Uncertainty About Near-Term Outlook May Lead To Choppy Trading

The major U.S. index futures are currently pointing to a roughly flat open on Wednesday, with stocks likely to show a lack of direction in early trading.

Traders may be reluctant to make significant moves amid uncertainty about the near-term outlook for the markets following recent volatility.

While worries about inflation contributed to a pullback by stocks last week, the Nasdaq and S&P 500 ended Tuesday’s trading just shy of their record closing highs following upbeat retail sales and industrial production data.

With the economy seemingly holding up well in the face of elevated inflation, traders remain concerned the Federal Reserve could accelerate its plans to tighten monetary policy.

A mixed reaction to earnings news from retail giants Target (TGT) and Lowe’s (LOW) may also contribute to choppy trading on Wall Street.

Shares of Target are seeing notable pre-market weakness even though the retailer reported third quarter results that beat expectations on both the top and bottom lines.

On the other hand, shares of Lowe’s (LOW) are likely to see initial strength after the home improvement retailer reported better than expected third quarter results and raised its full-year revenue guidance.

After ending Monday’s session roughly flat, stocks moved mostly higher during trading on Tuesday. The major averages all moved to the upside on the day, although buying interest waned as the trading day progressed.

The Dow and the S&P 500 pulled back well off their highs in late-day trading, while the tech-heavy Nasdaq remained firmly positive.

The Nasdaq advanced 120.01 points or 0.8 percent to 15,973.86, just shy of the record closing high set last Monday. The S&P 500 also ended the day just below its record closing high, up 181.0 points or 0.4 percent to 4,700.90.

Meanwhile, the Dow ended the day up 54.77 points or 0.2 percent at 36,142.22 after rising by more than 200 points earlier in the session.

The strength on Wall Street partly reflected a positive reaction to some upbeat U.S. economic data, including a Commerce Department report showing retail sales shot up by more than expected in the month of October.

The report said retail sales spiked by 1.7 percent in October after climbing by an upwardly revised 0.8 percent in September.

Economists had expected retail sales to jump by 1.4 percent compared to the 0.7 percent increase originally reported for the previous month.

Excluding sales by motor vehicles and parts dealers, retail sales still surged up by 1.7 percent in October after rising by 0.7 percent in September. Ex-auto sales were expected to advance by 1.0 percent.

However, analysts noted that the strong retail sales growth during the month was largely due to inflation, as retail sales are reported in nominal dollars.

“Adjusted for inflation, real sales were closer to a 0.1% headline increase and ex-gasoline a 0.3% increase,” said Will Compernolle, Senior Economist at FHN Financial. “The inflation-adjusted spending is still above the pre-pandemic trend but slowing.”

The Federal Reserve also released a report showing industrial production rebounded by much more than expected in the month of October.

The report showed industrial production surged up by 1.6 percent in October after tumbling by 1.3 percent in September. Economists had expected industrial production to increase by 0.7 percent.

The Fed said about half of the rebound in industrial production in October reflected a recovery from the effects of Hurricane Ida.

The uptick by the Dow came amid a notable advance by shares of Home Depot (HD), with the home improvement retailer jumping by 5.7 percent after reporting better than expected quarter results.

Meanwhile, retail giant Walmart (WMT) moved to the downside despite reporting third quarter results that exceeded analyst estimates and raising its full-year guidance.

Semiconductor stocks moved sharply higher over the course of the session, driving the Philadelphia Semiconductor Index up by 1.7 percent to a new record closing high.

Considerable strength was also visible among housing stocks, as reflected by the 1.4 percent gain posted by the Philadelphia Housing Sector Index.

The strength in the housing sector came after the National Association of Home Builders released a report unexpectedly showing a continued improvement in U.S. homebuilder confidence in the month of November.

The report showed the NAHB/Wells Fargo Housing Market Index rose for the third straight month, climbing to 83 in November from 80 in October. The increase surprised economists, who had expected the index to come in unchanged.

Software and retail stocks also saw notable strength on the day, while tobacco and gold stocks gave back ground following recent strength.

