Powell Comments May Lead To Initial Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to move back to the upside after yesterday’s pullback.

Early buying interest may be generated in reaction to Federal Reserve Chair Jerome Powell’s prepared remarks before the House Financial Services Committee.

Powell reiterated the belief that “substantial further progress” towards the Fed’s goals of maximum employment and price stability is “still a ways off,” suggesting the central bank is not likely to begin tightening monetary policy anytime soon.

The Fed chief also once again stressed that the Fed will provide “advance notice” before announcing any changes to its asset purchase program.

Powell acknowledged that inflation has increased notably and will likely remain elevated in coming months but predicted inflation would moderate as the effects of the production bottlenecks unwind.

The comments about inflation comes as the Labor Department released a report showing producer prices jumped by much more than expected in the month of June.

On the earnings front, shares of Citigroup (C) are seeing pre-market strength after the financial giant reported better than expected second quarter earnings.

Delta Air Lines (DAL) may also move to the upside after the airline reported a narrower than expected second quarter loss on revenues that exceeded analyst estimates.

Meanwhile, shares of Bank of America (BAC) may see initial weakness after the financial giant reported second quarter earnings that beat expectations but on weaker than expected revenues.

After ending Monday’s trading modestly higher, stocks moved back to the downside during trading on Tuesday. With the drop on the day, the major averages pulled back off Monday’s record closing highs.

The major averages all finished the day in negative territory. The Dow slipped 107.39 points or 0.3 percent to 34,888.79, the Nasdaq fell 55.59 points or 0.4 percent to 14,677.65 and the S&P 500 dipped 15.42 points or 0.4 percent to 4,369.21.

Stocks moved lower in afternoon trading as treasury yields rose after the Treasury Department revealed this month’s auction of $24 billion worth of thirty-year bonds attracted below average demand.

The thirty-year bond auction drew a high yield of 2.000 percent and a bid-to-cover ratio of 2.19, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.33.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The lower close on Wall Street also came after the Labor Department released a report showing consumer prices in the U.S. saw the biggest monthly increase in thirteen years in the month of June.

The Labor Department said its consumer price index jumped by 0.9 percent in June after climbing by 0.6 percent in May. Economists had expected consumer prices to rise by 0.5 percent.

The bigger than expected increase in consumer prices reflected the biggest advance since prices surged up by 1.0 percent in June of 2008.

Excluding food and energy prices, core consumer prices still jumped by 0.9 percent in June following a 0.7 percent increase in May. Core prices were expected to rise by 0.4 percent.

The annual rate of consumer price growth accelerated to 5.4 percent in June from 5 percent in May, reaching the highest level since a matching spike in August of 2008.

Core consumer prices were up by 4.5 percent year-over-year in June, reflecting an acceleration from the 3.8 percent jump in May. Core prices saw the biggest annual increase since November of 1991.

“The surge in demand triggered by the easing of Corona-related restrictions is causing significant bottlenecks and price increases in parts of the economy,” said Dr. Christoph Balz, Senior Economist at Commerzbank. “Under these circumstances, the Fed’s tapering of its bond purchases is drawing closer.”

On the earnings front, financial giants JPMorgan Chase (JPM) and Goldman Sachs (GS) both reported quarterly results that exceeded analyst estimates on both the top and bottom lines.

Snack and beverage giant PepsiCo (PEP) also reported better than expected second quarter results and raised its full-year guidance.

Airline stocks moved sharply lower over the course of the session, resulting in a 2.7 percent nosedive by the NYSE Arca Airline Index.

Substantial weakness also emerged among housing stocks, as reflected by the 2.4 percent slump by the Philadelphia Housing Sector Index.

Computer hardware stocks also showed a significant move to the downside on the day, dragging the NYSE Arca Computer Hardware Index down by 2 percent.

Oil service, tobacco and banking stocks also saw considerable weakness, while gold stocks moved notably higher

Commodity, Currency Markets

Crude oil futures are slipping $0.21 to $75.04 a barrel after jumping $1.15 to $75.25 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,830.50, up $20.60 compared to the previous session’s close of $1,809.90. On Tuesday, gold rose $4.

On the currency front, the U.S. dollar is trading at 110.19 yen compared to the 110.63 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1820 compared to yesterday’s $1.1776.

Asia

Asian stocks fell broadly on Wednesday as a sharp increase in U.S. consumer prices in June fanned market worries that the Federal Reserve may raise rates sooner than expected.

Investors awaited Fed Chair Jerome Powell’s congressional testimony for any hints on the central bank’s monetary policy outlook.

Chinese stocks fell sharply after the U.S. government strengthened its warnings to businesses about the growing risks of having supply chain and investment links to China’s Xinjiang region. Investors also reacted to comments from China’s premier that the country will take “comprehensive measures” to ease rising commodity prices.

The benchmark Shanghai Composite Index slumped 38.02 points, or 1.1 percent, to 3,528.50, while Hong Kong’s Hang Seng Index ended down 175.95 points, or 0.6 percent, at 27,787.46.

Japanese shares fell as investors awaited Powell’s testimony for his comments about rising price pressures and monetary support going forward.

