Deal To Avoid Government Shutdown May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to move to the upside following the volatility seen in the previous session.

Easing concerns about a potential U.S. government shutdown may generate early buying interest after Senate Majority Leader Chuck Schumer, D-N.Y., announced an agreement on a stopgap spending bill.

The proposed legislation, which would fund the government through December 3rd, also includes spending on hurricane relief and Afghan refugee resettlement.

Schumer said the Senate would vote on the legislation later today, although the bill would still need to pass the House before a midnight deadline.

Even if a government shutdown is avoided, the U.S. still faces a potential default amid an impasse over raising the debt ceiling.

Treasury Secretary Janet Yellen has warned of “catastrophic economic consequences” if the debt ceiling is not raised by October 18th.

The futures remained positive even after the Labor Department released a report showing initial jobless claims unexpectedly increased for the third straight week in the week ended September 25th.

After ending Tuesday’s trading sharply lower, stocks fluctuated over the course of the trading session on Wednesday. The major averages eventually ended the session mixed, with the tech-heavy Nasdaq edging down to a new two-month closing low.

The Dow and the S&P 500 came under pressure going into the close but held on to modest gains. While the Nasdaq dipped 34.24 points or 0.2 percent to 14,512.44, the Dow rose 90.73 points or 0.3 percent to 34,390.72 and the S&P 500 inched up 6.83 points or 0.2 percent to 4,359.46.

The volatility on Wall Street came as traders kept a close eye on the bond markets following the recent surge by treasury yields.

Stocks initially benefited from a pullback by yields, which inspired traders to go bargain hunting following the sell-off seen on Tuesday.

However, yields moved slightly higher over the course of the session, with the ten-year yield reaching a new three-month closing high.

The turnaround by yields came after Federal Reserve Chair Jerome Powell warned inflation could be held up longer than previously thought due to supply chain problems.

“The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end,” Powell said during a virtual forum with other central bank leaders

“We see those things resolving,” he added but noted, “It’s very difficult to say how big those effects will be in the meantime or how long they will last.”

Treasuries have been trending lower since the Fed signaled last week that it is likely to begin scaling back its asset purchases in the near future.

On the U.S. economic front, the National Association of Realtors released a report showing pending home sales skyrocketed by much more than expected in the month of August.

Gold stocks moved sharply lower on the day, dragging the NYSE Arca Gold Bugs Index down by 2.5 percent to its lowest closing level in well over a year. The sell-off by gold stocks came amid a decrease by the price of the precious metal.

Computer hardware and semiconductor stocks also saw considerable weakness on the day, contributing to the drop by the tech-heavy Nasdaq.

Micron Technology (MU) came under pressure after the chipmaker reported better than expected fiscal fourth quarter results by provided disappointing guidance.

On the other hand, interest rate-sensitive utilities stocks turned in a strong performance, driving the Dow Jones Utilities Average up by 1.4 percent. The average ended the previous session at a six-month closing low.

Notable strength was also visible among pharmaceutical stocks, as reflected by the 1.4 percent gain posted by the NYSE Arca Pharmaceutical Index. The index bounced off its lowest closing level in three months.

Drugmaker Eli Lilly (LLY) posted a strong gain after Citi upgraded its rating on the company’s stock to Buy from Neutral.

Commodity, Currency Markets

Crude oil futures are slumping $1 to $73.83 a barrel after falling $0.46 to $74.83 a barrel on Wednesday. Meanwhile, after sliding $14.60 to $1,722.90 an ounce in the previous session, gold futures are climbing $9.40 to $1,732.30 an ounce.

On the currency front, the U.S. dollar is trading at 111.88 yen versus the 111.96 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1587 compared to yesterday’s $1.1598.

Asia

Asian stocks ended Thursday’s session on a mixed note after the U.S. Senate announced it would vote on a stopgap funding bill later in the day to prevent a government shutdown.

Inflation and tightening concerns persisted despite Federal Reserve Chair Jerome Powell and his counterparts at the European Central Bank, Bank of Japan and Bank of England voicing cautious optimism that supply-chain disruptions driving higher inflation around the world would ultimately prove temporary.

China’s Shanghai Composite Index advanced 31.87 points, or 0.9 percent, to 3,568.17 after the release of mixed economic data.

Activity in China’s manufacturing sector contracted in September due to “low sentiment of high energy-consuming industries,” but the services sector bounced back strongly from coronavirus outbreaks last month, separate reports showed.

A private gauge of China’s manufacturing sector improved in the month after slipping into contraction in August.

Hong Kong’s Hang Seng Index ended down 87.86 points, or 0.4 percent, at 24,575.64 after reports that China Evergrande Group missed paying bond interest due on Wednesday.

Japanese shares ended a tad lower as retail sales and factory activity data disappointed and the ruling Liberal Democratic Party appointed a new leader, who is set to become the country’s new prime minister.

The Nikkei 225 Index dipped 91.63 points, or 0.3 percent, to 29,452.66 but posted a monthly gain of 4.9 percent on hopes for political change and stimulus.

The broader Topix ended 0.4 percent lower at 2,030.16 but closed out September with a monthly rise of 3.5 percent, its biggest since March.

Tech shares led losses on the day, with Tokyo Electron and SoftBank Group ending down 2.6 percent 3 percent, respectively. Advantest fell 1.8 percent and Screen Holdings declined 1.6 percent.

Australian markets posted strong gains to snap a two-session losing streak, with heavyweight miners and financials leading advances.