Commodity, Currency Markets

Crude oil futures are falling $0.75 to $80.01 a barrel after edging down $0.12 to $80.76 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,863.80, up $9.70 compared to the previous session’s close of $1,854.10. On Tuesday, gold slid $12.50.

On the currency front, the U.S. dollar is trading at 114.65 yen compared to the 114.82 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1308 compared to yesterday’s $1.1320.

Asia

Asian stocks moved mostly lower on Wednesday and the dollar soared as better than expected U.S. retail data raised concerns about an earlier than expected rate hike by the U.S. Federal Reserve.

China’s Shanghai Composite Index rose 15.58 points, or 0.4 percent, to 3,537.37 after reports the country plans to let property companies resume issuance of asset-backed securities.

In addition, China Business News reported that China Evergrande Group Chairman Hui Ka Yan injected more than 7 billion yuan ($1.1 billion) in cash to boost the firm’s liquidity.

Hong Kong’s Hang Seng Index ended down 63.70 points, or 0.3 percent, at 25,650.08 as a short rally in developer and casino stocks ran out of steam.

Japanese shares ended lower as investors reacted to sluggish exports growth and flat core machinery orders data. The Nikkei 225 Index slid 119.79 points, or 0.4 percent, to close at 29,688.33, while the broader Topix closed 0.6 percent lower at 2,038.34.

Automaker Honda Motor shed 1.6 percent, lender Mitsubishi UFJ Financial Group dropped 1.5 percent and Uniqlo operator Fast Retailing declined 1.3 percent.

Semiconductor shares extended recent gains, with Tokyo Electron and Advantest both rising over 3 percent. Energy firms such as Idemitsu Kosan and Inpex rose 1-2 percent on reports that the government is planning subsidies for oil refiners to counter an increase in oil prices.

Australian markets fell after top lender Commonwealth warned of a margin-hit from the low interest rate environment and mortgage competition.

The downside remained capped somewhat as wages data released earlier in the day supported Reserve Bank Governor Philip Lowe’s dovish stance.

The benchmark S&P/ASX 200 Index dropped 50.50 points, or 0.7 percent, to 7,369.90, while the broader All Ordinaries Index ended down 43.10 points, or 0.6 percent, at 7,704.

Commonwealth Bank of Australia shares plunged more than 8 percent after the lender sounded a warning on loan margins. Rivals ANZ, NAB and Westpac lost 1-2 percent.

Miners BHP, Rio Tinto and Fortescue Metals Group gave up 1-2 percent as iron ore prices dropped for a fourth straight session amid a rising greenback.

Seed technology and crop protection maker Nufarm declined 8.6 percent after the company warned of margin pressure from raw material costs.

Seoul stocks tumbled amid inflation worries. The Kospi slumped 34.79 points, or 1.2 percent, to 2,962.42. Market bellwether Samsung Electronics shed 0.8 percent, No. 2 chipmaker SK Hynix declined 1.3 percent and pharmaceutical giant Samsung Biologics gave up 2.5 percent.

Europe

European stocks are turning in a mixed performance on Wednesday, with underlying sentiment remaining cautious amid continued Covid-19 fears and inflation concerns.

Slovakia’s hospitals are in a critical situation dealing with a surge in coronavirus infections. Elsewhere, the Austrian government is set to approve measures to limit access to services for unvaccinated people.

The Dutch front-month contract for wholesale gas rose about 5 percent to extend gains from the previous session, adding to concerns around soaring costs across the continent.

The British pound hit its highest level against the euro since February 2020, as a surge in inflation to 10-year highs fueled bets of an interest rate hike as early as next month.

Official data showed that U.K. consumer price inflation advanced to 4.2 percent in October from 3.1 percent in September. The rate was forecast to climb to 3.9 percent. The upward pressure was largely driven by the surge in the cost of housing and transport.

While the U.K.’s FTSE 100 Index is down by 0.4 percent, the French CAC 40 Index and the German DAX Index are both up by 0.1 percent.

