Interest Rate Optimism May Lead To Continued Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to extend the advance seen over the course of the previous session.

The markets may continue to benefit from renewed optimism about the outlook for interest rates, which has helped drive the Dow to a seven-day winning streak.

Recent data has pointed to some softness in the U.S. labor market, increasing investor confidence the Federal Reserve will lower interest rates in the coming months.

While the Fed is still widely expected to leave interest rates unchanged in June, the chances rates will be lower by September have reached 85.4 percent, according to CME Group’s FedWatch Tool.

However, early trading activity may be somewhat subdued ahead of the release of the University of Michigan’s preliminary reading on consumer sentiment in the month of May.

The consumer sentiment index is expected to dip to 76.0 in May after falling to 77.2 in April, although traders may pay closer attention to the readings on inflation expectations.

Following the lackluster performance seen over the two previous sessions, stocks moved mostly higher during trading on Thursday. The Dow extended its winning streak to seven sessions, once again reaching its best closing level in over a month.

The major averages ended the day just off their highs of the session. The Dow jumped 331.37 points or 0.9 percent to 39,387.76, the S&P 500 climbed 26.41 points or 0.5 percent to 5,214.08 and the Nasdaq rose 43.51 points or 0.3 percent to 16,346.26.

The strength on Wall Street came following the release of a Labor Department report showing a much bigger than expected increase by first-time claims for U.S. unemployment benefits in the week ended May 4th.

The report said initial jobless claims climbed to 231,000, an increase of 22,000 from the previous week’s revised level of 209,000.

Economists had expected jobless claims to inch up to 210,000 from the 208,000 originally reported for the previous week.

With the much bigger than expected increase, jobless claims reached their highest level since hitting 234,000 in week ended August 26th.

The data added to recently renewed optimism that the Federal Reserve will lower interest rates in the coming months.

Among individual stocks, shares of AppLovin (APP) skyrocketed after the mobile technology company reported first quarter results that beat expectations on both the top and bottom lines.

Glasses retailer Warby Parker (WRBY) also showed a substantial move to the upside after reporting a narrower than expected first quarter loss on revenues that exceeded estimates.

On the other hand, shares of Airbnb (ABNB) moved sharply lower after the vacation rental company reported better than expected first quarter results but provided disappointing guidance.

Telecom stocks moved sharply higher over the course of the trading session, resulting in a 4.2 percent spike by the NYSE Arca North American Telecom Index.

Significant strength was also visible among gold stocks, as reflected by the 2.5 percent jump by the NYSE Arca Gold Bugs Index. The strength in the sector came amid an increase by the price of gold.

Commercial real estate stocks also showed a strong move to the upside on the day, driving the Dow Jones U.S. Real Estate Index up by 2.1 percent.

Oil service, housing and steel stocks also saw considerable strength, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are climbing $0.40 to $79.66 a barrel after rising $0.27 to $79.26 a barrel on Thursday. Meanwhile, after jumping $18 to $2,340.30 an ounce in the previous session, gold futures are surging $34.30 to $2,374.60 an ounce.

On the currency front, the U.S. dollar is trading at 155.82 yen versus the 155.48 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0771 compared to yesterday’s $1.0782.

Asia

Asian stocks advanced on Friday, while the dollar and bond yields dipped as fresh signs of cooling in the U.S. labor market revived hopes for U.S. rate cuts this year.

Nevertheless, the upside remained capped somewhat due to caution ahead of next week’s crucial U.S. inflation data that could offer important clues on the Fed’s rate trajectory.

The British pound recovered some ground after having touched an over two-week low on Thursday after the Bank of England signaled it will cut rates this summer if inflation stays low.

Gold and oil prices were set for weekly gains as Israeli forces advanced in the southern Gaza city of Rafah despite facing significant international criticism.

Chinese stocks ended on a flat note amid optimism around the economic recovery and after reports the Biden administration will update its Chinese tariff regime as soon as next week. The benchmark Shanghai Composite Index finished marginally higher at 3,154.55.

Hong Kong’s Hang Seng Index jumped 2.3 percent to 18,963.68 after reports regulators are considering a proposal to exempt individual investors from paying taxes on dividends earned from Hong Kong stocks bought via Stock Connect.

