Concerns About Tapering Likely To Lead To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Thursday, with stocks likely to extend the pullback seen over the two previous sessions.

The downward momentum on Wall Street comes as traders continue to digest the minutes of the Federal Reserve’s latest monetary policy meeting.

The minutes indicated that most Fed officials currently expect economic conditions to warrant scaling back the central bank’s asset purchase program before the end of the year.

The Fed restarted its asset purchase program back in March of 2020 and is currently purchasing bonds at a pace of $120 billion per month.

The asset purchase program has helped to prop up the markets throughout much of the coronavirus pandemic, with stocks reaching record highs even as the economy struggled.

While the tapering of the asset purchase was to be expected as the economy recovers, traders still seem likely to use the news as an opportunity to cash in on the strength in the markets.

Potentially adding evidence to Fed officials’ view that the economy is close to the goal of maximum employment, the Labor Department released a report this morning showing initial jobless claims fell to a new pandemic-era low in the week ended August 14th.

Stocks saw considerable volatility following the release of the minutes of the latest Federal Reserve meeting on Wednesday before moving sharply lower going into the close. With the late-day sell-off, the major averages extended the notable drop seen in the previous session.

The major averages finished the session just off their worst levels of the day. The Dow plunged 382.59 points or 1.1 percent to 34,960.69, the Nasdaq slumped 130.27 points or 0.9 percent to 14,525.91 and the S&P 500 tumbled 47.81 points or 1.1 percent to 4,400.27.

The sell-off on Wall Street came as the Fed minutes revealed most officials at the central bank’s July monetary policy meeting believe it will be appropriate to begin tapering asset purchases this year.

The expectation of tapering asset purchases this year comes as most participants saw the “substantial further progress” criterion as satisfied with respect to the price stability goal and as close to being satisfied with respect to maximum employment.

However, the minutes of the July 27 to 28 meeting showed there was still some disagreement over the timing of tapering the asset purchases.

While some believe tapering could begin in the “coming months,” others felt a reduction in the pace of asset purchases would be more likely to become appropriate next year.

Participants favoring waiting until next year saw prevailing conditions in the labor market as not being close to meeting the “substantial further progress” standard or because of uncertainty about the degree of progress toward the price stability goal.

The Fed has repeatedly pledged to maintain its asset purchases at current levels until “substantial further progress” has been made toward both its maximum employment and price stability goals.

The minutes showed participants also expressed a range of views on the appropriate pace of tapering asset purchases once economic conditions satisfied the “substantial further progress” criterion.

Reflecting the recent surge in new cases of the delta variant of the coronavirus, several participants noted their views on the appropriate path of asset purchases could change if the economic effects of the new strains of the virus turn out to be notably worse than anticipated.

With the Fed pledging to provide advance notice before making changes to its asset purchase program, traders are likely to pay close attention to the statement following the next monetary policy meeting in September.

Gold stocks moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 2.8 percent to its lowest closing level in well over a year. The sell-off by gold stocks came amid a modest decrease by the price of the precious metal.

Considerable weakness also emerged among oil stocks, as reflected by the 2.1 percent slump by the NYSE Arca Oil Index. The index ended the session at six-month closing low.

Oil stocks moved lower along with the price of crude oil, which closed lower for the fifth straight session.

Natural gas, biotechnology, semiconductor and brokerage stocks also saw significant weakness, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are tumbling $1.93 to $63.53 a barrel after slumping $1.13 to $65.46 a barrel on Wednesday. Meanwhile, after slipping $3.40 to $1,784.40 an ounce in the previous session, gold futures are rising $5.50 to $1,789.90 an ounce.

On the currency front, the U.S. dollar is trading at 109.69 yen versus the 109.77 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1698 compared to yesterday’s $1.1711.

Asia

Asian stocks tumbled on Thursday, with renewed worries about slowing global growth and uncertainty over Federal Reserve policy moves keeping investors nervous.

Chinese and Hong Kong shares ended lower after China published detailed rules aimed at tackling unfair competition and companies’ handling of critical data.

China’s Shanghai Composite Index dropped 19.73 points, or 0.6 percent, to 3,465.55, while Hong Kong’s Hang Seng Index plunged 550.68 points, or 2.1 percent, to 25,316.33.

Tencent Holdings declined 3.4 percent in Hong Kong after saying its quarterly revenue grew at the slowest pace since early 2019.

Japanese shares fell sharply to hit a seven-month low after reports emerged that Toyota Motor will cut its global output for September by 40 percent due to chip shortages.

The Nikkei 225 Index slumped 304.74 points, or 1.1 percent, to 27,281.17, while the broader Topix closed 1.4 percent lower at 1,897.19.

Toyota Motor shares tumbled 4.4 percent, while Subaru retreated 2.8 percent, Honda Motor gave up 2.7 percent, Nissan Motor declined 2.6 percent and Mitsubishi Motors shed 2.4 percent. Oil companies Inpex and Japan Petroleum fell 3.7 percent and 2.20 percent, respectively.

