Interest Rate, Recession Worries May Lead To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to extend the sell-off seen over the two previous sessions.

Lingering concerns about the outlook for interest rates and the likelihood of a recession are likely to continue to weigh on Wall Street.

The Fed still seems poised to slow the pace of interest rate hikes next week, but recent upbeat economic data has raised concerns about how much further the central bank will raise rates at future meetings.

Traders are likely to pay close attention to the Fed’s accompanying statement, although a lot of key data will be released before the next meeting in late January/early February.

The recent selling on Wall Street partly reflects worries the Fed will be need to push the economy into a prolonged recession in order to bring inflation down close to its 2 percent target.

Stocks moved sharply lower during trading on Tuesday, extending the sell-off seen over the course of Monday’s session. The major averages all showed significant moves to the downside, with the tech-heavy Nasdaq posting a particularly steep loss.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow slumped 350.76 points or 1.0 percent to 33,596.34, the Nasdaq plunged 225.05 points or 2.0 percent to 11,014.89 and the S&P 500 tumbled 57.58 points or 1.4 percent to 3,941.26.

The extended sell-off on Wall Street reflected lingering concerns about the outlook for interest rates ahead of next week’s Federal Reserve meeting.

In U.S. economic news, the Commerce Department released a report showing the U.S. trade deficit widened in the month of October.

The report said the trade deficit widened to $78.2 billion in October from a revised $74.1 billion in September. Economists had expected the trade deficit to increase to $79.1 billion from the $73.3 billion originally reported for the previous month.

The wider trade deficit came as the value of exports slid by 0.7 percent to $256.6 billion, while the value of imports climbed by 0.6 percent to $334.8 billion.

Oil stocks moved sharply lower over the course of the session, with another steep drop by the price of crude oil weighing the sector. The NYSE Arca Oil Index tumbled by 2.6 percent to its lowest closing level in well over a month.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 2.4 percent nosedive by the Philadelphia Semiconductor Index.

Networking stocks also showed a significant move to the downside, dragging the NYSE Arca Networking Index down 2.0 percent.

Biotechnology, retail and banking stocks also saw considerable weakness on the day, while steel and utilities stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are climbing $0.88 to $75.13 a barrel after plunging $2.68 to $74.25 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,790.60, up $8.20 compared to the previous session’s close of $1,782.40. On Tuesday, gold inched up $1.10.

On the currency front, the U.S. dollar is trading at 136.78 yen compared to the 137.00 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0527 compared to yesterday’s $1.0467.

Asia

Asian stocks moved mostly lower during trading on Wednesday as investors reacted to mixed data out of the United States and China.

While better-than-expected data from the U.S. services sector rekindled expectations for continued rate increases by the Federal Reserve, dismal trade data from China offset recent investor optimism over an easing of some Covid-19 controls in the country.

Regional losses remained capped somewhat after U.S. lawmakers scaled back a proposal that placed new curbs on semiconductor sales to China.

China’s Shanghai Composite Index dipped 0.4 percent to 3,199.62 after data showed China’s exports and imports both shrank to their weakest level since mid-2020 in November. Hong Kong’s Hang Seng Index tumbled 3.2 percent to 18,814.82.

Japanese shares fell notably as U.S. recession fears mounted. The Nikkei 225 Index dropped 0.7 percent to 27,686.40, while the broader Topix finished marginally lower at 1,948.31.

Sony Group and Fast Retailing fell 1-2 percent, while aggressive tech investor SoftBank Group rose 0.9 percent.

Seoul stocks ended lower for the fourth straight day amid foreign and institutional selling after top U.S. banks warned of a recession.

The Kospi slipped 0.4 percent to 2,382.81. Refiner SK Innovation led losses to close 3.5 percent lower at 164,500 won, while national flag carrier Korean Air jumped 3.6 percent.

Australian markets retreated after GDP data for the September quarter came in slightly below expectations. The benchmark S&P/ASX 200 Index fell 0.9 percent to 7,229.40, while the broader All Ordinaries Index closed 0.9 percent lower at 7,423.20.

Selling was seen across the board, with technology, financial and energy stocks leading losses. Gold miners outperformed after bullion prices spiked.

Europe

European shares have moved to the downside on Wednesday as weak trade data from China overshadowed investor optimism over easing of COVID curbs in the country.

Traders are eyeing central bank decisions, with the European Central Bank, the Bank of England and the Federal Reserve all due to hold monetary policy meetings next week.

Interest rates will go up again, though they are now “very near” their neutral level, ECB policymaker Constantinos Herodotou said on Tuesday.

While the German DAX Index and the French CAC 40 Index are both down by 0.3 percent, the U.K.’s FTSE 100 Index has bucked the downtrend and inched up by 0.1 percent.

Miners Anglo American, Antofagasta and Glencore have fallen in London after data showed China’s exports and imports both shrank to their weakest level since mid-2020 in November.

Energy stocks have followed suit after Brent crude futures settled below $80 on Tuesday for the first time since early January.

Airbus SE shares have also declined. The aerospace giant announced that it is unlikely to meet its 2022 commercial aircraft delivery target.

Klöckner & Co. has also fallen. The company said it has received the first CO2-minimized stainless-steel coil from Outokumpu.

On the other hand, MorphoSys AG has jumped after signing a licensing deal with Novartis for a cancer program.

GSK and French peer Sanofi SA have also surged after a favorable U.S. court ruling involving the heartburn drug Zantac.

In economic news, official data showed German industrial production dropped 0.1 percent on a monthly basis in October, slower than the expected fall of 0.6 percent. Nonetheless, the fall was in contrast to the revised 1.1 percent increase seen in September.

Separately, the U.K. housing market continued to slow in November, as house prices decreased for a third month in a row and at the steepest rate in over 14 years, survey results from the Lloyds Bank unit Halifax and S&P Global showed.

The house price index dropped 2.3 percent month-on-month as households reel under the pressures of a cost-of-living crisis and an economic recession.

U.S. Economic Reports

Revised data released by the Labor Department on Wednesday showed U.S. labor productivity increased by much more than initially estimated in the third quarter.

The Labor Department said labor productivity climbed by 0.8 percent in the third quarter compared to the previously reported 0.3 percent uptick. Economists had expected productivity growth to be upwardly revised to 0.5 percent.

Meanwhile, the report showed the surge in unit labor costs in the third quarter was downwardly revised to 2.4 percent from 3.5 percent. The jump in unit labor costs was expected to be downwardly revised to 3.2 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended December 2nd.

The Federal Reserve is due to release its report on consumer credit in the month of October at 3 pm ET. Consumer credit is expected to increase by $28.5 billion.

Stocks In Focus

Shares of Carvana (CVNA) are moving sharply lower in pre-market trading after a report from Bloomberg said some of the online used car retailer largest creditors in have signed a pact that binds them to act together in negotiations as the company undergoes debt restructuring.

Restaurant and entertainment business Dave & Buster’s (PLAY) is also seeing notable pre-market weakness even though the company reported third quarter earnings that matched analyst estimates on better than expected revenues.

Meanwhile, shares of MongoDB (MDB) are soaring in pre-market trading after the database software company reported an unexpected fiscal third quarter profit and forecast another profit for the current quarter.

Food producer Campbell Soup (CPB) is also likely to move to the upside after reporting fiscal first quarter results that beat analyst estimates on both the top and bottom lines.