Overseas Strength May Carry Over Onto Wall Street

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to move back to the upside after starting the New Year off on a negative note.

Wall Street may benefit from strength in overseas markets, which moved higher following encouraging European inflation data and indications the latest Covid wave in China may have peaked.

Traders may also once again look to pick up stocks at reduced levels following the significant weakness seen last year.

Early trading activity may be somewhat subdued, however, as traders look ahead to the minutes of the latest Federal Reserve meeting.

The minutes of the Fed’s December meeting, which are due to be released this afternoon, could shed additional light on the outlook for interest rates.

Stocks finished Tuesday’s trading mostly lower, starting the New Year off on a negative note. The major averages saw initial strength but came under pressure over the course of morning trading.

The major averages climbed well off their worst levels late in the session but remained in negative territory. The Dow edged down 10.88 points or less than a tenth of a percent to 33,136.37, the Nasdaq slid 79.50 points or 0.8 percent to 10,386.98 and the S&P 500 fell 15.36 points or 0.4 percent to 3,824.14.

The early strength on Wall Street came as traders looked to get the New Year started on a positive note following a dismal 2022.

For last year, the Nasdaq plummeted by 33.1 percent, the S&P 500 plunged by 19.4 percent and the Dow tumbled by 8.8 percent.

Buying interest waned shortly after the start of trading, however, with concerns about the outlook for interest rates and the economy continuing to weigh on the markets.

Traders may also have been reluctant to make significant bets ahead of the release of some key economic data later this week, including the closely watched monthly jobs report on Friday.

Reports on manufacturing and service sector activity may also attract attention in the coming days along with the minutes of the latest Federal Reserve meeting.

A report released by the Commerce Department unexpectedly showed a modest increase in U.S. construction spending in the month of November.

The Commerce Department said construction spending crept up by 0.2 percent to an annual rate of $1.808 trillion in November after edging down by 0.2 percent to a revised rate of $1.803 trillion in October.

The uptick surprised economists, who had been expecting construction to decrease by 0.4 percent compared to the 0.3 percent dip originally reported for the previous month.

Energy stocks showed a substantial move to the downside on the day, moving sharply lower along with the price of crude oil.

Reflecting the weakness in the sector, the Philadelphia Oil Service Index plummeted by 4.3 percent and the NYSE Arca Oil Index dove by 4.2 percent.

A steep drop by the price of natural gas also weighed on natural gas stocks, dragging the NYSE Arca Natural Gas Index down by 3.1 percent.

Airline, steel and semiconductor also saw considerable weakness, while gold stocks surged amid an increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are tumbling $1.91 to $75.02 a barrel after plunging $3.33 to $76.93 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,865.20, up $19.10 compared to the previous session’s close of $1,846.10. On Tuesday, gold jumped $19.90.

On the currency front, the U.S. dollar is trading at 130.62 yen compared to the 131.02 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0613 compared to yesterday’s $1.0548.

Asia

Asian stocks rose broadly on Wednesday and the dollar eased after reports emerged that the wave of Covid infections sweeping across China may already have peaked in some of the country’s largest cities.

Traders keenly awaited minutes from the Federal Reserve’s December meeting later in the day and Friday’s employment report for clues to the central bank’s future actions.

Fed funds futures traders are pricing for rate cuts later this year despite hawkish rhetoric from Fed officials.

China’s Shanghai Composite Index edged up 0.2 percent to 3,123.52 on hopes of swift post-Covid recovery and more policy support to boost the economy.

Hong Kong’s Hang Seng Index jumped 3.2 percent to 20,793.11 after China’s property developers reported forecast-beating December sales.

Meanwhile, Japanese shares tumbled as traders returned to their desks after a long holiday weekend for the New Year.

The Nikkei 225 Index slumped 1.5 percent to 25,716.86, marking its lowest close since March 15, as the yen advanced amid fears the Bank of Japan might move away from its accommodative policies.

The broader Topix closed 1.3 percent lower at 1,868.15. Shipping companies and oil explorers led declines, with Nippon Yusen plunging 6.5 percent and Inpex losing 4.2 percent.

Banks surged on expectations that they would benefit from BOJ’s potential shift toward a more hawkish stance. Mitsubishi UFJ Financial Group jumped 4.2 percent and Mizuho Financial Group added 3 percent.

Seoul stocks rallied on bargain hunting after four days of losses. The Kospi climbed 1.7 percent to 2,255.98 as foreigners snatched up shares of chipmakers such as Samsung Electronics and SK Hynix. Samsung surged 4.3 percent, while the latter soared 7.1 percent.

Australian markets rallied, driven by strong gains in the mining, financial and technology sectors. Energy stocks bucked the positive trend after oil prices slumped more than 4 percent overnight.

The benchmark S&P/ASX 200 Index jumped 1.6 percent to 7,059.20, while the broader All Ordinaries Index gained 1.7 percent to settle at 7,249.10.

Europe

European stocks are moving higher for a third straight session on Wednesday, even as U.K. markets underperform amid a decline in commodity-related stocks.

A measure of French inflation unexpectedly slowed in December and the euro area’s final composite PMI saw a slight upward revision versus the preliminary estimate, helping underpin regional sentiment.

Elsewhere, German import price inflation weakened more than expected to the lowest in nearly one-and-a half years in November, Destatis said.

Traders now await the release of the minutes from the Fed’s December policy meeting later in the day as well as other key economic data expected to offer additional clues about the outlook for interest rates and the economy.

While the U.K.’s FTSE 100 Index has risen by 0.4 percent, the German DAX Index and the French CAC 40 Index are up by 1.8 percent and 1.9 percent, respectively.

Dutch carmaker Stellantis NV has risen. The company today announced the launch of Chrysler brand’s Chrysler Synthesis Cockpit demonstrator to offer a mobility experience that is more user-friendly, more connected and more efficient.

Swiss power supplier BKW has moved sharply higher after saying it expects “outstanding” result for full-year 2022.

Banks HSBC Holdings and Barclays have also moved to the upside on expectations that they would benefit from higher interest rates.

Sanofi shares have edged higher in Paris. The healthcare firm said it expects a boost from foreign exchange movements and flu vaccine sales in its fourth-quarterly results, due to be published next month.

U.S. Economic Reports

The Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of December at 10 am ET.

The ISM’s manufacturing PMI is expected to edge down to 48.5 in December from 49.0 in November, with a reading below 50 indicating a contraction.

Also at 10 am ET, the Labor Department is due to release its report on job openings in the month of November. Job openings are expected to decrease to 10.0 million in November from 10.3 million in October.

The Federal Reserve is scheduled to release the minutes of its December 13-14 monetary policy meeting at 2 pm ET.

Stocks In Focus

Shares of Salesforce (CRM) are seeing pre-market strength after the company announced a restructuring plan that includes laying off about 10 percent of its employees and closing some offices.

Drug giant Merck (MRK) may also move to the upside after Bank of America upgraded its rating on the company’s stock to Buy from Neutral.

On the other hand, shares of Microsoft (MSFT) may come under pressure after UBS downgraded its rating on the software giant’s stock to Neutral from Buy.