Profit Taking May Lead To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to give back ground after trending higher over the past few sessions.

Profit taking may contribute to initial weakness on Wall Street, with traders cashing in on recent strength in the markets.

The Dow and the S&P 500 reached new one-month closing highs last Friday, although there continues to be some concern about the near-term outlook for the markets.

Worries about the global economic outlook may also weigh on the markets after data showed the Chinese economy hit its slowest pace of growth in a year in the third quarter, hurt by power shortages, supply bottlenecks, sporadic Covid-19 outbreaks and major wobbles in the property sector.

China’s GDP expanded 4.9 percent year-on-year in the third quarter of 2021, the National Bureau of Statistics said, missing forecasts for 5.2 percent and down sharply from 7.9 percent in the three months prior.

The downward momentum on Wall Street also comes amid a continued increase by Treasury yields, with the yield on the benchmark ten-year note climbing to its highest level in over four months.

Treasury yields are moving higher as the Federal Reserve plans to begin scaling back its bond purchases as early as next month.

Stocks moved mostly higher during trading on Friday, extending the rally seen over the course of Thursday’s session. With the continued upward move, the Dow and the S&P 500 reached new one-month closing highs.

The major averages all closed firmly positive, although the Dow outperformed its counterparts. The Dow shot up 382.20 points or 1.1 percent to 35,294.76, while the Nasdaq rose 73.91 points or 0.5 percent to 14,897.34 and the S&P 500 climbed 33.11 points or 0.1 percent to 4,471.37.

With the advance seen over the past few sessions, the major averages more than offset the slump seen earlier in the week. For the week, the Nasdaq surged up by 2.2 percent, while the Dow and the S&P 500 jumped by 1.6 percent and 1.8 percent, respectively.

Another batch of upbeat earnings news contributed to the continued strength on Wall Street, with financial giant Goldman Sachs (GS) posting a strong gain after reporting much better than expected third quarter results.

Shares of Alcoa (AA) also moved sharply higher after the aluminum producer reported third quarter results that exceeded analyst estimates on both the top and bottom lines.

Buying interest was also generated in reaction to a report from the Commerce Department showing an unexpected increase in U.S. retail sales in the month of September.

The report said retail sales climbed by 0.7 percent in September after jumping by an upwardly revised 0.9 percent in August.

The continued sales growth came as a surprise to economists, who had expected retail sales to edge down by 0.2 percent compared to the 0.7 percent increase originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales advanced by 0.8 percent in September after spiking by an upwardly revised 2.0 percent in August.

Economists had expected ex-auto sales to rise by 0.5 percent compared to the 1.8 percent jump originally reported for the previous month.

A separate report from the Labor Department showed import prices in the U.S. increased by less than expected in the month of September.

The Labor Department said import prices rose by 0.4 percent in September after dipping by 0.3 percent in August. Economists had expected import prices to climb by 0.6 percent.

The report also showed export prices inched up by 0.1 percent in September after rising by 0.4 percent in the previous month. Export prices were also expected to increase by 0.6 percent.

Meanwhile, traders largely shrugged off a report from the University of Michigan unexpectedly showing a modest deterioration in U.S. consumer sentiment in the month of October.

The report showed the consumer sentiment index slipped to 71.4 in October from 72.8 in September. The dip surprised economists, who had expected the index to inch up to 73.1.

Oil service stocks showed a strong move to the upside on the day, benefiting from a notable increase by the price of crude oil.

With crude for November delivery jumping $0.97 to $82.28 a barrel, the Philadelphia Oil Service Index surged up by 2.1 percent to a three-month closing high.

Significant strength was also visible among transportation stocks, as reflected by the 1.7 percent gain posted by the Dow Jones Transportation Average. The average reached its best closing level in four months.

Retail stocks also turned in a strong performance on the heels of the upbeat retail sales data, driving the Dow Jones U.S. Retail Index up by 1.6 percent.

Financial stocks also saw notable strength on the day, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index both climbing by 1.4 percent.

Along with Goldman Sachs, Charles Schwab (SCHW) helped lead the sector higher after reporting better than expected third quarter results.

Commodity, Currency Markets

Crude oil futures are surging $1.30 to $83.58 a barrel after jumping $0.97 to $82.28 a barrel last Friday. Meanwhile, after plunging $29.60 to $1,768.30 an ounce in the previous session, gold futures are slipping $2.20 to $1,766.10 an ounce.

On the currency front, the U.S. dollar is trading at 114.33 yen versus the 114.13 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1602 compared to last Friday’s $1.1601.

Asia

Asian stocks fluctuated before ending on a subdued note Monday after data showed the Chinese economy and factory output slowed faster than expected.

Inflation concerns and uncertainty over the fate of heavily indebted property firm China Evergrande Group also kept underlying sentiment cautious.

