Bargain Hunting May Contribute To Initial Rebound On Wall Street

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to regain ground after closing lower for five consecutive sessions.

Bargain hunting may contribute to an early rebound on Wall Street, as traders look to pick up stocks at reduced levels following recent weakness.

The Dow and the S&P 500 ended Monday’s trading at their lowest closing levels since late 2020, while the Nasdaq fell to a three-month closing low.

Pullbacks by treasury yields and the value of the U.S. dollar may also inspire some traders to get back into stocks.

Buying interest may remain somewhat subdued, however, as concerns about higher interest rates and the outlook for the global economy continue to weigh on the markets.

On the U.S. economic front, a report released by the Commerce Department showed a modest decrease in new orders for U.S. manufactured durable goods in the month of August.

Stocks fluctuated early in the session but moved notably lower over the course of the trading day on Monday. The major averages added to the steep losses posted last week, with the Dow and the S&P 500 falling to their lowest closing levels since late 2020.

The major averages all finished the day firmly in negative territory. The Dow tumbled 329.60 points or 1.1 percent to 29,260.81, the Nasdaq slid 65.00 points or 0.6 percent to 10,802.92 and the S&P 500 slumped 38.19 points or 1.0 percent to 3,655.04.

A continued surge in the value of the U.S. dollar contributed to the weakness on Wall Street, with the greenback hitting a record high versus the British pound.

Aggressive interest rate hikes by the Federal Reserve continue to contribute to the increase by the dollar along with Britain’s new chancellor Kwasi Kwarteng’s announcement of a sweeping package of tax cuts.

“Such U.S. dollar strength has historically led to some kind of financial/economic crisis,” said Morgan Stanley chief U.S. equity strategist Michael Wilson. “If there was ever a time to be on the lookout for something to break, this would be it.”

Concerns about the outlook for the global economy also continued to weigh on the markets amid worries the increases in interest rates around the world will lead to a recession.

The Fed and other central banks have indicated they plan to continue raising rates in an effort to combat stubbornly elevated inflation.

In the coming days, traders are likely to keep an eye on reports on durable goods orders, consumer confidence, new home sales and personal income and spending.

The extended weakness on Wall Street also came amid a spike in treasury yields, with the yield on the benchmark ten-year note soaring to a twelve-year high.

Airline stocks extended their recent sell-off amid concerns about the outlook for demand, resulting in a 4.5 percent nosedive by the NYSE Arca Airline Index. The index plummeted to a two-year closing low.

Substantial weakness was also visible among natural gas stocks, which saw further downside despite an increase by the price of the commodity. The NYSE Arca Natural Gas Index plunged by 3.2 percent to its lowest closing level in well over two months.

Interest rate-sensitive housing, commercial real estate and utilities stocks also saw considerable weakness due to worries out the impact of higher rates.

Energy, computer hardware and steel stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are climbing $1.33 to $78.04 a barrel after tumbling $2.03 to $76.71 a barrel on Monday. Meanwhile, after slumping $22.20 to $1,633.40 an ounce in the previous session, gold futures are rising $13.30 to $1,646.70 an ounce.

On the currency front, the U.S. dollar is trading at 144.52 yen compared to the 144.75 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $0.9642 compared to yesterday’s $0.9609.

Asia

Asian stocks steadied on Tuesday after a recent string of losses on worries that efforts by central banks to curb inflation may trigger a global recession.

The dollar rally paused and U.S. Treasury yields retreated from multi-year highs, helping investors look for bargains in beaten-down stocks.

Chinese mainland markets rose after the People’s Bank of China injected about $24.7 billion of liquidity via repo market operations to maintain liquidity in the banking system ahead of the quarter’s end.

Investors shrugged off data showing that profits at Chinese industrial firms fell further in August amid COVID woes, a weakening yuan and a power shortage.

The benchmark Shanghai Composite Index rallied 1.4 percent to 3,093.86, while Hong Kong’s Hang Seng Index finished marginally higher at 17,860.31.

Japanese shares rebounded after falling sharply in the three previous sessions. The Nikkei 225 Index rose 0.5 percent to 26,571.87, while the broader Topix ended 0.5 percent higher at 1,873.01.

