Interest Rate Worries May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Wednesday, with stocks poised to extend the downward trend seen over the past several sessions.

Lingering concerns about the outlook for interest rates may continue to weigh on the markets ahead of the release of the Federal Reserve’s Beige Book this afternoon.

The Beige Book is a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

The report, which comes two weeks ahead of the Fed’s next monetary policy decision, may shed additional light on the outlook for rates.

CME Group’s FedWatch tool is currently indicating an 82.0 percent chance of a 75 basis point rate hike and an 18.0 percent chance of a 25 basis point rate hike.

Recent data suggesting the economy is holding up relatively well amidst the Fed’s previous rate increases has led to speculation the central bank will remain aggressive.

The recent weakness on Wall Street has dragged the major averages down to their lowest levels in over a month, although they remain well off their mid-June lows.

After an initial move to the upside, stocks showed a lack of direction over the course of the trading session on Tuesday. The major averages bounced back and forth across the unchanged line before ending the day firmly negative.

The major averages finished the session at their worst closing levels in well over a month. The Dow fell 173.14 points or 0.6 percent to 31,145.30, the Nasdaq slid 85.96 points or 0.7 percent to 1,544.91 and the S&P 500 dipped 16.07 points or 0.4 percent to 3,908.19.

The choppy trading on Wall Street came as traders expressed some uncertainty about the near-term outlook for the markets following recent weakness.

While some traders have sought to pick up stocks at reduced levels, recent bargain hunting efforts have not gained much traction amid lingering concerns about the outlook for interest rates and the global economy.

The volatility on the day also came amid a surge in treasury yields, with the yield on the benchmark ten-year note jumping to its highest levels in almost three months.

Potentially adding to the worries about interest rates, the Institute for Supply Management released a report showing service sector activity in the U.S. unexpectedly grew at a slightly faster rate in the month of August.

The ISM said its services PMI inched up to 56.9 in August from 56.7 in July, with a reading above 50 indicating growth in the sector. The uptick surprised economists, who had expected the index to dip to 55.1.

The report is a positive sign for the economy but may have led to concerns the Federal Reserve will see the data as an indication that it can continue to aggressively raise interest rates.

Tobacco stocks showed a significant move to the downside on the day, dragging the NYSE Arca Tobacco Index down by 2.4 percent to its lowest closing level in well over a year.

Considerable weakness also emerged among natural gas stocks, as reflected by the 1.7 percent decrease by the NYSE Arca Natural Gas Index. The weakness in the sector came amid a steep drop by the price of natural gas.

Networking stocks also saw notable weakness on the day, with the NYSE Arca Networking Index falling by 1.6 percent to a one-month closing low.

Computer hardware, biotechnology and oil service stocks also moved to the downside, while commercial real estate stocks turned in a strong performance.

Commodity, Currency Markets

Crude oil futures are falling $0.51 to $86.37 a barrel after inching up $0.01 to $86.88 barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,712.40, down $0.50 compared to the previous session’s close of $1,712.90. On Tuesday, gold fell $9.70.

On the currency front, the U.S. dollar is trading at 144.90 yen compared to the 142.80 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $0.9881 compared to yesterday’s $0.9904.

Asia

Asian stocks hit a two-year low on Wednesday and the yen continued to decline, as solid U.S. services data released overnight reinforced investor expectations for a more aggressive pace of FOMC rate hikes.

Chinese trade data missed expectations, adding to headwinds for the world’s second-largest economy.

China’s Shanghai Composite Index fluctuated before ending marginally higher for the day as official data showed export growth slowed sharply in August amid softening global demand.

Overseas shipments rose an annual 7.1 percent, compared to the 18 percent growth in July, China’s General Administration of Customs said. Import growth slowed to 0.3 percent from 2.3 percent in July. Hong Kong’s Hang Seng index fell 0.8 percent to 19,044.30.

Overnight, the U.S. Securities and Exchange Commission warned that U.S. accounting firms risked breaching U.S. rules if they agreed to lead audits of New York-listed Chinese and Hong Kong companies looking to avoid potential trading bans.

Japanese shares fell notably as the yen’s plunge worsened despite the strongest government warnings yet.

The yen fell over 1 percent to ¥144.38 per dollar in a third day of declines, prompting a shift in language by senior government officials. Finance Minister Shunichi Suzuki noted that the recent moves were very sudden and said the government will act, if needed.

The Nikkei 225 Index dropped 0.7 percent to 27,430.30, while the broader Topix closed 0.6 percent lower at 1,915.65.