The benchmark S&P/ASX 200 Index jumped 135.50 points, or 1.9 percent, to finish at 7,332.20 after data showed Australia’s new housing pipeline unexpectedly grew in August. The broader All Ordinaries Index rallied 129.50 points, or 1.7 percent, to close at 7,629.70.

The big four banks rose 2-3 percent, while mining heavyweights BHP and Rio Tinto both jumped around 3.4 percent each. Diversified miner South32 soared 4.1 percent after saying it will increase its stake Mozambique-based Mozal Aluminium.

Zip Co. rose 1.3 percent on news the buy-now-pay-later company is teaming up with technology giant Microsoft to integrate technologies.

Seoul stocks snapped a two-day losing streak even as separate reports showed the country’s industrial output, retail sales and investment declined in August from the previous month.

The benchmark Kospi rose 8.55 points, or 0.3 percent, to 3,068.82 as North Korean leader Kim Jong-un said he is willing to restore severed inter-Korean hotlines by early October. Leading chemical firm LG Chem rose 1.2 percent and chipmaker SK Hynix jumped 3 percent.

Europe

European stocks have turned mixed on Thursday after U.S. Senate Majority Leader Chuck Schumer said that Senators have reached a deal to avoid a government shutdown on October 1.

Later today, the Senate will vote on legislation that will keep the government funded through December 3. Senate Republicans blocked a House plan on Monday amid clashes over raising the debt ceiling.

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

Swedish engineering company Sandvik Group is moving lower after announcing it has completed the acquisition of CNC Software Inc.

Clothing retailer H&M has also moved to the downside despite reporting 14 percent sales growth in the third quarter.

Belgian retailer Colruyt has plunged after lowering its full-year guidance. Online fashion brand Boohoo has also slumped after warning on its profit margins.

Meanwhile, cloud communication services provider Sinch has jumped after it agreed to buy email delivery platform Pathwire for $1.9 billion.

Drinks giant Diageo has also rallied. After reporting a strong start to the fiscal year, the company said that it expects organic operating margins to benefit from a further recovery in sales volumes.

In economic news, the euro zone jobless rate fell to 7.5 percent in August from 7.6 percent in July, Eurostat data showed – matching forecasts.

The German unemployment rate held steady at a seasonally adjusted 5.5 percent in September, data published by the Federal Labor Agency revealed. The expected rate was 5.4 percent.

The U.K. economy grew more than initially estimated in the second quarter on robust consumption, revised data from the Office for National Statistics showed.

Gross domestic product grew 5.5 percent sequentially versus the 4.8 percent growth estimated previously. The expansion has reversed first quarter’s 1.4 percent contraction.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly increased for the third straight week in the week ended September 25th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims edged up to 362,000, an increase of 11,000 from the previous week’s unrevised level of 351,000. The uptick surprised economists, who had expected jobless claims to dip to 335,000.

With the unexpected increase, jobless claims climbed further off the pandemic-era low of 312,000 set in the week ended September 4th.

A separate report from the Commerce Department showed economic growth in the U.S. accelerated by slightly more than previously estimated in the second quarter.

The Commerce Department said real gross domestic product shot up by 6.7 percent in the second quarter compared to the previously reported 6.6 percent spike. Economists had expected the jump in GDP to be unrevised.

The upwardly revised GDP growth in the second quarter reflects a modest acceleration from the 6.3 percent surge seen in the first quarter.

At 9:45 am ET, MNI Indicators is due to release its report on Chicago-area business activity in the month of September. The Chicago business barometer is expected to edge down to 65.0 in September from 66.8 in August, although a reading above 50 would indicate continued growth.

Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen are scheduled to testify before the House Financial Services committee beginning at 10 am ET.

Also at 10 am ET, New York Federal Reserve President John Williams is due to make opening remarks at a Webinar titled “Implications of Federal Reserve Actions in Response to the COVID-19 Pandemic.”

Atlanta Federal Reserve President Raphael Bostic is scheduled to speak on “Economic Mobility as a Tool for Sustainability” and participate in a moderated question-and-answer session before a virtual Georgia Tech Library Scholars Event Network at 11 am ET.

At 11:30 am ET, Philadelphia Federal Reserve President Patrick Harker is due to speak virtually on “The Federal Reserve in Conversation: Developing Regulation, Sustainable Assets and Financial Markets” at the Official Monetary and Financial Institutions Forum.

Chicago Federal Reserve President Charles Evans is scheduled to participate in a virtual moderated question-and-answer session hosted by the Bendheim Center for Finance at 12:30 pm ET.

At 1:05 pm ET, St. Louis Federal Reserve President James Bullard is due to speak via Zoom at the Aspen Institute.

San Francisco Federal Reserve President Mary Daly is scheduled to participate in a virtual fireside chat before the 2021 Idaho Women and Leadership Conference hosted by the Andrus Center for Public Policy at Boise State University at 2:30 pm ET.

Stocks In Focus

Shares of Virgin Galactic (SPCE) are soaring in pre-market trading as the FAA allowed the spaceflight company to resume launches after concluding a probe of a July 11th flight mishap.

Drugmaker Perrigo (PRGO) is also seeing substantial pre-market strength after agreeing to pay 297 million euros as part of a settlement with Irish tax authorities that does not include any interest or penalties.

On the other hand, shares of Bed Bath & Beyond (BBBY) are likely to come under pressure after the retailer reported fiscal second quarter adjusted earnings that came in well below analyst estimates on weaker than expected sales. The company also provided disappointing guidance.

Auto retailer CarMax (KMX) is also likely to see initial weakness after reporting weaker than expected fiscal second quarter earnings.