Automakers gained ground, with Toyota Motor, Honda and Nissan rising 1-2 percent as Finance Minister Shunichi Suzuki warned against speculative moves in the currency market and the Bank of Japan conducted another unscheduled operation to curb rising yields.

Seoul stocks ended slightly higher to snap a four-day decline on concerns over aggressive monetary tightening moves in major economies.

The Kospi ended 0.1 percent higher at 2,223.86 after a survey showed consumer confidence in the country strengthened in September. Automaker Hyundai Motor paced the gainers to close 1.9 percent higher at 186,000 won.

Australian markets bounced back, led by gains in the resource sector. The benchmark S&P ASX 200 Index rose 0.4 percent to 6,496.20, while the broader All Ordinaries index settled 0.4 percent higher at 6,696.50.

BHP, Rio Tinto, Fortescue Metals Group and Mineral Resources jumped 3-6 percent. Star Entertainment added 1.1 percent. The company said it has developed a comprehensive remediation plan after it was found unfit to hold a casino license in Sydney.

Europe

European stocks have rebounded on Tuesday, as the dollar surge has paused and U.K. ten-year gilt yields slipped back after their recent spike.

The euro rose and the British pound stabilized after the Bank of England vowed it “will not hesitate” to change interest rates by as much as needed, intending to reassure markets unnerved by last Friday’s budget.

The BoE governor said the central bank is closely monitoring the weakness in the pound amid the turmoil in markets, which saw the pound fall to a record low against the dollar.

Markets widely expect a non-scheduled interest rate hike from the BoE if the currency situation does not improve.

While the German DAX Index has jumped by 1.0 percent, the French CAC 40 Index is up by 0.9 percent and the U.K.’s FTSE 100 Index is up by 0.4 percent.

Italian payments group Nexi has jumped. The company said it aims to generate excess cash of around €2.8 billion in 2023-2025 that can be used for merger and acquisitions or to return to shareholders.

Jungheinrich AG shares have also moved higher. Hans-Georg Frey has decided to resign as member and as Chairman of the Supervisory Board with effect from the end of the Annual General Meeting on May 11, 2023.

Travel food outlet operator SSP has also advanced after forecasting full-year profits slightly higher than expectations.

Meanwhile, Akzo Nobel N.V. has declined. The Dutch maker of paints and performance coating said that it expects a decline in adjusted operating income for the third quarter amid high macro-economic uncertainty – especially in Europe and China leading to a fall in consumer confidence.

Domino’s Pizza Group has also fallen. The pizza chain announced that Elias Diaz Sese, currently a non-executive director of DPG, will become Chief Executive Officer, on an interim basis.

AstraZeneca has also dropped. The drug maker said that Selumetinib, sold under the brand name Koselugo, has been approved in Japan.

Shares of Oxford Metrics has also slumped after the smart sensing software company said it is unlikely to meet its fiscal 2022 market expectations.

JD Sports has also moved to the downside. The company has been fined by U.K. competition regulator after being found guilty of price fixing on official merchandise.

U.S. Economic Reports

A report released by the Commerce Department on Tuesday showed a modest decrease in new orders for U.S. manufactured durable goods in the month of August.

The Commerce Department said durable goods orders slipped by 0.2 percent in August after edging down by 0.1 percent in July. Economists had expected durable goods orders to decrease by 0.4 percent.

Excluding a steep drop in orders for transportation equipment, durable goods orders inched up by 0.2 percent in August, matching the uptick seen in July as well as economist estimates.

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

St. Louis Federal Reserve President James Bullard is due to speak on the U.S. economy and monetary policy and participate in a panel before the Barclays-CEPR International Monetary Policy Forum at 9:55 am ET.

At 10 am ET, the Conference Board is scheduled to release its report on consumer confidence in the month of September. The consumer confidence index is expected to inch up to 104.3 in September after climbing to 103.2 in August.

The Commerce Department is also due to release its report on new home sales in the month of August at 10 am ET. Economists expect new home sales to slump by 2.2 percent to an annual rate of 500,000 in August following a 12.6 percent nosedive to an annual rate of 511,000 in July.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $45 billion worth of five-year notes.

San Francisco Federal Reserve President Mary Daly is due to participate in a fireside chat on Innovation and Central Banking before a virtual San Francisco Fed Symposium on Asian Banking and Finance at 8:35 pm ET.