Early October Volatility Likely To Continue On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to extend the roller-coaster ride seen over the first few trading days of October.

Lingering concerns about inflation and the Federal Reserve scaling back stimulus may lead to a pullback on Wall Street following the rebound seen in the previous session.

Traders are also keeping an eye on developments in Washington, where lawmakers currently remain at an impasse over raising the debt ceiling.

Treasury Secretary Janet Yellen has warned the U.S. could face a recession if Congress fails to raise the debt ceiling by October 18th.

“It would be catastrophic to not pay the government’s bills, for us to be in a position where we lacked the resources to pay the government’s bills,” Yellen said in an interview on CNBC. “I fully expect it would cause a recession as well.”

However, the major index futures have regained some ground following the release of a report from payroll processor ADP showing stronger than expected private sector job growth in the month of September.

After moving sharply lower on Monday, stocks showed a strong move back to the upside during trading on Tuesday. The major averages all showed strong upward moves on the day.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow advanced 311.75 points or 0.9 percent to 34,314.67, the Nasdaq surged 178.35 points or 1.3 percent to 14,433.83 and the S&P 500 jumped 45.26 points or 1.1 percent to 4,345.72.

The rally on Wall Street came as traders looked to pick up stocks at reduced levels following the sell-off seen on Monday.

The tech-heavy Nasdaq ended Monday’s session at its lowest closing level in over three months, while the S&P 500 dropped to a more than two-month closing low.

Adding to the positive sentiment, the Institute for Supply Management released a report showing activity in the U.S. service sector unexpectedly grew at a slightly faster pace in the month of September.

The ISM said its services PMI inched up to 61.9 in September from 61.7 in August, with a reading above 50 indicating growth in the service sector. Economists had expected the index to edge down to 60.0.

“The slight uptick in the rate of expansion in the month of September continued the current period of strong growth for the services sector,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.

He added, “However, ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply.”

A separate report released by the Commerce Department showed the U.S. trade deficit widened by much more than expected in the month of August.

The Commerce Department said the trade deficit widened to $73.3 billion from a revised $70.3 billion in July. Economists had expected the trade deficit to increase to $70.5 billion from the $70.1 billion originally reported for the previous month.

The wider trade deficit came as the value of imports jumped by 1.4 percent to $287.0 billion, while the value of exports rose by 0.5 percent to $213.7 billion.

Brokerage stocks showed a substantial move to the upside on the day, driving the NYSE Arca Broker/Dealer Index up by 2.2 percent.

Significant strength was also visible among transportation stocks, as reflected by the 1.8 percent gain posted by the Dow Jones Transportation Average.

Software, semiconductor and banking stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are falling $0.71 to $78.22 a barrel after jumping $1.31 to $78.93 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,759.90, down $1 compared to the previous session’s close of $1,760.90. On Tuesday, gold fell $6.70.

On the currency front, the U.S. dollar is trading at 111.36 yen compared to the 111.46 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1542 compared to yesterday’s $1.1598.

Asia

Asian stocks fell on Wednesday as the impasse in the U.S. Congress on raising the debt limit and avoiding a default before the October 18th deadline added to worries over inflation and higher interest rates.

Chinese markets remained closed for Golden Week holidays. Hong Kong’s Hang Seng Index ended down 137.66 points, or 0.6 percent, at 23,966.49 after a survey showed the country’s private sector expanded at a slower pace in September.

Japanese shares fell sharply on concerns over higher interest rates, China’s slowdown and modest approval ratings for the country’s new prime minister.

The Nikkei 225 Index slumped 293.25 points, or 1.1 percent, to 27,528.87 – closing at a more than six-week low amid weakness among heavyweights. The broader Topix closed 0.3 percent lower at 1,941.91.

Tokyo Electron, SoftBank Group and Fast Retailing lost 2-3 percent, while banks Mitsubishi UFJ Financial, Mizuho Financial and Sumitomo Mitsui Financial climbed 2-4 percent on hopes higher rates would boost their profits.

Australian markets fell, with banks leading the losses after the banking regulator tightened up home loan rules and flagged possible further action, saying risks to financial stability could be building.

