Lingering Rate Worries May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to move back to the downside following the substantial rebound seen over the course of the previous session.

Lingering concerns about the outlook for monetary policy may contribute to initial weakness as the Federal Reserve’s two-day meeting gets underway.

The Fed is likely to leave interest rates unchanged when announcing its decision on Wednesday, although the accompanying statement could hint at the first rate hike as early as the next meeting in mid-March.

CME Group’s FedWatch Tool is currently indicating an 84.8 percent chance that the Fed will raise interest rates by a quarter point in March.

A drop by shares of Johnson & Johnson (JNJ) may also weigh on the Dow in early trading, with the healthcare giant moving lower in pre-market trading after reporting fourth quarter earnings that beat estimates but weaker than expected sales.

Shares of General Electric (GE) are also seeing considerable pre-market weakness after the conglomerate reported mixed fourth quarter results.

On the other hand, shares of IBM Corp. (IBM) may move to the upside after the tech giant reported fourth quarter results that beat analyst estimates on both the top and bottom lines.

Stocks showed a substantial turnaround over the course of the trading session on Monday, recovering strongly after another sell-off. The major averages all bounced well off their lows of the session and into positive territory.

The Dow was down more than 1,000 points at its worst levels but ended the day up by 99.13 points or 0.3 percent at 34,364.50. The blue chip index rebounded after hitting its lowest intraday level in over nine months.

The Nasdaq and the S&P 500 also showed significant rebounds after hitting multi-month lows. After plunging by as much as 4.9 percent, the Nasdaq climbed 86.21 points or 0.6 percent to 13,855.13, while the S&P 500 rose 12.19 points or 0.3 percent to 4,410.13 after dipping into correction territory.

The stunning turnaround came as traders went bargain hunting following recent weakness on Wall Street, with some analysts describing the sell-off as “overdone.”

Concerns about tightening monetary policy continued to weigh on the markets early in the session ahead of this week’s Federal Reserve meeting.

Along with the Fed announcement, reports on consumer confidence, new home sales, durable goods orders and personal income and spending may attract attention in the coming days.

Housing stocks moved sharply higher over the course of the trading session, driving the Philadelphia Housing Sector Index up by 3.1 percent. The index rebounded strongly after hitting its lowest intraday level in three months.

Significant strength also emerged among oil service stocks, as reflected by the 2.3 percent jump by the Philadelphia Oil Service Index. The turnaround by the sector came despite a steep drop by the price of crude oil.

After seeing early weakness, industry giant Halliburton (HAL) helped lead the rebound after reporting better than expected fourth quarter earnings.

Retail, biotechnology and telecom stocks also showed notable moves to the upside as the day progressed, while weakness remained visible among pharmaceutical and utilities stocks.

Commodity, Currency Markets

Crude oil futures are rising $0.26 to $83.57 a barrel after tumbling $1.83 to $83.31 a barrel on Monday. Meanwhile, after climbing $9.90 to $1,841.70 an ounce in the previous session, gold futures are unchanged.

On the currency front, the U.S. dollar is trading at 113.94 yen compared to the 113.95 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1276 compared to yesterday’s $1.1326.
Asia

Asian stocks tumbled on Tuesday as investors awaited the outcome of the Federal Reserve meeting on Wednesday, which is expected to provide clues on the direction of monetary policy.

Fed funds futures, which track short-term rate expectations, have priced in a total of four interest rate increases this year.

Geopolitical tensions also remained on investors’ radar after NATO announced that it was putting forces on standby to prepare for a potential Russian invasion of Ukraine.

Chinese shares fell sharply amid Omicron, rate hike and Ukraine worries. The benchmark Shanghai Composite Index plunged 91.04 points, or 2.6 percent, to 3,433.06, while Hong Kong’s Hang Seng Index ended down 412.85 points, or 1.7 percent, at 24,243.61.

Japanese shares ended at a five-month low on concerns over U.S. rate hikes and investor caution over the situation in Ukraine. The Nikkei 225 Index tumbled 457.03 points, or 1.7 percent, to 27,131.34, marking the lowest close since August 20. The broader Topix closed 1.7 percent lower at 1,896.62.

Start-up investor SoftBank Group declined 5.3 percent and chip-making equipment maker Tokyo Electron lost 2.7 percent.

