Ongoing Interest Rate Concerns May 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 following the weakness seen in the previous session.

Ongoing concerns about the outlook for interest rates are likely to weigh on Wall Street following the release of a report from payroll processor ADP showing much stronger than expected private sector job growth in the month of June.

ADP said private sector employment spiked by 497,000 jobs in June after jumping by a downwardly revised 267,000 jobs in May.

Economists had expected private sector employment to increase by 228,000 jobs compared to the addition of 278,000 jobs originally reported for the previous month.

While the surge in private sector employment paints a positive picture of the economy, continued strength in the labor market may convince the Federal Reserve to resume raising interest rates.

The Fed, which is due to announce its next interest rate decision later this month, has previously warned about the impact of labor market tightness.

U.S. stocks ended weak on Wednesday, although those from the technology sector managed to briefly emerge higher around mid-morning. Lingering concerns about the impact of rising interest rates on economic growth weighed on the markets.

The mood was cautious with investors focusing on the minutes of the Federal Reserve’s latest monetary policy meeting. Disappointing service sector data from China and the Europe weighed as well.

The major averages all ended modestly lower. The Dow ended with a loss of 129.83 points or 0.4 percent at 34,288.64. The S&P 500 settled at 4,446.82 with a loss of 8.77 points or 0.2 percent, while the Nasdaq closed lower by 25.12 points or 0.3 percent at 13,791.65.

The minutes from the Federal Reserve’s June meeting showed most members thought further hikes are on the way, but considering the lagged impact of policy and other concerns, chose to pause after enacting 10 straight rate increases.

The minutes showed the officials felt that “leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability.”

The minutes said that participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2 percent objective over time.

In U.S. economic news, the Commerce Department released a report showing new orders for U.S. manufactured goods increased by much less than expected in the month of May

The Commerce Department said factory orders rose by 0.3 percent in May after rising by a downwardly revised 0.3 percent in April.

Economists had expected factory orders to climb by 0.8 percent compared to the 0.4 percent increase originally reported for the previous month.

Commodity, Currency Markets

Crude oil futures are falling $0.40 to $71.39 a barrel after spiking $2 to $71.79 a barrel on Wednesday. Meanwhile, after slipping $2.40 to $1,927.10 an ounce in the previous session, gold futures are sliding $12.50 to $1,914.60 an ounce.

On the currency front, the U.S. dollar is trading at 144.33 yen versus the 144.66 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0863 compared to yesterday’s $1.0854.

Asia

Asian stocks declined on Thursday, with hawkish Fed meeting minutes and lingering U.S.-China tensions keeping investors nervous.

The dollar consolidated gains and Treasury yields rose after the Federal Reserve’s June meeting minutes showed policymakers anticipate two more interest rate hikes in 2023 to bring inflation back down.

Gold was a tad higher in Asian trading, while oil prices slipped on concerns about China’s lackluster economic recovery.

Chinese shares ended lower as investors waited to see what U.S. Treasury Secretary Janet Yellen’s visit means for China-U.S. relations. The benchmark Shanghai Composite Index dropped 0.5 percent to 3,205.57.

Hong Kong’s Hang Seng Index plunged 3.0 percent to 18,533.05 on heavy selling of Chinese banking shares.

Japanese stocks tumbled to end at over a one-week low, with chip-related firms coming under selling pressure.

The Nikkei 225 Index slumped 1.7 percent to 32,773.02, marking its lowest close since June 27. The broader Topix Index ended 1.3 percent lower at 2,277.08.

Advantest, Screen Holdings and Tokyo Electron lost 2-4 percent after the Philadelphia Semiconductor Index dropped more than 2 percent overnight.

Socionext shares plummeted 22.8 percent after its biggest shareholders sold their entire stake in the chip designer.

Seoul stocks fell notably to extend losses for a third day running. The Kospi shed 0.9 percent to finish at 2,556.29, as China’s exports curbs announcement hit tech stocks. Chip giant SK Hynix gave up 2.5 percent.

