Weakness Among Chip Stocks May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to give back ground after moving sharply higher over the course of the previous session.

Weakness among semiconductor stocks may weigh on the markets after a report from the Wall Street Journal said the Biden administration is considering new restrictions on exports of artificial intelligence chips to China.

Citing people familiar with the situation, the Journal said the Commerce Department could move as soon as early next month to stop the shipments of chips to customers in China and other countries of concern without first obtaining a license.

The Journal noted the potential restrictions come amid concerns China could use AI chips for weapon development and hacking.

Chipmakers Nvidia (NVDA) and Advanced Micro Devices (AMD) are seeing significant pre-market weakness following the report.

Early trading may be somewhat subdued, however, as traders look ahead to remarks by Federal Reserve Chair Jerome Powell in a panel discussion at the European Central Bank Forum on Central Banking in Sintra, Portugal.

Powell will be joined by European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Kazuo Ueda.

“Often in these situations, policymakers will stick to the script, preferring to leave big announcements for meetings and certain high-profile events,” said Craig Erlam, Senior Market Analyst at OANDA. “But with so many heads appearing at the same time, there’s every chance at least one says something that will either rattle or stimulate the markets.”

“To make this event more intriguing, they’re all contending with very similar issues and yet their individual situations are quite different, which could make the discussion all the more interesting,” he added.

Stocks moved sharply higher over the course of the trading day on Tuesday, regaining ground following recent weakness. The major averages all moved to the upside on the day, with the Dow snapping a six-session losing streak.

The major averages pulled back off their best levels going into the close but held on to strong gains. The Nasdaq surged 219.89 points or 1.7 percent to 13,555.67, the S&P 500 jumped 49.59 points or 1.2 percent to 4,378.41 and the Dow climbed 212.03 points or 0.6 percent to 33,926.74.

The rally on Wall Street partly reflected optimism the U.S. economy will avoid a recession following the release of several upbeat reports.

The Commerce Department released a report showing an unexpected surge in new orders for U.S. manufactured durable goods in the month of May.

The report said durable goods orders shot up by 1.7 percent in May after jumping by an upwardly revised 1.2 percent in April.

Economists had expected durable goods orders to slump by 1.0 percent compared to the 1.1 percent advance that had been reported for the previous month.

Excluding a surge in orders for transportation equipment, durable goods orders climbed by 0.6 percent in May after falling by a revised 0.6 percent in April.

Ex-transportation orders were expected to edge down by 0.1 percent compared to the 0.2 percent dip that had been reported for the previous month.

A separate Commerce Department unexpectedly showed a sharp increase in new home sales in the U.S. in the month of May.

The report said new home sales soared 12.2 percent to an annual rate of 763,000 in May after surging 3.5 percent to a revised rate of 680,000 in April.

Economists had expected new home sales to slump 1.2 percent to an annual rate of 675,000 from the 683,000 originally reported for the previous month.

With the unexpected spike, new home sales reached their highest level since hitting a rate of 773,000 in February 2022.

Another report released by the Conference Board showed a significant improvement in U.S. consumer confidence in the month of June.

The Conference Board said its consumer confidence index jumped to 109.7 in June from a revised 102.5 in May. Economists had expected the index to rise to 103.7 from the 102.3 originally reported for the previous month.

Later in the week, the Commerce Department is due to release its report on personal income and spending in the month of May, which includes a reading on inflation said to be preferred by the Federal Reserve.

The consumer price inflation data could significantly impact opinions regarding whether the Fed will follow through on its forecast interest rate hikes.

Airline stocks moved sharply on the day, with the NYSE Arca Airline Index soaring by 4.5 percent to its best closing level in over a year.

Delta Air Lines (DAL) posted a standout gain after raising its second quarter earnings guidance and forecasting full-year earnings at the high end of its prior forecast.

Substantial strength was also visible among semiconductor stocks, as reflected by the 3.6 surge by the Philadelphia Semiconductor Index.

The upbeat new home sales also contributed to significant strength among housing stocks, driving the Philadelphia Housing Sector Index up by 3.0 percent. The index reached a record closing high.

Networking, software and computer hardware also saw considerable strength, while gold stocks bucked the uptrend amid a decrease by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are sliding $0.44 to $67.26 a barrel after tumbling $1.67 to $67.70 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,916.30, down $7.50 compared to the previous session’s close of $1,923.80. On Tuesday, gold fell $10.

On the currency front, the U.S. dollar is trading at 144.41 yen compared to the 144.07 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0928 compared to yesterday’s $1.0961.

Asia

Asian shares ended mixed on Wednesday as Chinese industrial profits data disappointed and a softer than expected headline inflation figure in Australia raised the prospect of a pause in interest rate rises from the Reserve Bank of Australia.