The Nikkei 225 Index ended down 109.75 points, or 0.4 percent, at 28,608.49, while the broader Topix slipped 0.2 percent to settle at 1,963.16.

Shipping firms lost ground, with Kawasaki Kisen and Mitsui OSK Lines falling around 4 percent each. Aviation company ANA Holdings declined 2.4 percent and Japan Airlines tumbled 3.2 percent.

Film company Toho jumped 11.1 percent after reporting robust earnings for the first half of 2021.

Australian markets eked out modest gains, with miners and energy stocks pacing the gainers. The benchmark S&P/ASX 200 Index rose 22.60 points, or 0.3 percent, to 7,354.70, while the broader All Ordinaries Index ended up 19.60 points, or 0.3 percent, at 7,631.80.

Miners ended mixed despite an overnight jump in Chinese iron ore futures. Lithium-boron supplier Ioneer jumped 4.9 percent. Technology stocks slumped, with buy-now-pay-later giant Afterpay plunging 9.5 percent.

Zip Co. plummeted 11.4 percent and Sezzle lost 10.3 percent after a Bloomberg report that Apple is testing a service to let users pay for Apple Pay purchases with interest-free installments.

National Australia Bank ended little changed after confirming it was in talks with Citigroup to potentially buy the U.S. bank’s Australian consumer business.

In economic news, consumer confidence in Australia remains firm in July, the latest survey from Westpac Bank showed as its sentiment index gained 1.5 percent to a score of 108.8, up from 107.2 in June.

Seoul stocks ended slightly lower to snap a two-day winning streak as U.S. inflation jitters overshadowed domestic data indicating a labor market recovery from the pandemic. The Kospi dropped 6.57 points, or 0.2 percent, to close at 3,264.81.

Europe

European stocks have declined on Wednesday, as investors fret about the impact higher prices will have on economies around the world.

Official data showed earlier today that U.K. consumer inflation rose to 2.5 percent in June from 2.1 percent in May. The rate was forecast to climb to 2.2 percent. The annual growth was largely driven by prices of food, second-hand cars and clothing and footwear.

On a monthly basis, consumer prices gained 0.5 percent following a 0.6 percent rise in May. The expected rate was 0.2 percent.

Weak Eurozone industrial production data has also dented sentiment. Industrial output fell 1 percent on a monthly basis in May, reversing a revised 0.6 percent increase in April, Eurostat said. The pace of decline exceeded the economists’ forecast of -0.2 percent.

Meanwhile, after U.S. inflation data blew past Wall Street’s expectations, investors now wait for guidance from Fed Chairman Jerome Powell, who delivers his semi-annual testimony on monetary policy and the economy today and tomorrow.

While the German DAX Index is just below the unchanged line, the French CAC 40 Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is down by 0.4 percent.

Italian fashion company Brunello Cucinelli has edged down slightly despite raising its 2021 sales forecast for the second time this year.

Travel & leisure stocks are also losing ground, with TUI tumbling on reports the world’s largest holiday company has cancelled more holidays until August.

German airline Lufthansa has also fallen after saying passenger numbers are currently around 40 percent of pre-pandemic levels.

On the other hand, Swedish telecoms operator Tele2 has jumped after it reported an 8 percent increase in quarterly core earnings.

Fashion house Hugo Boss has also rallied. The company remains confident that its overall business recovery will continue in the second half of 2021, despite the persisting uncertainties regarding the further development of the pandemic.

U.S. Economic Reports

After yesterday’s report showing the biggest increase in U.S. consumer prices in thirteen years, the Labor Department released a report on Wednesday showing U.S. producer prices also jumped by much more than expected in the month of June.

The Labor Department said its producer price index for final demand surged up by 1.0 percent in June after climbing by 0.8 percent in May. Economists had expected producer prices to rise by 0.6 percent.

Excluding prices for food, energy, and trade services, core producer prices increased by 0.5 percent in June following a 0.7 percent advance in the previous month.

The report also showed the annual rate of producer price growth accelerated to 7.3 percent in June from 6.6 percent in May, reaching the highest level since 12-month data were first calculated in November of 2010.

Core producer prices were up by 5.5 percent year-over-year in June, reflecting an uptick from the 5.3 percent jump in May.

The annual surge in core prices also reflects the largest advance since 12-month data were first calculated in August of 2014.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended July 9th.

Crude oil inventories are expected to decrease by 4.4 million barrels after tumbling by 6.9 million barrels in the previous week.

Federal Reserve Chair Jerome Powell is due to testify before a virtual House Financial Services Committee hearing beginning at 12 pm ET.

At 1:30 pm ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a panel during a virtual Urban Institute AAPI Visibility in Federal Data event.

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts, at 2 pm ET.

Stocks In Focus

Shares of Jefferies (JEF) are seeing significant premarket strength following news Japan’s Sumitomo Mitsui Financial Group will acquire up to a 4.9 percent stake in the financial services company as part of a strategic alliance.

Apparel maker Lululemon (LLU) may also move to the upside after Goldman Sachs initiated coverage of the company’s stock with a Buy rating and added it to the firm’s “Conviction Buy” list.

On the other hand, shares of Peleton (PTON) may come under pressure after Wedbush Securities downgraded its rating on the fitness equipment maker’s stock to Neutral from Outperform.