On the positive side, Internet portal provider Naver jumped 4.8 percent and platform giant Kakao surged 4.2 percent.

Australian markets ended sharply lower as tumbling iron ore prices on the back weak Chinese data pulled down mining stocks. BHP, Rio Tinto and Fortescue Metals Group lost 1-2 percent.

The big banks also fell 1-2 percent, while Magellan Financial plummeted 8.3 percent after disclosing $2.1 billion in net outflows for the month of June.

The benchmark S&P/ASX 200 Index fell 1.2 percent to 7,163.40, while the broader All Ordinaries Index settled 1.2 percent lower at 7,365.

Europe

European stocks have tumbled on Thursday, as heightened concerns about China’s economic recovery and expectations for a more hawkish Federal Reserve sapped investors’ appetite for risk. Investors were also reacting to mixed economic data from the region.

German factory orders advanced 6.4 percent on a monthly basis in May following a 0.2 percent rise in April, data published by Destatis revealed. Orders were expected to grow 1.5 percent after April’s initially estimated 0.4 percent drop.

Eurozone retail sales flatlined in May for the second month in a row, missing expectations of a 0.2 percent increase.

While the French CAC 40 Index has plunged by 2.1 percent, the U.K.’s FTSE 100 Index is down by 1.5 percent and the German DAX Index is down by 1.4 percent.

Brenntag shares have moved to the downside. The German chemicals and ingredients distribution company said it would unveil the result of a strategic review later this year.

Aircraft maker Airbus has also fallen in Paris. Citing industry sources, Reuters reported that its deliveries increased by 6 percent in the first half of the year and the company is targeting 720 deliveries for the year.

Currys has also moved sharply lower after the British electronics retail giant warned of reduced consumer spending.

Avation Plc shares have also plunged. The commercial passenger aircraft leasing company said it expects lease revenue for the year-ended June 30, 2023 to be about $90 million.

Financial services firm Just Group has also moved lower after appointing Mark Godson at its new CFO.

Meanwhile, oilfield services firm Hunting has soared after its first quarter core profit jumped more than threefold.

Hedge fund Man Group has also advanced after it has agreed to buy a controlling interest in U.S. middle-market private credit manager Varagon Capital Partners for $183 million.

U.S. Economic Reports

A report released by payroll processor ADP on Thursday showed private sector employment in the U.S. surged by much more than expected in the month of June.

ADP said private sector employment spiked by 497,000 jobs in June after jumping by a downwardly revised 267,000 jobs in May.

Economists had expected private sector employment to increase by 228,000 jobs compared to the addition of 278,000 jobs originally reported for the previous month.

Meanwhile, a separate report released by the Labor Department showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended July 1st.

The report said initial jobless claims rose to 248,000, an increase of 12,000 from the previous week’s revised level of 236,000.

Economists had expected jobless claims to climb to 245,000 from the 239,000 originally reported for the previous week.

The Commerce Department also released a report showing the U.S. trade deficit narrowed by slightly more than expected in May amid a slump in the value of imports.

The report said the trade deficit decreased to $69.0 billion in May from a revised $74.4 billion in April. Economists had expected the trade deficit to shrink to $69.8 billion compared to the $74.6 billion originally reported for the previous month.

The narrower trade deficit came as the value of imports tumbled by 2.3 percent, while the value of exports fell by 0.8 percent.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of June.

The ISM’s services PMI is expected to inch up to 51.0 in June from 50.3 in May, with a reading above 50 indicating growth in the sector.

The Labor Department is also due to release its report on job openings in the month of May at 10 am ET. Job openings are expected to decrease to 9.9 million in May from 10.1 million in April.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended June 30th.

The Treasury Department is also due to announce the details of this month’s auction of three-year and ten-year notes and thirty-year bonds at 11 am ET.