Interest Rate Concerns May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to see further downside after moving mostly lower over the two previous sessions.

Ongoing concerns about the outlook for interest rates may weigh on the markets amid a continued surge by U.S. treasury yields.

The yield on the benchmark ten-year note is extending the jump seen on Wednesday, reaching its highest levels in well over three months.

With the Federal Reserve warning about the impacts of labor market tightness, negative sentiment may also be generated in reaction to a Labor Department report unexpectedly showing a modest decrease in initial jobless claims.

The Labor Department said initial jobless claims edged down to 190,000 in the week ended February 25th, a decrease of 2,000 from the previous week’s unrevised level of 192,000. Economists had expected jobless claims to inch up to 195,000.

Meanwhile, the Dow may benefit from a surge by shares of Salesforce (CRM), with the cloud-based software company spiking by 16.2 percent in pre-market trading.

The jump by Salesforce comes after the company reported better than expected fourth quarter results, provided upbeat guidance and increased its share buyback program to $20 billion.

Following the lackluster performance seen during Tuesday’s session, stocks continued to experience choppy trading on Wednesday. The major averages spent the day bouncing back and forth across the unchanged line.

Eventually, the Dow ended the day up 5.14 points or less than a tenth of a percent at 32,661.84, while the Nasdaq slid 76.06 points or 0.7 percent to 11,379.48 and the S&P 500 fell 18.76 points or 0.5 percent at 3,951.39.

The choppy trading on Wall Street came following the release of a report from the Institute for Supply Management on U.S. manufacturing activity in the month of February.

While the ISM said its manufacturing PMI inched up to 47.7 in February from 47.4 in January, a reading below 50 still indicates a contraction. Economists had expected the index to edge up to 48.0.

The report also showed the prices index jumped to 51.3 in February from 44.5 in January, indicating raw materials prices increased after decreasing for four consecutive months.

“Overall, there is little sign that the recent improvements in manufacturing activity in other economies, particularly China, is being reflected in the U.S.,” said Andrew Hunter, Deputy Chief U.S. Economist at Capital Economics. “The ISM index is also still loosely consistent, on past form, with negative GDP growth.”

The notable rebound by the prices index may have added to recent concerns about inflation and the outlook for interest rates.

Treasury yields jumped following the release of the report, with the ten-year yield reaching its highest levels in over three months.

Interest rate-sensitive utilities stocks showed a significant move to the downside, dragging the Dow Jones Utility Average down by 1.8 percent to its lowest closing level in over three months.

Considerable weakness was also visible among retail stocks, as reflected by the 1.8 percent slump by the Dow Jones U.S. Retail Index.

Home improvement retailer Lowe’s (LOW) posted a steep loss after reporting fourth quarter sales that missed analyst estimates.

Telecom and commercial real estate stocks also saw notable weakness on the day, while steel, energy and gold stocks moved sharply higher.

Commodity, Currency Markets

Crude oil futures are inching up $0.09 to $77.78 a barrel after climbing $0.64 to $77.69 a barrel on Wednesday. Meanwhile, after rising $8.70 to $1,845.40 an ounce in the previous session, gold futures are slipping $4.90 to $1,840.50 an ounce.

On the currency front, the U.S. dollar is trading at 136.98 yen versus the 136.19 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0591 compared to yesterday’s $1.0668.

Asia

Asian stocks turned in a mixed performance on Thursday, the dollar strengthened, and bond yields hit fresh multi-month highs, as signs of rising inflationary pressures in the U.S. and hawkish comments from Federal Reserve officials cemented investor worries over further interest-rate hikes.

Chinese shares fluctuated before finishing marginally lower, reversing Wednesday’s gains. The Shanghai Composite Index edged down 0.1 percent to 3,310.65.

Hong Kong’s Hang Seng Index fell 0.9 percent to 20,429.46 after rallying more than 4 percent the previous day to register its biggest single-day gain in nearly three months following unexpectedly upbeat readings from China’s PMI surveys.

