U.S. Stocks May Extend Last Friday’s Pullback In Early Trading

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks poised to extend the pullback seen in the previous session.

Concerns about the outlook for interest rates may continue to weigh on Wall Street following last week’s stronger than expected jobs data.

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

The economic calendar remains relatively light throughout the week, although traders are likely to keep an eye on remarks by Federal Reserve Chair Jerome Powell on Tuesday.

After last week’s interest rate increase, traders are likely to look to Powell’s comments for additional clues about the outlook for further rate hikes.

Stocks recovered from initial weakness but showed a significant move back to the downside over the course of the trading session on Friday. With the pullback on the day, the Nasdaq and S&P 500 gave back ground after moving sharply higher for three straight sessions.

After ending Thursday’s trading at nearly five-month closing high, the Nasdaq tumbled 193.86 points or 1.6 percent to 12,006.95. The S&P 500 also slumped 43.28 points or 1.0 percent to 4,136.48, pulling back off its best closing level in over five months.

The narrower Dow showed a more modest decrease on the day, with the blue chip index falling 127.93 points or 0.4 percent to 33,926.01.

Despite the pullback, the Nasdaq surged 3.3 percent for the week and the S&P 500 jumped by 1.6 percent. Meanwhile, the Dow edged down by 0.2 percent.

The weakness on Wall Street partly reflected renewed concerns about the outlook for interest rates following the release of much stronger than expected jobs data.

The Labor Department’s closely watched monthly jobs report said non-farm payroll employment soared by 517,000 jobs in January after surging by an upwardly revised 260,000 jobs in December.

Economists had expected employment to increase by 185,000 jobs compared to the addition of 223,000 jobs originally reported for the previous month.

The report also said the unemployment rate edged down to 3.4 percent in January from 3.5 percent in December. The dip surprised economists, who had expected the unemployment rate to inch up to 3.6 percent.

With the unexpected decrease, the unemployment rate dropped to its lowest level since hitting a matching rate in May 1969.

While the report points to continued strength in the labor market, the data has led to concerns the Federal Reserve will raise interest rates higher than currently anticipated.

“The surprisingly, strong across-the-board January employment report shows that labor demand remains too hot for the economy‘s own good and will embolden the Fed to raise rates more not less,” said Nationwide Chief Economist Kathy Bostjancic.

“We had been looking for a peak in the Fed funds target range of 5% – 5.25%, but the risks are now that they might need to do more,” she added. “At the minimum, this should dampen the market’s expectation for rate cuts in the second half of the year.”

Earlier in the session, the negative sentiment was partly offset by upbeat service sector data, which generated optimism the economy could be headed for a soft landing.

The report from the Institute for Supply Management showed service sector activity rebounded by much more than expected in the month of January.

The ISM said its services PMI jumped to 55.2 in January from a revised 49.2 in December, with a reading above 50 indicating growth. Economists had expected the index to inch up to 50.4 from the 49.6 originally reported for the previous month.

Meanwhile, a negative reaction to earnings news from tech giants Google parent Alphabet (GOOGL) and Amazon (AMZN) also weighed on the markets, while Apple (AAPL) moved higher despite reporting weaker than expected quarterly results.

Gold stocks turned in some of the market’s worst performances on the day, dragging the NYSE Arca Gold Bugs Index down by 4.1 percent to its lowest intraday level in a month. The sell-off by gold stocks comes amid a steep drop by the price of the precious metal.

Substantial weakness was also visible among retail stocks, as reflected by the 3.8 percent slump by the Dow Jones U.S. Retail Index.

Airline stocks also saw significant weakness after Thursday’s rally, resulting in a 3.1 percent nosedive by the NYSE Arca Airline Index. The index pulled back off its best closing level in almost eight months.

Software, utilities and housing stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are climbing $0.75 to $74.14 a barrel after plunging $2.49 to $73.39 a barrel last Friday. Meanwhile, after plummeting $54.20 to $1,876.60 an ounce in the previous session, gold futures are rising $7.80 to $1,884.40 an ounce.

On the currency front, the U.S. dollar is trading at 132.26 yen versus the 131.19 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0773 compared to last Friday’s $1.0795.

Asia

Asian stocks fell broadly on Monday as robust U.S. jobs data released on Friday fanned fears of more interest rate hikes to slow economic activity and cool inflation.

According to the Federal Reserve, a strong labor market would lead to excessive wage growth, which, in turn, would lead to inflation pressures.

Chinese and Hong Kong stocks slipped into the red after the Biden administration decided to postpone Secretary of State Antony Blinken’s upcoming trip to China in response to the Pentagon’s discovery of an alleged Chinese spy balloon that was later shot down.

The benchmark Shanghai Composite Index dropped 0.8 percent to 3,238.70, while Hong Kong’s Hang Seng Index plunged 2.0 percent to close at 21,222.16, dragged down by property and technology stocks.

Japanese shares rose as the yen weakened by almost 1 percent on a Nikkei report that Masayoshi Amamiya was approached by the government for the role of Bank of Japan Governor.

The Nikkei 225 Index climbed 0.7 percent to 27,693.65, while the broader Topix added 0.5 percent to close at 1,979.22. Mobility supplier Denso Corp. rallied 3.1 percent after unveiling its third quarter financial results.

New Zealand markets were closed for Waitangi Day holiday. Australian markets fell modestly as investors awaited the RBA’s policy meeting on Tuesday for direction.

Investors also digested weak data showing that Australian retail sales fell for the first time in a year last quarter.

The benchmark S&P/ASX 200 Index slipped 0.3 percent to 7,539 and the broader All Ordinaries Index ended 0.3 percent lower at 7,745.90.

Gold miners led losses, with Northern Star Resources and Regis both falling around 1 percent after bullion prices hit a three-week low on Friday following stellar monthly job figures. Newcrest Mining soared 9.3 percent on news of a potential bid for the company.

Furniture retailer Nick Scali slumped 13 percent after reporting a 70 percent rise in its annual profit.

Seoul stocks ended sharply lower, with the Kospi closing down 1.8 percent at 2,438.19.

Europe

European stocks are moving lower on Monday, as robust U.S. jobs data released on Friday has fanned fears of more interest rate hikes to cool inflation.

Increased tensions between the U.S. and China have also weighed on the markets after the U.S. military on Saturday shot down a suspected Chinese spy balloon off the Carolina coast.

While the French CAC 40 Index has dove by 1.3 percent, the German DAX Index is down by 0.9 percent and the U.K.’s FTSE 100 Index is down by 0.7 percent.

Factory orders rose 3.2 percent in December compared with a 4.4 percent fall in November on a price-adjusted basis, the statistics office Destatis said.

Aurubis shares plunged around 6 percent. The German copper producer reported that its first quarter net income dropped 81 percent to 57 million euros from 301 million euros in the same quarter last year.

Novartis fell about 1 percent. Sandoz, a division of the Swiss drug maker, announced the FDA has accepted its Biologics License Application for proposed biosimilar denosumab.

Rovio Entertainment, the creators of mobile game Angry Birds, jumped more than 13 percent as it announced the commencement a strategic review and preliminary non-binding talks with certain parties regarding a potential tender offer.

Italian lender Banco BPM gained 1.1 percent after its Chief Executive Giuseppe Castagna ruled out a potential acquisition of Monte dei Paschi di Siena.

Diageo was down half a percent in London after the spirits maker launched a partial tender offer to increase its stake in East African Breweries Plc to up to 65 percent from 50 percent currently.

Eurazeo fell nearly 2 percent after the French investment company named a new executive board that will be led by two chairmen.

U.S. Economic Reports

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