U.S. Stocks May Move Back To The Upside In Early Trading

The major U.S. index futures are currently pointing to a higher open on Monday, with stocks likely to move back to the upside following the downturn seen over the course of the previous session.

Optimism about the outlook for interest rates may lead to renewed buying interest on Wall Street following last Friday’s closely watched inflation data.

The report showed a slowdown in the annual rate of consumer price growth, leading to increased speculation the Federal Reserve is likely to lower interest rates at least once this year.

Overall trading activity may be somewhat subdued, however, as traders look ahead to the release of the Labor Department’s closely watched monthly jobs report on Friday.

The report, which is expected to show a slowdown in the pace of job growth in the month of June, could impact the outlook for interest rates.

Traders may also stick to the sidelines ahead of remarks by Fed Chair Jerome Powell on Tuesday as well as the Independence Day holiday on Thursday.

Stocks moved mostly higher in early trading on Friday but showed a significant downturn over the course of the session. The major averages pulled back well off their early highs and into negative territory.

After reaching record intraday highs, the Nasdaq slid 126.08 points or 0.7 percent to 17,732.60 and the S&P 500 fell 22.39 points or 0.4 percent to 5,460.48. The narrower Dow posted a more modest loss, edging down 45.20 points or 0.1 percent to 39,118.86.

For the week, the Nasdaq rose by 0.2 percent but the Dow and the S&P 500 both edged down by 0.1 percent. However, the Nasdaq and the S&P 500 posted substantial gains for the first half of the year.

The early strength on Wall Street came following the release of a Commerce Department report showing readings on consumer price inflation in the month of May came in line with economist estimates.

The report said the personal consumption expenditures (PCE) price index came in unchanged in May after rising by 0.3 percent in April, while the annual rate of growth slowed to 2.6 percent from 2.7 percent.

The core PCE price index, which excludes food and energy prices, inched up by 0.1 percent in May after climbing by an upwardly revised 0.3 percent in April.

The annual rate of growth by core prices also slowed to 2.6 percent in May from 2.8 percent in April, in line with economist estimates.

While the data initially generated renewed optimism about the outlook for interest rates, buying interest waned over the course of the session.

The subsequent pullback by the markets may have reflected a negative reaction to a turnaround by treasury yields, which initially moved lower following the release of the data but subsequently rebounded firmly into positive territory.

Treasury yields advanced as some analysts pointed out that pace of consumer price growth remains well above the Federal Reserve’s 2.0 percent target and suggested the latest data is not likely to convince the central bank to accelerate its plans to lower rates.

“While an improvement from trends earlier this year, the elevated inflation readings in yesterday’s revised GDP data indicate persistent pricing pressures,” said John Lynch, Chief Investment Officer for Comerica Wealth Management.

“The expected number of rate cuts for this year have steadily declined, but traders continue to ignore the Fed’s higher for longer stance,” he added. “Since the fed funds rate remains higher than nominal GDP growth, we believe the Fed will need to cut 1-2 times over the next six months. Any hope for further accommodation, absent recession, is likely misguided.”

Despite the pullback by the broader markets, networking stocks continued to see substantial strength on the day, with the NYSE Arca Networking Index surging by 2.4 percent to a four-month closing high.

Infinera (INFN) led the sector higher, spiking by 15.8 percent after the telecom equipment maker agreed to be acquired by Noka (NOK) for $2.3 billion.

Considerable strength also remained visible among banking stocks, as reflected by the 2.3 percent jump by the KBW Bank Index.

Steel, transportation and semiconductor stocks also saw notable strength, while utilities and computer hardware stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are climbing $0.52 to $82.06 a barrel after dipping $0.20 to $81.54 a barrel last Friday. Meanwhile, after inching up $3 to $2,339.60 an ounce in the previous session, gold futures are rising $6.10 to $2,345.40 an ounce.

On the currency front, the U.S. dollar is trading at 161.21 yen versus the 160.88 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0740 compared to last Friday’s $1.0713.

