U.S. Stocks May Move To The Upside Amid Ongoing Interest Rate Optimism

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to move the upside following the lackluster performance seen in the previous session.

Stocks may continue to benefit from recent upward momentum, which has helped propel the Dow and the Nasdaq to their best levels in three months.

Optimism about the outlook for interest rates has contributed to the recent advance, as the latest data has shown signs of easing inflation.

The data has reinforced investors’ expectations that the Federal Reserve will refrain from raising interest rates over the next several months before cutting rates in mid-2024.

The Fed’s next monetary policy meeting is scheduled for December 12-13, with CME Group’s FedWatch Tool currently indicating a 99.7 percent chance the central bank will leave rates unchanged.

However, some economists have suggested Fed officials will maintain a somewhat hawkish tone to avoid the appearance of declaring victory over inflation too soon.

After moving sharply higher in recent sessions, stocks turned in a relatively lackluster performance during trading on Thursday. The major averages spent most of the session modestly below the unchanged line but ended the day narrowly mixed.

The Dow climbed well off its worst levels of the day in late-day trading but still closed down 45.74 points or 0.1 percent at 34,945.47. The blue chip index edged down of the three-month closing high set on Wednesday.

Meanwhile, the Nasdaq crept up 9.84 points or 0.1 percent to 14,113.67, its best closing level in well over three months, and the S&P 500 inched up 5.36 points or 0.1 percent to a more than two-month closing high of 4,508.24.

A steep drop by shares of Walmart (WMT) weighed on the Dow, with the retail giant plunging by 8.1 percent after ending Wednesday’s trading at a record closing high.

The pullback by Walmart came after the company reported better than expected fiscal third quarter results but forecast full-year earnings toward the low end of analyst estimates.

Dow component Cisco Systems (CSCO) also plunged by 9.8 percent after the networking giant reported fiscal first quarter results that beat estimates but lowered its full-year revenue forecast.

Meanwhile, the upticks by the Nasdaq and S&P 500 came as the latest batch of U.S. economic data added to recent optimism about the outlook for interest rates.

The Labor Department released a report showing U.S. import and export prices both fell by more than expected in the month of October, capping off an encouraging week of inflation data.

The report said import prices slid by 0.8 percent in October after climbing by an upwardly revised 0.4 percent in September.

Economists had expected import prices to decrease by 0.3 percent compared to the 0.1 percent uptick originally reported for the previous month.

Meanwhile, the Labor Department said export prices slumped by 1.1 percent in October after rising by a downwardly revised 0.5 percent in September.

Export prices were expected to decline by 0.5 percent compared to the 0.7 percent increase originally reported for the previous month.

A separate Labor Department report showing initial jobless claims climbed by much more than expected in the week ended November 11th.

The Labor Department said initial jobless claims rose to 231,000, an increase of 13,000 from the previous week’s revised level of 218,000.

Economists had expected jobless claims to inch up to 220,000 from the 217,000 originally reported for the previous week.

With the bigger than expected, jobless claims reached their highest level since hitting 232,000 in the week ended August 19th.

“The claims data are consistent with a job market that is cooling enough to keep rate hikes off the table, but too strong to make rate cuts a consideration any time soon,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, “The Fed is surely encouraged by recent inflation data but needs to see a further slowdown in the labor market and wage growth to be persuaded that inflation is on a sustainable path back to 2%.”

The Federal Reserve also released a report showing industrial production fell by more than expected in October due in part to the strikes at several major motor vehicle manufacturers

Energy stocks showed a substantial move to the downside on the day, with a steep drop by the price of crude oil weighing the sector.

With crude for December delivery plummeting $3.76 to $72.90 a barrel, the Philadelphia Oil Service Index dove by 3.6 percent and the NYSE Arca Oil Index tumbled by 2.4 percent.

Cisco led the networking sector lower on the day, dragging the NYSE Arca Networking Index down 3.3 percent. The index ended Wednesday’s trading at its best closing level in over a month.

Palo Alto Networks (PANW) is also posting a steep loss after reporting better than expected fiscal first quarter earnings but provided disappointing billings guidance.

Airline and retail stocks also saw significant weakness, while gold stocks moved notably higher along with the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are jumping $1.17 to $74.07 a barrel after plummeting $3.76 to $72.90 a barrel on Thursday. Meanwhile, after jumping $23 to $1,987.30 an ounce in the previous session, gold futures are rising $4.60 to $1,991.90 an ounce.

On the currency front, the U.S. dollar is trading at 149.57 yen versus the 150.73 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0864 compared to yesterday’s $1.0852.

Asia

Asian stocks turned in a mixed performance on Friday as softer U.S. data and declining oil prices stoked concerns about the global economic outlook.