Japanese markets eked out modest gains as investors cheered positive earnings updates. The Nikkei 225 Index rose 0.4 percent to 38,229.11, while the broader Topix Index settled 0.5 percent higher at 2,728.21.

Gaming stocks outperformed, with Konami Group surging 9.3 percent, Bandai Namco Holdings adding 5.6 percent and Nintendo rising 3.3 percent. Electrical equipment manufacturer Daikin Industries spiked 8.2 percent.

Seoul stocks closed higher, with the Kospi rising 0.6 percent to 2,727.63 on hopes for U.S. rate cuts later this year.

Australian markets ended modestly higher, with banks and energy stocks leading the charge. The benchmark S&P ASX 200 Index climbed 0.4 percent to 7,749, while the broader All Ordinaries index settled up 0.4 percent at 8,022.70.

The big four banks rose between 0.4 percent and 1.3 percent. In the energy sector, Woodside Energy Group climbed 1.9 percent and Santos added 2.1 percent.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index ended marginally higher at 11,755.17 after a survey showed tentative signs of recovery in the country’s manufacturing sector in April.

Europe

European stocks have advanced on Friday as signs of a weakening U.S. labor market stoked optimism that the Federal Reserve may cut interest rates in the coming months.

The Bank of England’s dovish rate decision on Thursday and better-than-expected U.K. GDP growth data released earlier today also boosted investor sentiment.

The Bank of England held interest rates steady on Thursday but signaled it will cut rates this summer if inflation stays low.

The British pound strengthened against other major currencies after data showed the U.K. economy exited a technical recession in the first quarter, led by a rebound in services output and household spending.

According to data from the Office for National Statistics, U.K. GDP grew 0.6 percent from the fourth quarter, when the economy shrank 0.3 percent. Output had declined 0.1 percent in the third quarter last year.

Economists had expected the first quarter growth to come in at 0.4 percent. GDP rose 0.2 percent year-on-year in the first quarter, beating expectations for stagnation.

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

CRH, a provider of building materials solutions, has shown a substantial move to the upside after reaffirming its full-year guidance.

Irish homebuilder Cairn Homes has also rallied after saying that the demand backdrop for its well located, energy efficient new homes remains exceptionally high across all tenure types.

German online retailer Zalando has also moved notably higher after Berenberg upgraded its rating on the stock to Buy from Hold.

U.S. Economic Reports

Federal Reserve Board Governor Michelle Bowman is due to speak on “Financial Stability Risks: Resiliency and the Role of Regulators” before the Texas Bankers Association Annual Convention at 9 am ET.

At 10 am ET, the University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of May. The consumer sentiment index is expected to dip to 76.0 in May after falling to 77.2 in April.

Dallas Federal Reserve President Lorie Logan is also due to participate in a moderated question-and-answer session before the Louisiana Bankers Association Annual Conference at 10 am ET.

Also at 10 am ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a question-and-answer session moderated by Rick King, chair of Minnesota’s Technology Advisory Council.

Chicago Federal Reserve Bank President Austan Goolsbee is due to participate in a moderated question-and-answer session before an Economic Club of Minnesota luncheon at 12:45 pm ET.

At 1:30 pm ET, Federal Reserve Vice Chair for Supervision Michael Barr is scheduled to give the commencement speech before the American University School of Public Affairs graduation ceremony.

Stocks In Focus

Shares of Novavax (NVAX) are skyrocketing in pre-market trading after the biotechnology company entered into a co-exclusive licensing agreement with Sanofi (SNY).

The terms of the agreement include a co-exclusive license to co-commercialize Novavax’s current stand-alone adjuvanted Covid-19 vaccine worldwide and a sole license to Novavax’s adjuvanted Covid-19 vaccine for use in combination with Sanofi’s flu vaccines.

Solar energy company Array Technologies (ARRY) is also seeing substantial pre-market strength after reporting an unexpected first quarter profit on better than expected revenues.

On the other hand, shares of Akamai Technologies (AKAM) are likely to come under pressure after the cloud company provided disappointing second quarter guidance.