Traders May Take A Breather To Digest Recent Surge

The major U.S. index futures are currently pointing to a roughly flat open on Monday, with stocks likely to show a lack of direction following the strong upward move seen last week.

Traders may be reluctant to make significant moves as the digest last week’s rally, which reflected easing concerns about the outlook for interest rates.

The Federal Reserve’s monetary policy announcement last Wednesday combined with softer than expected jobs data last Friday has led to optimism that the central bank is done raising interest rates.

CME Group’s FedWatch Tool currently indicates the Fed is likely to leave rates unchanged in the coming months until potentially cutting rates in mid-2024.

A lack of major U.S. economic data may also keep traders on the sidelines ahead of remarks by several central bank officials, including Fed Chair Jerome Powell.

Reports on the U.S. trade deficit, initial jobless claims and consumer sentiment may also attract attention in the coming days.

“It’s been a relatively subdued start to trading on Monday and the US is eyeing a similar open, with stock markets struggling to maintain the momentum from the second half of last week,” said Craig Erlam, senior market analyst at OANDA.

Capping off a strong week for the markets, stocks moved considerably higher during the trading session on Friday. The Dow and the S&P 500 closed higher for the fifth straight day, while the tech-heavy Nasdaq extended its winning streak to six sessions.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Nasdaq surged 184.09 points or 1.4 percent to 13,478.28, the S&P 500 jumped 40.56 points or 0.9 percent to 4,358.34 and the Dow advanced 222.24 points or 0.7 percent to 34,061.32.

For the week, the Nasdaq skyrocketed by 6.6 percent, the S&P 500 soared by 5.9 percent and the Dow spiked by 5.1 percent.

The continued strength on Wall Street reflects a positive reaction to a Labor Department report showing U.S. employment rose by less than expected in the month of October.

The closely watched report said employment climbed by 150,000 jobs in October after jumping by a downwardly revised 297,000 jobs in September.

Economists had expected employment to increase by 180,000 jobs compared to the surge of 336,000 jobs originally reported for the previous month.

The Labor Department also said the unemployment rate crept up to 3.9 percent in October from 3.8 percent in September. The unemployment rate was expected to remain unchanged.

The data has added to optimism the Federal Reserve is done raising interest rates after the central bank left rates unchanged for the third time in four meetings earlier this week.

Treasury yields are extending a recent slump following the release of the report, adding to the buying interest on Wall Street.

“Given that jobs growth is slowing and the unemployment rate is ticking up slightly, that is the kind of data that will keep the Fed on hold and both stock and bond prices should move higher (bond yields lower) in the absence of a more aggressive Fed,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

A separate report released by the Institute for Supply Management showed a bigger than expected slowdown in the pace of growth in U.S. service sector activity in the month of October.

The ISM said its services PMI fell to 51.8 in October from 53.6 in September, although a reading above 50 still indicates growth. Economists had expected the index to edge down to 53.0.

Airline stocks saw substantial strength on the day, driving the NYSE Arca Airline Index up by 4.9 percent. The index continued to recover after ending Wednesday’s trading at its lowest closing level in over three years.

Considerable strength was also visible among gold stocks, as reflected by the 4.4 percent spike by the NYSE Arca Gold Bugs Index.

The rally by gold stocks came amid a modest increase by the price of the precious metal, with gold for December delivery inching up $5.70 to $1,999.20 an ounce.

Interest-sensitive housing stocks also turned in a particularly strong performance, resulting in a 3.2percent surge by the Philadelphia Housing Sector Index.

Banking, biotechnology and telecom stocks also saw notable strength, while oil stocks were among the few groups to buck the uptrend amid a steep drop by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are climbing $0.92 to $81.43 a barrel after tumbling $1.95 to $80.51 a barrel last Friday. Meanwhile, after rising $5.70 to $1,999.20 an ounce in the previous session, gold futures are slipping $6.60 to $1,992.60 an ounce.

On the currency front, the U.S. dollar is trading at 149.77 yen versus the 149.39 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0741 compared to last Friday’s $1.0731.

Asia

Asian stocks rose for a fourth straight session on Monday and the dollar lingered near six-week lows as weak U.S. jobs and service sector activity data released on Friday helped ease worries about further rate hikes by the Federal Reserve.

Gold slipped due to a slight uptick in U.S. Treasury yields as investors took stock of the latest developments in the Middle East and looked ahead to a speech by Fed Chair Jerome Powell later this week for more clarity on the interest rate outlook.

Futures markets currently imply an 86 percent chance the first policy easing would come as soon as June. Markets also expect the European Central Bank to cut rates by April and the Bank of England in August.

Oil prices rose about 1 percent in Asian trading after Russia and Saudi Arabia reiterated that they would restrict the supply of crude oil until the end of this year.

China’s Shanghai Composite Index jumped 0.9 percent to 3,058.41 and Hong Kong’s Hang Seng Index soared 1.7 percent to 17,966.59 ahead of Chinese trade and inflation figures due this week.

Japanese shares posted strong gains after Bank of Japan governor Kazuo Ueda said the country was making progress toward stable inflation and monetary conditions will remain sufficiently accommodative to support economic activity.

Investors also digested the minutes of the September BoJ meeting and mixed business activity data for October.

The Nikkei 225 Index rallied 2.4 percent to 32,708.48 to close at a more than one-month high. The broader Topix Index surged 1.6 percent to 2,360.46.

Seoul stocks jumped the most since late March 2020 as authorities re-imposed a ban on short selling until the end of June 2024. The Kospi soared 5.7 percent to 2,502.37, extending its winning streak to a fourth consecutive session. Tech and battery stocks topped the gainers list.

Australian markets eked out cautious gains amid expectations that the Reserve Bank may resume raising rates to control stubborn inflation at a policy meeting on Tuesday.

The benchmark S&P ASX 200 Index edged up 0.3 percent to 6,997.40, while the broader All Ordinaries Index inched up 0.2 percent to 7,192.30.

Lender Westpac rose nearly 2 percent after raising its dividend and announcing a share buyback.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index settled 1.3 percent higher at 11,261.22. Healthcare stocks advanced the most, with Fisher & Paykel Healthcare climbing 3.4 percent.

Europe

European stocks have struggled for direction on Monday after posting strong gains last week on dovish Fed bets. Growth worries resurfaced after official data showed the downturn in eurozone business activity accelerated last month.

HCOB’s PMI, compiled by S&P Global, fell to 46.5 in October from September’s 47.2, its lowest reading since November 2020.

Meanwhile, German factory orders grew unexpectedly in September, separate data from Destatis showed. New orders climbed 0.2 percent on a monthly basis in September, confounding expectations for a fall of 1.0 percent.

While the U.K.’s FTSE 100 Index is up by 0.1 percent, the German DAX Index is down by 0.3 percent and the French CAC 40 Index is down by 0.5 percent.

Telecom Italia SpA has moved sharply lower. The telecom major has agreed to sell its landline network to Kohlberg Kravis Roberts & Co. L.P.

Germany’s Evotec has also plunged after RBC downgraded the biotech firm’s stock to “Sector perform” from “Outperform.”

Insurance company Prudential has also moved to the downside after new business sales and profits slowed slightly in the third quarter from the half-year stage.

Meanwhile, Ryanair Holdings, Europe’s largest airline, has soared after forecasting a record annual profit and outlining plans to pay a regular dividend.

Melrose Industries, a pure-play aerospace company, has also rallied. The company said its GKN Aerospace Engines business has signed a new agreement with aircraft engines maker GE Aerospace.

U.S. Economic Reports

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