Concerns About Global Economy May Weigh On Wall Street

The major U.S. index futures are pointing to a sharply lower open on Thursday, with stocks likely to give back ground following the recent run to new record highs.

Concerns about the outlook for the global economy may weigh on Wall Street amid considerable weakness in the overseas markets.

News that Japan has declared a new state of emergency for Tokyo ahead of the Olympic Games is likely to add to worries about the impact of new coronavirus variants.

The U.S. economy has recovered strongly from the pandemic-induced slump, but the rapid spread of variants in other parts of the world has raised concerns about a global slowdown.

Potentially adding to the negative sentiment on Wall Street, the Labor Department recently released a report showing initial jobless claims unexpectedly inched higher in the week ended July 3rd.

A continued drop in bond yields is also likely to weigh on banking stocks, while energy stocks may see further downside amid another decrease by the price of crude oil.

Stocks fluctuated over the course of the trading day on Wednesday before eventually ending the session modestly higher. With the uptick on the day, the S&P 500 and the Nasdaq once again reached new record closing highs.

The major averages all closed in positive territory, although the Nasdaq inched up just 1.42 points or less than a tenth of a percent to 14,665.06. The Dow climbed 104.42 points or 0.3 percent to 34,681.79 and the S&P 500 rose 14.59 points or 0.3 percent to 4,358.13.

The higher close on Wall Street came as the minutes of the Federal Reserve’s latest monetary policy meeting signaled the central bank will not be in a hurry to begin scaling back its asset purchase program.

The minutes of the June meeting reiterated Fed Chair Jerome Powell’s view that “substantial further progress” towards the goals of maximum employment and price stability has not yet been met.

The Fed has repeatedly said it plans to continue to its asset purchases at a rate of at least $120 billion per month until “substantial further progress” has been made toward its goals.

While various participants expect conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had previously anticipated, others saw incoming data as providing a less clear signal about the underlying economic momentum.

The minutes said some participants determined the Fed would be able to make a better assessment in the coming months and emphasized the central bank should be “patient in assessing progress toward its goals and in announcing changes to its plans for asset purchases.”

The Fed said participants agreed to continue assessing the economy’s progress toward the central banks goals at coming meetings and to begin to discuss their plans for adjusting the path and composition of asset purchases.

“In addition, participants reiterated their intention to provide notice well in advance of an announcement to reduce the pace of purchases,” the Fed said.

Paul Ashworth, Chief U.S. Economist at Capital Economics, described the Fed minutes as “a little less hawkish than feared.”

“The minutes of the Fed’s mid-June FOMC meeting were not as hawkish as we suspected, given the shift in the median interest rate projection, which now shows two rate hikes in 2023, and post-meeting comments by various officials,” Ashworth said.

He added, “In particular, there seems to be only limited support for beginning to taper the monthly asset purchases anytime soon.”

Ashworth said it still appears that the Fed won’t begin tapering its asset purchases until the start of next year but noted a pre-announcement could come as soon as September.

Housing stocks moved sharply higher amid a continued decrease in treasury yields, resulting in a 2 percent jump by the Philadelphia Housing Sector Index.

Considerable strength was also visible among steel stocks, as reflected by the 1.9 percent gain posted by the NYSE Arca Steel Index.

On the other hand, energy stocks extended Tuesday’s sell-off, as the price of crude oil once again turned lower over the course of the session.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Oil Index plunged by 2.2 percent and 2.1 percent, respectively.

Airline stocks also showed a significant move to the downside, dragging the NYSE Arca Airline Index down by 1.5 percent to its lowest closing level in almost five months.

Notable weakness also emerged among semiconductor stocks, with the Philadelphia Semiconductor Index falling by 1.4 percent.

Commodity, Currency Markets

Crude oil futures are slipping $0.30 to $71.90 a barrel after tumbling $1.17 to $72.20 a barrel on Wednesday. Meanwhile, after climbing $7.90 to $1,802.10 an ounce in the previous session, gold futures are jumping $15.60 to $1,817.70 an ounce.

On the currency front, the U.S. dollar is trading at 109.61 yen versus the 110.66 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1849 compared to yesterday’s $1.1790.

Asia

Asian stocks ended mostly lower on Thursday, with fears over the fresh wave of COVID-19 infections in several Asian countries and concerns over China’s crackdown on technology companies denting sentiment.

Chinese shares ended lower after officials flagged the possibility of a reserve requirement ratio cut to help the economy. The benchmark Shanghai Composite Index dropped 28.21 points, or 0.8 percent, to 3,525.50.

Hong Kong’s Hang Seng Index tumbled 807.49 points, or 2.9 percent, to settle at 27,153.13 as tech stocks continued to drop amid regulatory fears.

Japanese markets extended losses from the previous session as another virus state of emergency for Olympic city Tokyo looked imminent, raising worries about an economic slowdown. The government is planning to declare another COVID-19 state of emergency in Tokyo until August 22 to combat a recent surge in infections.

The Nikkei 225 Index slid 248.92 points, or 0.9 percent, to 28,118.03, marking its lowest close in more than two weeks. The broader Topix ended 0.9 percent lower at 1,920.32.