Chinese shares ended a tad lower after data showed the country’s economy hit its slowest pace of growth in a year in the third quarter, hurt by power shortages, supply bottlenecks, sporadic Covid-19 outbreaks and major wobbles in the property sector.

China’s Shanghai Composite Index eased 4.23 points, or 0.1 percent, to 3,568.14, while Hong Kong’s Hang Seng Index reversed early losses to finish 0.3 percent higher at 25,409.75.

China’s GDP expanded 4.9 percent year-on-year in the third quarter of 2021, the National Bureau of Statistics said, missing forecasts for 5.2 percent and down sharply from 7.9 percent in the three months prior.

The bureau also said that China’s industrial production gained an annual 3.1 percent in the month, missing forecasts for 4.5 percent and slowing from 5.1 percent in August.

Meanwhile, Chinese etail sales picked up an annual 4.4 percent, beating forecasts for 3.3 percent and up from 2.5 percent in the previous month.

Fixed asset investment was up 7.3 percent year-on-year, missing expectations for 7.9 percent and down from 8.9 percent a month earlier. The jobless rate in September was 4.9 percent, down from 5.1 percent in August.

Japanese shares ended a choppy session lower, although automakers advanced after Toyota Motor set targets for November production levels above those seen in recent years.

The Nikkei average ended down 43.17 points, or 0.2 percent, at 29,025.46 after posting its first weekly gain in four last week. The broader Topix closed 0.2 percent lower at 2,019.23.

Toyota Motor gained 2.3 percent after indicating it would ramp up production from December. Honda Motor rose 1.4 percent, Subaru jumped 2 percent, Suzuki Motor climbed 2.4 percent and component manufacturer Denso rallied 3.2 percent.

Rising commodity prices lifted resource-related shares, with Inpex and Mitsui Mining jumping about 5 percent.

Australian markets rose for the third straight day to hit a three-week high, with banks and commodity-related stocks leading the advance. The benchmark S&P/ASX 200 Index inched up 19.10 points, or 0.3 percent, to 7,381.10, while the broader All Ordinaries index ended up 15.50 points, or 0.2 percent, at 7,689.70.

Trading in Aristocrat Leisure shares was halted as the company made a $5 billion acquisition offer for U.K. gaming software company Playtech. Senex Energy soared almost 15 percent after South Korea’s POSCO International sweetened its offer for the natural gas company to $814.8 million.

Seoul stocks snapped a three-day rally on worries over inflation and disappointing Chinese growth data. The benchmark Kospi slipped 8.38 points, or 0.3 percent, to settle at 3,006.68, as oil prices reached new highs and data showed China’s economic growth in the third quarter hit a 1-year low. Chipmaker SK Hynix and petrochemical firm LG Chem both fell over 1 percent.

Europe

European stocks have moved mostly lower on Monday as surging oil prices feed inflation concerns and weak data from China keeps worries around slowing economic growth alive. Oil prices hit new multi-year peaks, adding to fears over surging inflation.

Data showed earlier in the day that China’s economy hit its slowest pace of growth in a year in the third quarter, hurt by power shortages, supply chain bottlenecks and major wobbles in the property market.

While the French CAC 40 Index has slumped by 1 percent, the German DAX Index is down by 0.8 percent and the U.K.’s FTSE 100 Index is down by 0.5 percent.

The British pound sterling touched a 20-month high versus the euro after Bank of England Governor Andrew sent a fresh signal that the central bank is gearing up to raise interest rates for the first time since the onset of the coronavirus crisis.

Shares of Philips Electronics NV have fallen. The Dutch consumer electronics giant trimmed its outlook for fiscal 2021 after reporting weak EBITA and sales in its third quarter.

China-exposed luxury stocks including LVMH and Kering have also slumped after Chinese President Xi Jinping’s call to expand a consumption tax.

On the other hand, British gaming company Playtech has soared after it agreed a 2.1-billion-pound takeover offer by Australia’s Aristocrat Leisure.

National Grid have also risen. Ahead of the release of its first-half results on November 18, the utility said it continued to perform in line with expectations.

Online retailer The Hut Group has also shown a strong move to the upside after confirming plans to overhaul its corporate governance.

Valneva shares have also jumped in Paris after the biotech company reported positive Phase 3 results for its inactivated, adjuvanted Covid-19 vaccine candidate.

U.S. Economic Reports

The Federal Reserve is scheduled to release its report on industrial production in the month of September at 9:15 am ET. Industrial production is expected to edge up by 0.2 percent in September after rising by 0.4 percent in August.

At 10 am ET, the National Association of Home Builders is due to release its report on homebuilder confidence in the month of October. The housing market index is expected to come in unchanged at 76.

Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a fireside chat on breaking down barriers to financial inclusion before the virtual Banking and the Economy: a Forum for Minorities in Banking at 2:15 pm ET.