U.S. Stocks Likely To Move Back To The Upside In Early Trading

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to move back to the upside following the pullback seen last Friday.

Strength in overseas markets may carry over on to Wall Street amid reports of a possible U.S. tariff cut on Chinese goods.

Trading activity may be somewhat subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.

A report on consumer price inflation, due to be released later in the week, is likely to be in the spotlight as traders focus on the Federal Reserve’s monetary policy tightening.

Stocks moved sharply lower during trading on Friday, largely offsetting the rally seen over the course of the previous session. The major averages all showed notable moves to the downside, with the tech-heavy Nasdaq showing a particularly steep drop.

The major averages finished the session near their worst levels of the day. While the Nasdaq plunged 304.16 points or 2.5 percent to 12,012.73, the S&P 500 tumbled 68.28 points or 1.6 percent to 4,108.54 and the Dow slumped 348.58 points or 1.1 percent to 32,899.70.

With the pullback on the day, the major averages all moved lower for the holiday-shortened week. The Dow slid 0.9 percent, the Nasdaq shed 1 percent and the S&P 500 dove 1.2 percent.

Traders cashed in on Thursday’s strong gains, as stronger than expected jobs data offset the faint hopes that the Federal Reserve might slow its planned pace of interest rate hikes.

The Labor Department’s closely watched monthly employment report showed job growth in the U.S. exceeded economist estimates in the month of May.

The report showed non-farm payroll employment jumped by 390,000 jobs in May after surging by an upwardly revised 436,000 jobs in April.

Economists had expected employment to increase by about 325,000 jobs compared to the addition of 428,000 jobs originally reported for the previous month.

Meanwhile, the Labor Department said the unemployment rate remained unchanged at 3.6 percent. The unemployment rate was expected to edge down to 3.5 percent.

The report also showed average hourly earnings rose by $0.10 or 0.3 percent to $31.95 in May. The annual rate of wage growth slowed to 5.2 percent in May from 5.5 percent in April.

“The May employment report underscores Chairman Powell’s view of the labor market still being extraordinarily tight despite some moderation in wage growth,” said Kathy Bostjancic, Chief U.S. Economist at Oxford Economics.

She added, “As such, today’s report supports the Fed raising the fed funds rate by 50bps at each of its June and July meetings.”

A separate report from the Institute for Supply Management showed growth in U.S. service sector activity slowed by slightly more than expected in the month of May.

The ISM said its services PMI dipped to 55.9 in May from 57.1 in April, although a reading above 50 still indicates growth in the sector. Economists had expected the index to edge down to 56.4.

With the bigger than expected decrease, the services PMI dropped to its lowest level since a matching reading in February of 2021.

Semiconductor stocks moved sharply lower on the day, giving back ground after turning in some of the market’s best performances on Thursday.

After ending Thursday’s trading at its best closing level in almost a month, the Philadelphia Semiconductor Index plunged by 3 percent.

Profit taking also contributed to considerable weakness among gold stocks, with the NYSE Arca Gold Bugs Index tumbled by 2.3 percent after spiking by 4.9 percent in the previous session.

The pullback by gold stocks came as the price of gold for August delivery slumped $21.20 to $1,850.20 an ounce.

Airline, brokerage and computer hardware stocks also showed notable moves to the downside on the day, while energy stocks bucked the downtrend amid a sharp increase by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are falling $0.46 to $118.41 a barrel after jumping $2 to $118.87 a barrel last Friday. Meanwhile, after slumping $21.20 to $1,850.20 an ounce in the previous session, gold futures are rising $5.40 to $1,855.60 an ounce.

On the currency front, the U.S. dollar is trading at 130.79 yen versus the 130.88 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0715 compared to last Friday’s $1.0719.

Asia

Asian stocks ended broadly higher on Monday, as investors reacted to reports of a possible U.S. tariff cut on China’s goods, loosening of Covid-19 restrictions in Beijing and improved Caixin Services PMI data for May from China.

China’s Shanghai Composite Index rallied 1.3 percent to 3,236.37 after a private business survey showed China’s services activity contracted for the third month in a row in May but pointed to a slow recovery in the world’s second-largest economy.

Hong Kong’s Hang Seng Index soared 2.7 percent to 21,653.90 as anti-virus controls on Shanghai and other major cities were lifted.

Japan’s Nikkei Index rose 0.6 percent to 27,915.89, marking a two-month closing high. Energy stocks topped the gainers list as oil prices climbed after Saudi Arabia raised prices sharply for its crude sales in July.

Idemitsu Kosan surged 5.4 percent and ENEOS jumped 4.8 percent. Airline ANA Holdings added 2.9 percent and travel agent H.I.S. gained 3.3 percent, buoyed by reports that the Japanese government was considering restarting its “Go To Travel” subsidy program as early as this month.

Markets in South Korea and New Zealand were shut for holidays. Australian stocks ended lower as investors looked ahead to the RBA’s policy meeting on Tuesday, when the central bank is expected to raise the cash rate by 25-40 basis points.

The benchmark S&P/ASX 200 Index dropped 0.5 percent to 7,206.30, while the broader All Ordinaries Index ended 0.5 percent lower at 7,433.10. Tech stocks paced the declines, with Block losing 3.2 percent.

Europe

European stocks have moved sharply higher on Monday as investors cheer reports suggesting that the United States is mulling lifting some tariffs on China to fight inflation.

Investors and policymakers await the release of U.S. inflation data this week after EU inflation shocked many with a record high reading last week.

Market participants also await a European Central Bank policy meeting later this week for confirmation whether the central bank will raise rates at the July 21 policy meeting.

While the French CAC 40 Index is up by 1.4 percent, the U.K.’s FTSE 100 Index is up by 1.3 percent and the German DAX Index is up by 1.2 percent.

British Prime Minister Boris Johnson will face a confidence vote later today after a growing number of lawmakers in the governing Conservative Party questioned the British leader’s flagging authority over the “partygate” scandal.

Miners Anglo American, Antofagasta and Glencore have all jumped as London copper prices scaled to their highest in more than a month on hopes that the United States would cut tariffs on Beijing.

Oil & gas firms BP Plc and Royal Dutch Shell have also rallied as crude oil prices neared $120 a barrel after Saudi Arabia raised prices for customers in Asia.

Auto parts supplier Melrose Industries has also soared after it agreed to sell its ergonomic business Ergotron to private-equity firm The Sterling Group for £520 million in cash.

Meanwhile, Clontarf Energy shares have plunged after its partner Western Gas said its Sasanof-1 exploration well off Western Australia found no hydrocarbons.

U.S. Economic Reports

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