Retailers Marui Group and Isetan Mitsukoshi Holdings gave up 2-3 percent. Showa Denko declined 1.9 percent after reports the materials producer will sell its underperforming lead-acid battery operations to investment fund Advantage Partners and financial services company Tokyo Century for 60 billion yen.

Daikin Industries jumped 3.7 percent. The Nikkei reported that the country’s top air conditioner maker has developed a refrigerant for electric vehicles that can extend their range by up to 50 percent.

In economic news, Japan posted a current account surplus of 1,979.7 billion yen in May, a government report showed. That exceeded expectations for a surplus of 1,820.4 billion.

Meanwhile, Australian stocks eked out modest gains as a rise in metal prices boosted miners. The benchmark S&P/ASX 200 Index ended up 14.50 points, or 0.2 percent, at 7,341.40, finishing off the day’s highs as New South Wales State reported its biggest daily rise in locally acquired cases of COVID-19 for the year. The broader All Ordinaries Index edged up 15.60 points, or 0.2 percent, to 7,614.90.

BHP rallied 1.8 percent and Fortescue Metals Group rose 0.7 percent, tracking a rise in iron ore and copper prices.

Sydney Airport Holdings jumped 2.9 percent after reports that a consortium led by Macquarie Group is exploring a rival offer for the company.

Zip Co. shares surged 13.7 percent after reports that Swedish buy-now-pay-later giant Klarna may have taken a strategic 4 percent stake in the firm.

Seoul stocks slumped as the country reported its highest ever one-day rise in new COVID-19 cases, prompting authorities to consider imposing a semi-lockdown in the capital. The benchmark Kospi dropped 32.66 points, or 1 percent, to 3,252.68.

Market bellwether Samsung Electronics declined 1.1 percent and No. 2 chipmaker SK Hynix lost 1.6 percent, while pharmaceutical firm Samsung Biologics climbed 2.1 percent.

Europe

European stocks have slumped on Thursday as a shift to some kind of policy easing in China raised worries about softening growth momentum in the rest of this year.

Inflationary concerns also weighed after the minutes from the Fed’s June meeting showed the U.S. central bank has been caught off guard by the recent rise in inflation.

The minutes of the Fed’s mid-June FOMC meeting showed officials felt substantial further progress on the economic recovery “was generally seen as not having yet been met,” but agreed to act if inflation or other risks increased.

While the French CAC 40 Index has plunged by 2.2 percent, the German DAX Index is down by 2 percent and the U.K.’s FTSE 100 Index is down by 1.8 percent.

Cyclicals have succumbed to selling pressure, with automakers Daimler and Renault moving notably lower on economic recovery concerns.

Banks Commerzbank, Deutsche Bank, BNP Paribas, Credit Agricole, Societe Generale and Lloyds bank have also tumbled as government bond yields extended their decline.

Swiss building material company Holcim AG, formerly known as LafargeHolcim, has also moved to the downside after launching a new Group identity.
German automotive lighting group Hella has also declined after Knorr-Bremse, a maker of breaking systems used in trains and commercial vehicles, dropped plans to acquire a 60 percent in the company held by the founding family.

Remote connectivity software specialist Teamviewer has plunged after announcing a weaker second-quarter billings growth forecast.

Sugar producer Suedzucker has also moved sharply lower after reporting a decrease in first quarter operating profit.

Meanwhile, Telenor Group shares have edged up slightly as the Norwegian telecoms company agreed to sell 100 percent of its mobile operations in Myanmar to M1 Group for a total consideration of $105 million.

Food delivery group Deliveroo has moved sharply higher on the day after raising its forecasts for sales this year.

In economic news, German exports expanded at a marginal pace in May, data from Destatis revealed. Exports grew only 0.3 percent month-on-month in May, following a 0.2 percent rise in April.

At the same time, imports advanced 3.4 percent, reversing a 1.4 percent drop in the previous month.

U.S. Economic Reports

After reporting first-time claims for U.S. unemployment benefits at their lowest level in over a year in the previous week, the Labor Department released a report on Thursday showing initial jobless claims unexpectedly inched higher in the week ended July 3rd.

The Labor Department said initial jobless claims crept up to 373,000, an increase of 2,000 from the previous week’s revised level of 371,000.

The uptick surprised economists, who had expected jobless claims to drop to 350,000 from the 364,000 originally reported for the previous week.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended July 2nd.

Crude oil inventories are expected to decrease by 3.9 million barrels after tumbling by 6.7 million barrels in the previous week.

The Treasury Department is also due to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds at 11 am ET.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of May. Consumer credit is expected to increase by $18.4 billion.

Stocks In Focus

Shares of Charles Schwab (SCHW) are seeing significant pre-market weakness after Goldman Sachs downgraded its rating on the brokerage firm’s stock to Neutral from Buy.

Chinese ride-hailing company Didi (DIDI) may also extend a recent sell-off amid concerns about China’s crackdown on digital companies.

Shares of Coinbase (COIN) are also moving notably lower in pre-market trading amid significant weakness in the cryptocurrency market.

On the other hand, shares of WD-40 (WDFC) are likely to see initial strength after the maintenance and cleaning products company reported better than expected fiscal third quarter results and provided upbeat guidance.