Australian markets ended lower as a slump in commodity prices and COVID-19 woes overshadowed upbeat jobs data.

The unemployment rate in Australia came in at a seasonally adjusted 4.6 percent in July, well beneath expectations for 5.0 percent and down from 4.9 percent in June. The economy added 2,200 jobs last month versus expectations for the loss of 46,200 jobs.

The benchmark S&P/ASX 200 Index fell 37.50 points, or half a percent, to 7,464.60, extending losses to a fourth consecutive session.

The broader All Ordinaries index ended down 35.40 points, or 0.5 percent, at 7,735.30 as Sydney continued to break records for new daily coronavirus cases and the state of Victoria reported its biggest rise in COVID-19 caseload this year.

Miners fell for the fifth day running, with BHP, Fortescue Metals Group and Rio Tinto all tumbling around 6 percent. Origin Energy slumped 4.1 percent after it posted a A$2.29 billion full-year loss.

Treasury Wine Estates dropped 1.5 percent after its fiscal 2021 profit missed analysts’ estimates. Gold miner Evolution Mining advanced 1.8 percent after it reported a 14 percent rise in its annual net profit.

Casino outfit The Star Entertainment jumped 6.8 percent after it swung back into the black during the 2021 financial year.

Seoul stocks slumped as investors pondered the U.S. Federal Reserve’s stimulus-tapering timeline. The benchmark Kospi plunged 61.10 points, or 1.9 percent, to settle at 3,097.83. That marked the index’s biggest daily loss since February 26 and the lowest closing level since early April.

Samsung Electronics, SK Hynix and Naver all fell over 1 percent, while automaker Hyundai Motor lost 2.8 percent. On the positive side, Kakao Bank surged 8.9 percent.

Europe

European stocks have fallen sharply on Thursday as miners and energy companies slump amid worries about a slowdown in global growth in the second half of the year.

Uncertainties about the Fed’s tapering plans also dented sentiment after minutes of the Fed’s July meeting showed there was broad consensus among policymakers to reduce their monthly bond purchases later this year.

While the French CAC 40 Index has plummeted by 2.7 percent, the German DAX Index and the U.K.’s FTSE 100 Index are down by 1.9 percent and 1.8 percent, respectively.

Swiss building materials supplier Geberit has declined. The producer and supplier of sanitary ware and bathroom ceramics warned about rising raw materials prices after reporting higher than expected first-half earnings.

TotalEnergies, BP Plc and Royal Dutch Shell have also plunged as oil extended losses on data showing a surprise build in U.S. gasoline inventories.

Shares of McBride have also plummeted. The manufacturer of private label and contract manufactured products said it now expects fiscal 2022 adjusted profit before tax to be 55-65 percent lower than current market consensus for full year 2021.

Travel and leisure stocks have also fallen amid a surge in cases of the Delta variant of the coronavirus. EasyJet, TUI AG and IAG, the owner of British Airways are posting notable losses.

Drug maker AstraZeneca has also fallen after its chief executive Pascal Soriot was named Britain’s highest paid company boss in 2020.

Volkswagen has also moved lower after the German carmaker said it may need to cut production further due to a semiconductor supply crunch.

U.S. Economic Reports

A report released by the Labor Department on Thursday showed a continued decrease in first-time claims for U.S. unemployment benefits in the week ended August 14th.

The Labor Department said initial jobless claims fell to 348,000, a decrease of 29,000 from the previous week’s revised level or 377,000.

Economists had expected jobless claims to edge down to 363,000 from the 375,000 originally reported for the previous week.

Initial jobless claims decreased for the fourth consecutive week, falling to their lowest level since hitting 256,000 in the week ended March 14, 2020.

The Federal Reserve Bank of Philadelphia released a separate report showing an unexpected slowdown in the pace of growth in regional manufacturing activity.

The Philly Fed said its diffusion index for current activity slipped to 19.4 in August from 21.9 in July. A positive reading still indicates growth, but economists had been expecting the index to inch up to 23.0.

Looking ahead, the Philly Fed said most future indexes moderated this month but continue to indicate that the firms expect growth over the next six months.

At 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of July. Economists expect the leading economic index to climb by 0.8 percent.

The Treasury Department is due to announce the details of this month’s auctions of two-year, five-year and seven-year notes at 1 pm ET.

Stocks In Focus

Shares of Robinhood (HOOD) are moving sharply lower in pre-market trading after the stock trading app reported strong second quarter revenue growth but warned of a slowdown in trading activity in the current quarter.

Networking company Cisco Systems (CSCO) may also move to the downside after reporting better than expected fiscal fourth quarter earnings but provided disappointing guidance.

On the other hand, shares of Bath & Body Works (BBWI) are seeing significant pre-market strength after reporting second quarter results that exceeded analyst estimates.

Department store retailer Macy’s (M) may also jump after reporting better than expected second quarter results, raising its annual sales forecast and announcing a new share repurchase program.