The benchmark S&P/ASX 200 Index dropped 41.90 points, or 0.6 percent, to 7,206.50, while the broader All Ordinaries Index ended down 40.30 points, or 0.5 percent, at 7,496.20. The big four banks fell between 0.6 percent and 2 percent.

Buy-now-pay-later giant Afterpay jumped 3 percent and software solution provider TechnologyOne added 1.8 percent after tech stocks such as Microsoft and Apple spearheaded a strong rebound in growth stocks on Wall Street overnight.

Seoul stocks fell for a third day running after data showed inflation in the country remained above the central bank’s annual 2 percent target for a sixth consecutive month in September.

Concerns over the debt crises of Chinese property developers and the lack of progress in talks between U.S. lawmakers to raise the debt ceiling also weighed on markets.

The benchmark Kospi tumbled 53.86 points, or 1.8 percent, to close at 2,908.31, marking the lowest finish since December 30th last year. Samsung Electronics, SK Hynix, Samsung Biologics and Celltrion lost 1-3 percent.

Europe

European stocks have moved sharply lower during trading on Wednesday amid concerns over inflation and higher interest rates.

Earlier in the day, New Zealand’s central bank hiked interest rates for the first time in seven years and signaled further tightening so as to maintain low inflation and support maximum sustainable employment.

In Europe, the Romania central bank hiked rates on Tuesday and Poland is expected to follow suit on Thursday. Weak regional data also stoked further worries about growth.

German factory orders plunged 7.7 percent on a monthly basis in August, reversing a revised 4.9 percent spike in July as supply bottlenecks affected makers of cars and car parts in particular, data from Destatis revealed earlier in the day. Orders were forecast to drop by 2.1 percent.

The volume of Eurozone retail sales rose 0.3 percent sequentially in August, while in July it fell by a downwardly revised 2.6 percent, the European Union’s statistics agency Eurostat said. Economists had forecast a 0.8 percent increase for August.

While the German DAX Index has tumbled by 1.6 percent, the French CAC 40 Index is down by 1.5 percent and the U.K.’s FTSE 100 Index is down by 1.4 percent.

Ferrexpo, a Swiss iron ore company with assets in Ukraine, has slumped. The company reported that its third quarter total iron ore pellet production increased 2 percent year-on-year to 2.6 million tons.

Thales shares have also fallen as Google Cloud announced a strategic agreement with the French technology company to co-develop a sovereign hyperscale cloud offering for France.

German telecommunications firm Deutsche Telekom has also plunged after Goldman Sachs reportedly sold shares worth 1.58 billion euros ($1.83 billion) in a SoftBank structured finance deal.

Imperial Brands has also tumbled. While issuing a pre-close trading update, the tobacco company stated that it remains on track to deliver its full-year results in line with expectations.

Meanwhile, Tesco has soared after the supermarket chain raised its full-year outlook and launched a 500-million-pound share buyback program.

U.S. Economic Reports

Employment in the U.S. private sector increased by more than expected in the month of September, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment jumped by 568,000 jobs in September after rising by a downwardly revised 340,000 jobs in August.

Economists had expected private sector employment to climb by 428,000 jobs compared to the addition of 374,000 jobs originally reported for the previous month.

At 9 am ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to speak on “Rural Economics” before the Georgia Chamber American Rural Prosperity Summit.

The Energy Information Administration is due to release its report on oil inventories in the week ended October 1st at 10:30 am ET.

Crude oil inventories are expected to edge down by 0.4 million barrels after climbing by 4.6 million barrels in the previous week.

At 11:30 am ET, Bostic is scheduled to participate in a moderated conversation on “Public Leadership” before the University of Georgia Mason Public Leadership Lecture event.

Stocks In Focus

Shares of Manchester United (MANU) are moving sharply lower in pre-market trading after the soccer club announced an offering of 9.5 million shares by the Glazer family.

Beer, wine and spirits maker Constellation Brands (STZ) may also move to the downside after reporting weaker than expected fiscal second quarter earnings.

On the other hand, shares of Acuity Brands (AYI) are likely to see initial strength after the lighting and building management firm reported fiscal fourth quarter earnings that beat analyst estimates.