Management consulting services firm Nihon M&A Center Holdings sank 12.2 percent after postponing the release of its third quarter financial results.

Australian markets hit an eight-month low as higher-than-expected inflation data spurred expectations of a quicker-than-expected rate hike.

The benchmark S&P/ASX 200 Index plummeted 177.90 points, or 2.5 percent, to 6,961.60, hitting its lowest close since last May. The broader All Ordinaries Index dove 193.40 points, or 2.6 percent, to 7,248.10.

Energy stocks tumbled to their worst day in 1-1/2 years, with Woodside Petroleum and Santos losing 4-5 percent. Tech stocks hit their lowest close since September 2020, with Computershare, Xero and Wisetech Global falling 2.6 percent, 3.5 percent and 6.6 percent, respectively.

U.S.-based buy now, pay later company Sezzle soared 9.8 percent after confirming merger talks with larger Australian rival Zip Co.

Seoul stocks logged the biggest daily drop in 11 months and tumbled to an almost 14-month low amid massive foreign selling.

The Kospi plunged 71.61 points, or 2.6 percent, to close at 2,720.39, marking the lowest level since the 2,700.93 point closing on December 8, 2020 as investors braced for hawkish comments from the U.S. Federal Reserve.

Market bellwether Samsung Electronics declined 1.5 percent, battery maker LG Chem lost 4.2 percent and Samsung SDI slumped 5.9 percent.

Bank of Korea data showed earlier in the day that Asia’s fourth-largest economy expanded at the fastest pace in 11 years in 2021, helped by a jump in exports and construction activity.

Europe

European stocks have rebounded on Tuesday after succumbing to heavy selling pressure in the previous session on fears of aggressive Fed tightening and growing concern about Russia’s troop build-up on Ukraine’s border.

Amid expectations of earlier interest rate hikes, market participants expect clarity in the scheduled FOMC meeting outcome on Wednesday.

In economic news, Germany’s Ifo business climate index improved to 95.7 from 94.8 in December, reaffirming better business conditions to start the year.

While the German DAX Index has risen by 0.4 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 0.8 percent.

Swiss building material maker LafargeHolcim has edged higher. The company said it sold its cement business in Northern Ireland to Cookstown Cement Ltd for 70 million Swiss franc, covering a production capacity of 0.45 million tons.

Computer peripherals-maker Logitech International has soared after raising its earnings forecast for the current fiscal year.

Swedish telecommunications firm Ericsson has also jumped after reporting fourth-quarter core earnings above expectations.

Capricorn Energy have also spiked in London. In its update on its operations and trading performance, the oil & gas exploration and development company said it is very encouraged by the initial operating performance of its newly acquired Western Desert Assets in Egypt.

Brewing operation company Marston has also advanced after issuing a trading update for the 16-week period to January 12, 2022.

Meanwhile, Scandal-hit lender Credit Suisse has dropped after warning that it was likely to report a net loss in the fourth quarter.

Swatch Group has also fallen, giving up earlier gains after saying sales of Swiss watches recovered strongly last year from the slump caused by pandemic-related lockdowns.

Rémy Cointreau shares have also moved to the downside. The French sprits group beat third-quarter sales forecasts and said it expects very strong organic growth in its current operating profit for fiscal 2021-22.

U.S. Economic Reports

Standard & Poor’s is scheduled to release its report on home prices in major metropolitan areas in the month of November at 9 am ET.

At 10 am ET, the Conference Board is due to release its report on consumer confidence in the month of January. The consumer confidence index is expected to drop to 111.9 in January from 115.8 in December.

The Treasury Department is scheduled to announce the results of this month’s auction of $55 billion worth of five-year notes at 1 pm ET.

Stocks In Focus

Shares of Allscripts (MDRX) are seeing significant pre-market strength after the healthcare information technology provided upbeat fourth quarter guidance and announced a new $250 million share repurchase program.

Computer peripheral equipment maker Logitech (LOGI) is also likely to move to the upside after reporting better than expected fiscal third quarter results and raising its full-year outlook.

On the other hand, shares of Xerox (XRX) may see initial weakness after the printer and copier maker reported fourth quarter earnings that beat estimates but weaker than expected revenue.

Online pet pharmacy PetMed Express (PETS) may also come under pressure after reporting fiscal third quarter results that fell short of expectations.