose 1-2 percent, while mining heavyweights BHP and Rio Tinto rallied 2.4 percent and 1.6 percent, respectively. Gold miner IGO surged 6.2 percent after saying it plans to invest A$1.4 billion into its local unit.

Seoul stocks rebounded on expectations the Fed is going to be relatively slow in tapering its asset purchase program. The Kospi climbed 23.09 points, or 0.7 percent, to 3,263.88. Automaker Hyundai Motor jumped 3.4 percent and chemical firm LG Chem advanced 2.4 percent.

Producer prices in South Korea were up 6.4 percent year-on-year in May, the Bank of Korea said, accelerating from the upwardly revised 6.0 percent increase in April.

Europe

European shares are subdued on Tuesday as investors pause for breath after recent volatility on concerns about the U.S. interest rate outlook.

Amid renewed uncertainty around inflation and the stimulus outlook, investors await testimony from Fed Chair Jerome Powell later in the day and a Bank of England policy decision on Thursday for directional cues.

In his prepared remarks for a congressional hearing, Fed Chair Jerome Powell said that the current surge in inflation is likely to be transitory and it could move back to the Fed’s 2 percent target when supply imbalances are resolved.

The U.S. dollar strengthened against its major rivals amid speculation that the tightening of the monetary policy by the Federal Reserve will be gradual.

Meanwhile, analysts expect no changes to policy on Thursday when the Bank of England reviews its policy.

While the U.K.’s FTSE 100 Index has risen by 0.4 percent, the German DAX Index and the French CAC 40 Index are both up by 0.2 percent.

German medical and safety technology provider Draegerwerk AG & Co. KGaA has jumped after increasing its guidance for fiscal year 2021.

Shares of Kingspan Group has also surged in London after the provider of high performance insulation and building envelope solutions said it expects first-half sales and trading profit ahead of last year as well as the first half of 2019.

Public transport company National Express Group has also advanced. The company has announced the acquisition of Transportes Rober in Spain for headline consideration of 13 million euros.

Meanwhile, Aston Martin Lagonda Global Holdings has declined. The luxury vehicles company said it has commenced legal proceedings against a Swiss dealership network over alleged failures to hand over customer deposits.

French insurer Axa has dipped slightly after announcing it is selling its insurance businesses in Malaysia to Italian rival Generali for about 140 million euros ($167 million).

Sanofi has also fallen. The company and its U.S. partner Translate Bio had started a Phase I clinical trial evaluating an mRNA-based investigational vaccine against seasonal influenza.

In economic news, the U.K. budget deficit narrowed in May from the last year, data from the Office for National Statistics showed.

Public sector net borrowing decreased to 24.33 billion pounds in May from 43.76 billion pounds a year ago. The deficit was also below the economists’ forecast of 26.1 billion pounds.

Nonetheless, this was the second highest May borrowing since records began in 1993.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales in the month of May at 10 am ET. Economists expect existing home sales to decrease by 2.2 percent to an annual rate of 5.72 million.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $60 billion worth of two-year notes.

Federal Reserve Chair Jerome Powell is scheduled to testify on the Fed’s response to the coronavirus pandemic before the House Select Subcommittee on the Coronavirus Crisis at 2 pm ET.

Stocks In Focus

Shares of Sanderson Farms (SAFM) are moving sharply higher in pre-market trading after a report from the Wall Street Journal said the poultry giant is exploring a possible sale.

Video game retailer GameStop (GME) is also likely to see initial strength after announcing it has completed its “at-the-market” equity offering program after raising $1.126 billion.

Shares of Korn Ferry (KFY) may also move to the upside after the consulting firm reported fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Microvision (MVIS) are likely to come under pressure after the laser technology company announced it has entered into a $140 million “at-the-market” equity offering agreement with Craig-Hallum Capital Group.