Lingering Tapering Concerns May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to add to the modest losses posted in the previous session.

Lingering concerns about the Federal Reserve scaling back its asset purchases may weigh on Wall Street, as last Friday’s disappointing job report is not seen as likely to dissuade the central bank from tapering.

Worries about the outlook for inflation may also generate selling pressure amid a sharp increase by the price of crude oil.

Trading activity may be somewhat subdued, however, as some traders may be away from their desks for Columbus Day, also known as Indigenous Peoples’ Day.

While the stock markets will be open, banks, government offices and the bond markets will be closed for the holiday.

Following a three-day winning streak, stocks showed a lack of direction over the course of the trading session on Friday. The major averages spent most of the session bouncing back and forth across the unchanged line.

The major averages finished the day in negative territory, with the Nasdaq underperforming its counterparts. While the Nasdaq fell 74.49 points or 0.5 percent to 14,579.54, the Dow edged down 8.69 points or less than a tenth of a percent to 34,746.25 and the S&P 500 dipped 8.42 points or 0.2 percent to 4,391.34.

Despite closing lower on the day, the major averages all moved to the upside for the week. The Dow jumped by 1.2 percent, the S&P 500 advanced by 0.8 percent and the Nasdaq inched up by 0.1 percent.

The choppy trading on Wall Street came after the Labor Department’s closely watched monthly jobs report showed much weaker than expected job growth in the month of September.

The report said non-farm payroll employment rose by 194,000 jobs in September after climbing by an upwardly revised 366,000 jobs in August.

Economists had expected employment to jump by 500,000 jobs compared to the addition of 235,000 jobs originally reported for the previous month.

Despite the much weaker than expected job growth, the unemployment rate fell to 4.8 percent in September from 5.2 percent in August. The unemployment rate was expected to edge down to 5.1 percent.

With the bigger than expected decrease, the unemployment rate dropped to its lowest level since hitting 4.4 percent in March of 2020.

However, the drop in the employment rate was partly due to a decrease in the size of the labor force, reflecting lingering labor supply constraints.

The data led to some uncertainty about the outlook for monetary policy, although most economists agree the disappointing job growth will not dissuade the Federal Reserve from scaling back stimulus.

“The disappointing 194,000 gain in non-farm payrolls in September probably still counts as ‘decent’ enough for the Fed to begin tapering its asset purchases next month,” said Andrew Hunter, Senior US Economist at Capital Economics.

He added, “But alongside signs that activity growth is slowing sharply, at the same time as worsening labor shortages are putting serious upward pressure on wage growth, it looks set to leave Fed officials in an uncomfortable position over the coming months.”

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Energy stocks saw significant strength, however, with a sharp increase by the price of crude oil contributing to the strength in the sector.

Reflecting the strength in the energy sector, the NYSE Arca Oil Index and the Philadelphia Oil Service Index surged up by 2.7 percent and 2.4 percent, respectively, while the NYSE Arca Natural Gas Index advanced by 1.4 percent.

Transportation and banking stocks also saw some strength on the day, while telecom and commercial real estate stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are spiking $2.21 to $81.56 a barrel after jumping $1.05 to $79.35 a barrel last Friday. Meanwhile, after slipping $1.80 to $1,757.40 an ounce in the previous session, gold futures are edging down $1.10 to $1,756.30 an ounce.

On the currency front, the U.S. dollar is trading at 113.20 yen versus the 112.24 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1564 compared to last Friday’s $1.1569.

Asia

Asian stocks ended Monday’s session on a mixed note as a soft U.S. jobs report did little to allay fears that the Federal Reserve will begin tapering its massive bond purchases as early as next month.

U.S. non-farm payroll employment rose by 194,000 jobs in September after climbing by an upwardly revised 366,000 jobs in August, data showed on Friday. Economists had expected employment to jump by 500,000 jobs.

The unemployment rate fell to 4.8 percent in September from 5.2 percent in August due to a decrease in the size of the labor force, reflecting lingering labor supply constraints.