Asia

Asian stocks eked out modest gains on Monday as investors reacted to in-line U.S. inflation readings, mixed Chinese data and the results of the first round of voting for the French National Assembly.

The yen struggled near 38-year lows after Japan downgraded GDP numbers for the March quarter. Oil prices climbed in Asian trading, while gold was marginally lower.

The euro rose against the dollar as the first round of voting left Le Pen’s National Rally looking short of securing a majority in parliament.

China’s Shanghai Composite Index jumped 0.9 percent to 2,994.73 after the Caixin Manufacturing Purchasing Managers’ Index (PMI) unexpectedly rose from 51.7 to 51.8 in June, hitting a three-year peak on strong production and stabilizing employment.

Investors shrugged off the results of an official survey of factory purchasing managers that showed manufacturing conditions remained in contraction for a second straight month.

Japanese markets edged up slightly after a survey showed sentiment among large Japanese manufacturers improved during the three months to June.

On the flip side, the government downgraded its estimate for growth in the first quarter of the year to -2.9 percent from -1.8 percent – darkening prospects for a fragile recovery.

The Nikkei 225 Index closed up 0.1 percent at 39,631.06, giving up most early gains. The broader Topix Index settled 0.52 percent higher at 2,824.88.

Department store operator J.Front Retailing soared 14.7 percent and Takashimaya surged 11.1 percent after raising their annual profit forecasts.

Seoul stocks rose for a second day running, with the Kospi rising 0.2 percent to 2,804.31 as a survey revealed South Korea’s factory activity growth quickened in June to the fastest in 26 months.

Market heavyweight Samsung Electronics rose 0.4 percent ahead of its second-quarter earnings guidance.

Australian markets ended slightly lower despite clawing back some early losses. The benchmark S&P/ASX 200 Index dipped 0.2 percent to 7,750.70 due to interest-rate concerns and jitters over European political tensions.

The broader All Ordinaries Index settled 0.3 percent lower at 7,992.30, with financials and tech stocks pacing the declines. Mining stocks gained as iron ore prices rose on optimism for Chinese stimulus.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index gained 0.6 percent to finish at 11,789.39.

Europe

European stocks have moved higher on Monday, the euro hit its strongest level since mid-June and the premium investors demand for holding France’s bonds plunged, as the prospect of French political gridlock helped ease concerns about further strains on the country’s public finances.

Also helping underpin investor sentiment, a survey showed the downturn in the eurozone’s manufacturing sector wasn’t as bad as initially feared in June.

The HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, came in at 45.8 in June – ahead of a 45.6 preliminary estimate.

While the French CAC 40 Index has jumped by 1.5 percent, the German DAX Index is up by 0.4 percent and in the U.K.’s FTSE 100 Index is up by 0.3 percent.

French banks BNP Paribas, Credit Agricole and Societe Generale have surged as the first round of voting left Le Pen’s National Rally looking short of securing a majority in parliament.

Valneva has also spiked. The European Commission (EC) has granted marketing authorization for the company’s chikungunya vaccine IXCHIQ for individuals 18 years of age and older.

Airbus has also jumped after it entered into a binding term sheet agreement with Spirit AeroSystems in relation to a potential acquisition of major activities related to Airbus.

Nestle has also moved to the upside after reports indicated that the Swiss food giant is anticipating stable growth with positive volume and product mix contributions from the second quarter throughout the remainder of the year.

Petrofac has also shot up. The energy services firm said it has extended the existing forbearance agreement with its noteholders regarding non-payment of interest on senior secured notes from June 30 to July 25, 2024.

On the other hand, mining giant Anglo American has tumbled nearly in London. The company has suspended production at Grosvenor steelmaking coal mine in Queensland, Australia, following an underground coal gas ignition incident.

U.S. Economic News

The Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of June at 10 am ET.

The ISM’s manufacturing PMI is expected to inch up to 49.1 in June from 48.7 in May, although a reading below 50 would still indicate contraction.

Also at 10 am ET, the Commerce Department is due to release its report on construction spending in the month of May. Construction spending is expected to tick up 0.1 percent in May after edging down by 0.1 percent in April.