Investors shifted their focus to Fed Chair Jerome Powell’s upcoming remarks after a slew of upbeat U.S. economic data pointed to a resilient economy.

The dollar moved lower in Asian trading and gold lingered near three-month lows, while oil prices edged up slightly after the release of a mixed industry report on U.S. crude stockpiles.

China’s Shanghai Composite Index cut early losses to end marginally lower at 3,189.38 as weak industrial profits data for May underscored the uneven nature of the economic recovery and fueled the debate over the need for additional stimulus.

Chinese industrial profits declined 18.8 percent year-on-year in the January to May period amid weak demand and falling producer prices, the National Bureau of Statistics said earlier today.

Hong Kong’s Hang Seng Index fluctuated before ending up 0.1 percent at 19,172.05.

Hua Hong Semiconductor dropped 1.4 percent after reports that the U.S. is considering new restrictions on exports of artificial intelligence chips to China.

Gains in technology stocks lifted Japanese markets, with the Nikkei 225 Index rallying 2.0 percent to 33,193.99 after four days of losses. The broader Topix jumped 2.0 percent to 2,298.60.

Advantest, Tokyo Electron and Screen Holdings climbed 3-4 percent, while Uniqlo clothing chain operator Fast Retailing advanced 1.6 percent.

Automakers Honda and Toyota surged 2-3 percent after the yen hit its lowest level since November. Higher bond yields lifted financials, with Nomura Holdings gaining 3.7 percent.

Shipping stocks underperformed after rallying in the two previous sessions. Kawasaki Kisen Kaisha plummeted 6.2 percent.

Seoul stocks fell notably on the back of weak Chinese data and amid caution ahead of Powell’s remarks at a forum in Portugal later in the day. The Kospi slid 0.7 percent to 2,564.19.

South Korean consumer sentiment improved to the highest level in thirteen months in June, as households’ current and future living conditions improved amid an ease in inflation, survey results from the Bank of Korea showed today.

Australian stocks rose sharply after the weighted inflation rate for May came in at 5.6 percent, sharply lower than April’s figure of 6.8 percent. Headline inflation came in at 5.8 percent for the month, the lowest recorded rate since April 2022.

The benchmark S&P/ASX 200 Index jumped 1.1 percent to 7,196.50, marking its largest single-day gain since April 11. The broader All Ordinaries Index closed 1.2 percent higher at 7,384.10.

Europe

European stocks have advanced on Wednesday as a slew of upbeat U.S. economic data soothed concerns about an economic downturn.

Meanwhile, investors shrugged off the results of a key survey showing that German consumer confidence has fallen for the first time since October.

Pollster GfK said its forward-looking survey of around 2,000 people fell to minus 25.4 points in July from 24.4 points in June.

Elsewhere, a measure of France’s consumer confidence climbed to 85 in June from 83 in May.

Market participants now await a panel discussion of central bankers in Sintra, including European Central Bank President Christine Lagarde, Federal Reserve Chair Jerome Powell, Bank of Japan Governor Kazuo Ueda and Bank of England’s Andrew Bailey for further policy direction.

While the U.K.’s FTSE 100 Index has climbed by 0.7 percent, the German DAX Index and the French CAC 40 Index are both up by 0.8 percent.

Software firm Sage has soared after a brokerage upgrade, while Mulberry Group has jumped after reiterating its full-year guidance.

Swiss banking group UBS has also moved higher after it unveiled plans to cut more than half of Credit Suisse Group AG’s workforce.

French supermarket chain Carrefour has also surged after Morgan Stanley initiated coverage with an “overweight” rating.

Meanwhile, Swiss Life Holding AG has declined even though the life insurance firm said it is well on track to achieve its 2024 financial targets.

U.S. Economic Reports

Federal Reserve Chair Jerome Powell is scheduled to participate in a panel discussion at the European Central Bank Forum on Central Banking 2023 in Sintra, Portugal, at 9:30 am ET.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended June 3rd.

Crude oil inventories are expected to decrease by 1.5 million barrels after slumping by 3.8 million barrels in the previous week.

The Treasury Department is scheduled to announce the results of this month’s auction of $35 billion worth of seven-year notes at 1 pm ET.

Stocks In Focus

Shares of Pinterest (PINS) are moving sharply higher in pre-market trading after Wells Fargo upgraded its rating on the image sharing and social media service to Overweight from Equal Weight.

Software company ZoomInfo (ZI) is also likely to see initial strength after Needham initiated coverage of the company’s stock with a Buy rating.

On the other hand, shares of General Mills (GIS) are seeing significant pre-market weakness after the food company reported fiscal fourth quarter earnings that exceeded analyst estimates but weaker than expected revenues.