In stock-specific action, Swiss luxury firm Richemont has advanced, extending gains for a fifth day on brokerage upgrades.

British software firm Sage Group has also moved higher. The company said it expects a continued strong performance in its cloud offering to drive revenue growth in the year ahead.

Ophthalmology company Nicox SA has also risen percent in Paris. The company announced that it was granted patent for blepharitis product candidate NCX 4251 in Europe.

Siemens Healthineers AG has also jumped. The medical technology firm said that it expects an accelerated comparable revenue growth of 6 to 8 percent per annum for fiscal years 2023 to 2025.

Meanwhile, Fresenius Medical Care AG & Co. KGaA has dropped. The dialysis company said it would cut around 500 to 750 jobs in Germany as part of its recently announced plan of 5,000 job cuts worldwide.

Renewable power generator and network operator SSE Plc has also moved lower after reporting a 25 percent drop in renewable power output.

CMC Markets, a financial services company, has also plunged after it posted a significant decline its pre-tax income for the first half ended in September.

Basler AG shares have also tumbled. The company said that it has been target of an external cyberattack causing massive disruptions of the company IT-infrastructure. Therefore, all IT systems of the group were instantly shut down in a controlled manner.

U.S. Economic Reports

While the Commerce Department released a report on Wednesday showing an unexpected decrease in new residential construction in the U.S. in the month of October, the report also showed a bigger than expected spike in building permits.

The report showed housing starts slid by 0.7 percent to an annual rate of 1.520 million in October after tumbling by 2.7 percent to a revised rate of 1.530 million in September.

The continued decline came as a surprise to economists, who had expected housing starts to jump by 1.6 percent to an annual rate of 1.580 million from the 1.555 million originally reported for the previous month.

Meanwhile, the Commerce Department said building permits surged up by 4.0 percent to an annual rate of 1.650 million in October after plummeting by 7.8 percent to a revised rate of 1.586 million in September.

Building permits, an indicator of future housing demand, had been expected to shoot up by 3.2 percent to an annual rate of 1.640 million from the 1.589 million originally reported for the previous month.

At 9:10 am ET, New York Federal Reserve President John Williams is due to deliver the virtual keynote before the 2021 U.S. Treasury Market Conference.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 12th at 10:30 am ET.

Crude oil inventories are expected to increase by 1.6 million barrels after rising by 1.0 million barrels in the previous week.

At 11:20 am ET, Cleveland Federal Reserve President Loretta Mester is due to give opening remarks before the virtual 2021 Financial Stability Conference: Planning for Surprises, Learning from Crises.

Federal Reserve Governor Christopher Waller is scheduled to give Thoughts on Stablecoins before the virtual 2021 Financial Stability Conference at 12:40 pm ET.

Also at 12:40 pm ET, San Francisco Federal Reserve President Mary Daly is due to virtually participate in fireside chat before the 2021 U.S. Treasury Market Conference.

The Treasury Department is scheduled to announce the results of this month’s auction of $23 billion worth of twenty-year bonds at 1 pm ET.

At 4:05 pm ET, Chicago Federal Reserve President Charles Evans is due to speak about current economic conditions and monetary policy in a moderated Q&A with the Mid-Size Bank Coalition of America.

Atlanta Federal Reserve President Raphael Bostic is scheduled to give closing remarks virtually before the Federal Reserve Community Development Research Seminar Series event at 4:10 pm ET.

Stocks In Focus

Shares of La-Z-Boy (LZB) are seeing significant pre-market strength after the furniture maker reported fiscal second quarter results that exceeded analyst estimates on both the top and bottom lines.

Vir Biotechnology (VIR) is also moving sharply higher in pre-market trading after the biotech company and GlaxoSmithKline announced U.S. government contracts totaling approximately $1 billion to purchase sotrovimab, an investigational monoclonal antibody for the early treatment of COVID-19.

On the other hand, shares of Roku (ROKU) may move to the downside after Moffett Nathanson downgraded its rating on the video streaming device maker to Sell from Neutral.