The dollar was set for a weekly slide, helping bullion prices push higher. Crude prices were little changed in Asian trading after plunging nearly 5 percent on Thursday amid signs of increasing supplies and fears of worsening global demand.

China’s Shanghai Composite Index recovered from an early slide to close 0.1 percent higher at 3,054.37, helped by the apparent easing of tensions between the United States and China.

Hong Kong’s Hang Seng Index plunged 2.1 percent to 17,454.19 due to heavy losses in the tech sector. Alibaba Group Holding shares plummeted 10 percent after the company scrapped plans to spin off its cloud business, citing uncertainties over the supply of chips needed for artificial intelligence development.

Japanese shares ended higher after Bank of Japan Governor Kazuo Ueda said that the economy is recovering moderately, and the central bank will move carefully on raising interest rates.

The Nikkei 225 Index rose 0.5 percent to 33,585.20, while the broader Topix Index settled 1.0 percent higher at 2,391.05. Aviation stocks rebounded after falling in the previous session on disappointing tourism data. ANA Holdings rallied 3.2 percent and Japan Airlines added 2.4 percent.

Seoul stocks fell notably to snap a three-day winning streak amid signs the U.S. economy is cooling. The Kospi slid 0.7 percent to 2,469.85.

Battery makers succumbed to selling pressure following losses from Tesla. LG Energy Solution fell 2.4 percent and Samsung SDI gave up 2.4 percent.

Australian markets edged down slightly as strong domestic labor market data revived rate hike fears. The benchmark S&P ASX 200 Index edge down 0.1 percent to 7,049.40, dragged down by financials and energy stocks.

Gold miners advanced, with Ramelius Resources and Evolution Mining rallying 3-4 percent. The broader All Ordinaries Index ended 0.1 percent lower at 7,261.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index closed 0.5 percent lower at 11,176.97.

Europe

European stocks have advanced on Friday amid expectations that the Federal Reserve may announce two interest rate cuts next year to support growth.

Investors shrugged official data showing U.K. retail sales unexpectedly declined in October as a result of rising interest rates.

Retail sales logged a 0.3 percent monthly drop, slower than the September’s revised 1.1 percent decrease. However, the fall confounded forecasts of a 0.3 percent increase.

While the U.K.’s FTSE 100 Index has jumped by 1.0 percent, the French CAC 40 Index and the German DAX Index are both up by 0.9 percent.

FirstGroup has moved notably higher. The British transport operator has announced partnership with Hitachi ZeroCarbon Limited as part of the company’s decarbonization program.

Hill & Smith has also jumped. The engineering and construction company has acquired the business and assets of United Fiberglass from a charitable foundation for $14 million in cash.

Drug major AstraZeneca has also risen after the U.S.FDA approved its Truqap (capivasertib) in combination with Faslodex (fulvestrant) to treat patients with advanced hormone receptor or HR-positive breast cancer.

Meanwhile, Italy’s top insurer Generali has moved sharply lower after warning that it is seeing weaker demand amid signs of a global economic slowdown.

Swedish auto maker Volvo Cars has also plunged after its majority shareholder, China’s Geely, launched a sale of 100 million shares at a deep discount to the previous day’s closing price.

London Stock Exchange Group has also moved to the downside after saying it remains on track to achieve guidance for 2023.

U.S. Economic Reports

New residential construction in the U.S. unexpectedly increased in the month of October, according to a report released by the Commerce Department on Friday.

The report said housing starts jumped by 1.9 percent to an annual rate of 1.372 million in October after surging by 3.1 percent to a downwardly revised rate of 1.346 million in September.

Economists had expected housing starts to dip to a rate of 1.350 million from the 1.358 million originally reported for the previous month.

The Commerce Department said building permits also shot up by 1.1 percent to an annual rate of 1.487 million in October after plunging by 4.5 percent to a revised rate of 1.471 million in September.

Building permits, an indicator of future housing demand, were expected to decrease to a rate of 1.450 million from the 1.475 million originally reported for the previous month.

At 9:30 am ET, San Francisco Federal Reserve President Mary Daly is scheduled to give closing keynote before the 33rd Frankfurt European Banking Congress.

Chicago Federal Reserve President Austan Goolsbee is due to speak on the economy before the Annual Community Bankers Symposium at 9:45 am ET.

Stocks In Focus

Shares of Gap (GPS) are soaring in pre-market trading after the apparel retailer reported fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

Discount retailer Ross Stores (ROST) is also likely to see initial strength after reporting better than expected fiscal third quarter results and raising its full-year earnings forecast.

On the other hand, shares of Applied Materials (AMAT) may come under pressure after a report from Reuters said the semiconductor equipment maker is under investigation for potentially evading export restrictions on Chinese chipmaker SMI.