Japanese shares gave up early gains to finish slightly lower despite a weaker yen and fading expectations of an imminent hawkish turn by the Bank of Japan.

The Nikkei 225 Index ended marginally lower at 27,498.87, while the broader Topix closed 0.2 percent lower at 1,994.57.

Tech stocks led losses, with Advantest, Screen Holdings and Tokyo Electron falling between 1 percent and 1.6 percent. Among those that gained, Uniqlo store operator Fast Retailing jumped 2.1 percent.

Seoul stocks gained ground on optimism surrounding China’s economic recovery from the COVID-driven slowdown.

The Kospi climbed 0.6 percent to 2,427.85, led by steelmakers and oil refiners. POSCO Holdings jumped 6 percent and SK Innovation added 6.9 percent.

Australian markets ended on a flat note as yields on government bonds rose across the 2-year to 10-year maturities. The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index both closed marginally higher at 7,255.40 and 7,460, respectively.

Miners topped the gainers list, with BHP, Rio Tinto and Fortescue Metals Group all surging more than 4 percent.

Europe

European markets turning in a mixed performance on Thursday following the release of data showing euro area inflation slowed less than expected in February.

The harmonized index of consumer prices rose 8.5 percent year-on-year in February, which was the slowest since May 2022.

However, the rate was only marginally below January’s 8.6 percent and also above economists’ forecast of 8.2 percent.

ECB’s Joachim Nagel said Wednesday that the central bank might need large interest-rate increases beyond March to combat high inflation.

Elsewhere, Bank of England Governor Andrew Bailey said in his speech at Brunswick Group’s Cost of Living Conference in London that rates could rise further if inflationary pressures become embedded.

While the French CAC 40 Index is up by 0.2 percent, the U.K.’s FTSE 100 Index is just below the unchanged line and the German DAX Index is down by 0.3 percent.

Swiss specialty chemicals firm Clariant has shown a notable move to the downside after it forecast annual sales to slightly decline in 2023.

Flutter Entertainment shares have also tumbled. The gambling and betting group reported FY22 core profit at the lower end of its guidance range.

Resource-management firm Veolia Environnement has also declined despite reporting an increase in FY22 net income and revenue, helped by its merger with Suez.

On the other hand, buildings giant CRH has soared after reporting a jump in 2022 profit and unveiling share buyback plans.

Vesuvius, an engineering company, has also moved sharply higher after reporting an increase in earnings for 2022, amidst an increase in revenue.

Public transport company National Express has also rallied after reporting improved financial and operating performance for FY22.

Technip Energies shares have also surged in Paris. The engineering firm, focused on energy industry, posted a rise in earnings for 2022 on lower revenue.

U.S. Economic Reports

A report released by the Labor Department on Thursday unexpectedly showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended February 25th.

The Labor Department said initial jobless claims edged down to 190,000, a decrease of 2,000 from the previous week’s unrevised level of 192,000. Economists had expected jobless claims to inch up to 195,000.

Meanwhile, the report said the less volatile four-week moving average crept up to 193,000, an increase of 1,750 from the previous week’s unrevised average of 191,250.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

Federal Reserve Board Governor Christopher Waller is due to speak on the economic outlook before a virtual Mid-Size Bank Coalition of America event at 4 pm ET.

At 6 pm ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a conversation on race, justice and the economy as part of the Testify: Americana from Slavery to Today exhibit at the Minneapolis Central Library.

Stocks In Focus

Shares of ON Semiconductor (ON) are seeing significant pre-market weakness after Raymond James downgraded its rating on the chipmaker to Outperform from Strong Buy.

Cloud data platform provider Snowflake (SNOW) may also come under pressure after reporting better than expected fourth quarter results but providing disappointing guidance.

Meanwhile, department store chain Macy’s (M) is likely to see initial strength after reporting fourth quarter earnings that exceeded analyst estimates and providing upbeat guidance for fiscal 2023.