Chinese shares gave up early gains to end marginally lower after China’s State Administration for Market Regulation (SAMR) hit food delivery giant Meituan with a 3.44 billion yuan ($534.3 million) fine for abusing its dominant position. Hong Kong’s Hang Seng Index jumped 487.24 points, or 2 percent, to 25,325.09.

The South Korean market was closed for Hangul Day holiday. Japanese shares rose for a third day as a weakening yen boosted exporters and new cases of coronavirus infections in the country hit the lowest in almost a year on Sunday, adding to economic reopening hopes.

The Nikkei 225 Index surged up 449.26 points, or 1.6 percent, to 28,498.20, while the broader Topix ended 1.8 percent higher at 1,996.58, marking its second straight winning session.

Air transport stocks led the surge, with ANA Holdings rallying 3.7 percent and Japan Airlines adding 3.5 percent.

Among exporters, Honda Motor, Toyota Motor, Nissan Motor, Mitsubishi Motors and Panasonic jumped 2-7 percent. Sony surged 4.4 percent on reports that it might build a new chip plant with TSMC in Japan. Business-support company Sansan soared 14.4 percent on news of a stock split.

Australian markets ended slightly lower amid allegations Star Entertainment Group turned a blind eye to money laundering at its resorts. Shares of the casino firm slumped almost 23 percent, while Crown Resorts, which is already under intense scrutiny for its own failings, tumbled 3.4 percent on fears of drawn-out regulatory scrutiny for the sector.

The benchmark S&P/ASX 200 Index ended down 20.30 points, or 0.3 percent, at 7,299.80, with strong gains in the mining sector helping limit the downside. The broader All Ordinaries Index slipped 16.20 points, or 0.2 percent, to settle at 7,601.10.

BHP and Rio Tinto rose 1-2 percent on the back of rising iron ore prices. Smaller rival Fortescue Metals Group jumped 5.3 percent after it revealed plans to develop a 1 GW solar PV module manufacturing plant in Australia.

Europe

European stocks are turning in a mixed performance on Monday amid concerns about inflation and higher interest rates.

Traders also awaited cues from the upcoming earnings season to assess the impact of supply chain disruptions and rising costs.

The U.S. earnings season kicks off this week, with JPMorgan reporting on Wednesday, followed by Bank of America, Morgan Stanley and Citigroup on Thursday, and Goldman on Friday.

While the U.K.’s FTSE 100 Index is up by 0.2 percent, the French CAC 40 Index is down by 0.3 percent and the German DAX Index is down by 0.6 percent.

The British pound has drifted higher against its major counterparts in the wake of hawkish comments from Bank of England officials.

BoE policy maker Michael Saunders told The Telegraph on Saturday that inflationary surge “could become more persistent unless monetary policy responds.”

“I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” Saunders said, adding to expectations that the central bank is likely raise rates sooner than previously expected.

Interestingly, Saunders remarks came after a warning from Governor Andrew Bailey that inflation exceeding the BoE’s goal of 2 percent will be damaging the economy.

ABN AMRO Holding NV has advanced. The Dutch lender said it has decided to replace existing four business lines with three new units organized around client segments.

Lender HSBC, Lloyds Banking Group and Barclays have also risen as traders ramp up bets of a November interest rate increase.

CGG, a global geo-science technology provider, has soared in Paris. In its trading update, the company said it expects its third-quarter segment revenue to be about $270 million, up 35 percent, compared to the same period last year.

Ferrexpo has also moved sharply higher after announcing inaugural decarbonisation targets.

On the other hand, online fashion retailer ASOS has shown a substantial move to the downside after a profit warning.

LEG Immobilien shares have also fallen after the German company entered into a letter of intent for the acquisition of about 15,500 residential units of Adler Group.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today due to the holiday.

At 6 pm ET, Chicago Federal Reserve President Charles Evans is scheduled to give introductory remarks before the 2021 Lawrence R. Klein Award ceremony.