Seoul stocks tumbled amid foreign and institutional selling. The Kospi slumped 1.4 percent to 2,376.46 amid declines across the board. SK Hynix, Samsung Electronics and POSCO Holdings lost 2-3 percent. The Korean won slid to the lowest point in more than 13 years.

Australian markets fell sharply to end at a near lyseven-week low, even as data showed the economy grew strongly in the three months to June.

The benchmark S&P/ASX 200 Index dove 1.4 percent to 6,729.30, while the broader All Ordinaries Index closed 1.4 percent lower at 6,959.30. Miners, tech and energy stocks paced the declines.

Europe

European stocks have fallen on Wednesday after data showed Chinese exports and imports lost momentum in August, adding to headwinds for the world’s second-largest economy.

Closer to home, German industrial production fell 0.3 percent on a monthly basis, reversing a 0.8 percent rise in June, Destatis reported. Output was forecast to decline 0.5 percent.

Year-on-year, industrial production logged a decline of 1.1 percent after easing 0.1 percent in June.

Eurozone second quarter GDP growth came in at 0.80 percent, higher than a 0.6 percent rise in the second estimate.

All eyes now turn to the European Central Bank (ECB) meeting on Thursday given talk of a faster pace of tightening.

Eurozone bond yields have risen today amid increased bets on a 75-basis point rate hike from the ECB to tame record-high inflation.

While the U.K.’s FTSE 100 Index is down by 0.9 percent, the German DAX Index is down by 0.8 percent and the French CAC 40 Index is down by 0.7 percent.

Miners Anglo American, Antofagasta and Glencore have moved to the downside on concerns about the demand outlook.

Oil & gas firm BP Plc and Shell have also come under pressure as oil prices hit seven-month lows on demand worries.

James Fisher, a provider of marine engineering services, has also plunged after reporting a decrease in first-half profits.

Homebuilder Barratt Developments has also declined despite posting record annual results.

Gerresheimer AG has also slumped after it joined with Stevanato Group to develop a high-end Ready-To-Use solution platform with an initial focus on vials, based on Stevanato Group’s EZ-fill technology.

Energy giant Uniper has also moved sharply lower after warning natural gas prices could jump even higher.

Siemens Energy has also fallen after Gazprom said Russia’s biggest natural gas pipeline to Europe will not resume pumping until the company repairs faulty equipment.

Siemens Energy said Tuesday that it did not comprehend Gazprom’s presentation of the situation.

Repsol has also declined. The Spanish energy and petrochemicals firm has agreed to sell 25 percent of its upstream business for $4.8 billion to EIG Global Energy Partners, an institutional investor in the energy sector.

Meanwhile, SGL Carbon SE shares have soared. The maker of carbon-based products has raised its outlook for fiscal 2022, citing continued good business development, especially in the Carbon Fibers Business Unit.

U.S. Economic Reports

A report released by the Commerce Department on Wednesday showed the U.S. trade deficit narrowed significantly in the month of July.

The Commerce Department said the trade deficit shrank to $70.6 billion in July from a revised $80.9 billion in June.

Economists had expected the trade deficit to narrow to $70.3 billion from the $79.6 billion originally reported for the previous month.

Richmond Federal Reserve President Thomas Barkin is due to participate in a fireside chat before a hybrid Federal Reserve/Massachusetts Institute of Technology Conference on Measuring Cyber Risk in the Financial Services Sector at 9 am ET.

At 10 am ET, Cleveland Federal Reserve President Loretta Mester is scheduled to speak on the U.S. economy and Federal Reserve policy during a Market News International webcast.

Federal Reserve Vice Chair Lael Brainard is due to speak before the Clearing House/Bank Policy Institute Annual Conference at 11:55 am ET.

At 2 pm, the Federal Reserve is scheduled to release its Beige Book, compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

Federal Reserve Vice Chair for Supervision Michael Barr is also due to speak on Making the Financial System Safer and Fairer before a hybrid Brookings Institution event at 2 pm ET.

Stocks In Focus

Shares of UiPath (PATH) are moving sharply lower in pre-market trading after the robotic process automation software maker reported better than expected fiscal second quarter results but lowered its full-year revenue forecast.

Consumer goods company Newell Brands (NWL) may also come under pressure after lowering its third quarter and full-year guidance, citing a more challenging than anticipated operating and consumer backdrop.

On the other hand, shares of Coupa (COUP) are likely to see initial strength after the business management software company reported fiscal second quarter results that beat estimates and provided an upbeat outlook.