Overseas Weakness May Carry Over Onto Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to extend the sharp pullback seen over the two previous sessions.

Weakness in overseas markets is likely to carry over onto Wall Street amid concerns about the outlook for the global economy.

Traders seem worried aggressive moves by global central banks to contain inflation could lead to a period of stagflation or an outright recession.

A continued increase in treasury yields is likely to weigh on the markets, with the yield on the benchmark ten-year note once again reaching its highest levels since November 2018.

Overall trading activity may be somewhat subdued, however, as traders look ahead to the release of key inflation data in the coming days.

The latest snapshot of inflation could impact expectations regarding how aggressively the Federal Reserve plans to raise interest rates.

Stocks fluctuated wildly over the course of the trading day on Friday before eventually ending the session mostly lower. With the drop on the day, the major averages extended the sell-off seen during trading on Thursday.

The tech-heavy Nasdaq tumbled 173.03 points or 1.4 percent to 12,144.66, once again hitting its lowest closing level in well over a year. The S&P 500 slid 23.53 points or 0.6 percent to a nearly one-year closing low of 4,123.34 and the Dow fell 98.60 points or 0.3 percent to a two-month closing low of 32,899.37.

During the extremely volatile week, the Nasdaq slumped by 1.5 percent, while the Dow and the S&P 500 both edged down by 0.2 percent.

The lower close on Wall Street came following the release of a closely watched Labor Department report showing stronger than expected job growth in the month of April.

The report showed non-farm payroll employment surged by 428,000 jobs in April, matching the revised jump seen in March.

Economists had expected employment to climb by 391,000 jobs compared to the addition of 431,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department said the unemployment rate came in unchanged at 3.6 percent versus expectations the rate would edge down to 3.5 percent.

With the report showing continued strength in the labor market, economists predicted the Federal Reserve will continue with its plans to raise interest rates relatively sharply over the coming months.

“Overall, with labor market conditions still this strong – including very rapid wage growth – we doubt that the Fed is going to abandon its hawkish plans because of the current bout of weakness in equities,” Ashworth said.

Worries about the outlook for interest rates may have weighed on Wall Street along with a continued increase in treasury yields.

Airline stocks moved sharply lower on the day, with the NYSE Arca Airline Index plummeting by 3.1 percent to a nearly two-month closing low.

Substantial weakness was also visible among biotechnology stocks, as reflected by the 2.8 percent plunged by NYSE Arca Biotechnology Index. The index ended the session at its lowest closing level in over two years.

Brokerage, networking and retail stocks also saw considerable weakness on the day, adding to the steep losses posted in the previous session.

On the other hand, energy stocks moved sharply higher over the course of the session, benefiting from a notable increase by the price of crude oil.

With crude for June delivery jumping $1.51 to $109.77 a barrel, the NYSE Arca Oil Index spiked by 3.1 percent to its best closing level in almost eight years.

Commodity, Currency Markets

Crude oil futures are tumbling $2.49 to $107.28 a barrel after jumping $1.51 to $109.77 a barrel last Friday. Meanwhile, after rising $7.10 to $1,882.80 an ounce in the previous session, gold futures are falling $16.80 to $1,866 an ounce.

On the currency front, the U.S. dollar is trading at 130.58 yen versus the 130.65 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0567 compared to last Friday’s $1.0551.

Asia

Asian stocks tumbled on Monday amid anxiety over rising inflation and interest rates. Data showed China’s export growth slowed to its lowest rate since June 2020 in April and imports flattened, highlighting downside risks to global growth stemming from the Ukraine war and the Shanghai lockdown.

Gold extended its slide, while the dollar held near a two-decade high and yields jumped amid expectations that the Federal Reserve may continue with aggressive rate hikes.

Oil prices fell about 1 percent in Asian trading as a tightening lockdown in Shanghai stoked concerns about a significant economic slowdown or “hard landing.”

Chinese stocks fluctuated before finishing on a flat note after a survey showed lockdowns across dozens of Chinese cities hit operations and supply chains in the country. Hong Kong’s stock exchange was closed for a public holiday.

Japan’s Nikkei 225 Index plunged 2.5 percent to 26,319.34 on worries that the U.S. central bank may further tighten monetary policy to fight high inflation. Banks and tech stocks led losses. Market heavyweight SoftBank lost 3.5 percent and Uniqlo operator Fast Retailing plummeted 6.3 percent.

Japan’s services sector activity expanded for the first time in four months in April, a survey showed earlier in the day. Separately, minutes of the Bank of Japan’s March policy meeting revealed that board members called for measures to prevent an increase in long-term interest rates.

Seoul stocks fell sharply as global growth worries intensified against the backdrop of the Ukraine War and China’s economic woes.

The Kospi ended 1.3 percent lower at 2,610.81, extending losses for the fifth consecutive session and marking its lowest close since November 30. LG Energy Solution, LG Chem and Samsung SDI sank 2-4 percent.

Australian stocks closed at their lowest level in nearly two months on concerns about rampant inflation and whether the Fed is doing enough to stamp it out.

The benchmark S&P/ASX 200 Index slid 1.2 percent to 7,120.70, marking a second straight session of losses. Miners led losses after a decrease in iron ore prices.

Energy stocks posted modest gains, while lender Westpac Banking Corp climbed 3.2 percent on an upbeat outlook.

Europe

European stocks have moved sharply lower on Monday on fears of an economic recession later this year as a result of rising inflation, higher interest rates and the ongoing lockdown restrictions in Shanghai to contain the spread of COVID-19.

China’s export growth slowed to the weakest in almost two years and imports were barely changed in April, adding to concerns over the economic outlook.

While the French CAC 40 Index has slumped by 2 percent, the U.K.’s FTSE 100 Index is down by 1.8 percent and the German DAX Index is down by 1.5 percent.

Miners have helped lead the losses as base metals prices decline on demand concerns. Anglo American, Antofagasta and Glencore have all slumped.

Capital & Counties Properties has also tumbled and Shaftesbury has come under pressure. The real estate firms said they were in advanced discussions regarding a possible all-share merger.

Rightmove has also plunged. The chief executive of the company is stepping down after more than 16 years at the property portal.

Deutsche Wohnen SE shares have also fallen. The property company posted a decline in funds from operations for the first quarter on lower rent revenues.

Semiconductor company Infineon Technologies AG has also slid. The company reported that its profit for the second quarter of 2022 climbed to 469 million euros from 203 million euros in the prior year.

U.S. Economic Reports

The Commerce Department is scheduled to release its report on wholesale inventories in the month of March at 10 am ET. Wholesale inventories are expected to surge by 2.3 percent.

Stocks In Focus

Shares of Palantir Technologies (PLTR) are moving sharply lower in pre-market trading after the data analytics software company reported weaker than expected first quarter earnings and provided disappointing revenue guidance.

Electric vehicle maker Rivian (RIVN) is also seeing substantial pre-market weakness after a report from CNBC said Ford (F) is selling 8 million of its 102 million share stake in the company.

On the other hand, shares of Coty (COTY) are likely to move to the upside after the cosmetics company reported better than expected fiscal third quarter results and raised its full-year outlook.