Tech Stocks May Lead Early Pullback On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Wednesday, with stocks likely to give back ground after trending higher over the past few sessions.

Tech stocks may lead an early pullback on Wall Street after a report from Bloomberg said President Joe Biden’s administration is considering tougher trade rules against companies in its chip crackdown on China.

Bloomberg said the administration has told allies that it’s considering using the most severe trade restrictions available if companies continue giving China access to advanced semiconductor technology.

Citing people familiar with recent discussions, Bloomberg said the U.S. is mulling whether to impose a measure called the foreign direct product rule, which lets the country impose controls on foreign-made products that use even the tiniest amount of American technology.

The downward momentum on Wall Street also comes after former President Donald Trump suggested Taiwan should pay the U.S. for defense, claiming the country took “about 100%” of America’s chip business.

Extending the upward move seen over the two preceding sessions, stocks moved mostly higher during trading on Tuesday. The Dow led the charge, surging to a new record closing high.

The Dow jumped 742.76 points or 1.9 percent to 40,954.48, the S&P 500 climbed 35.98 points or 0.6 percent to a new record closing high of 5,667.20 and the Nasdaq rose 36.77 points or 0.2 percent to 18,509.34.

The strength on Wall Street partly reflected a positive reaction to some of the latest earnings news, with Dow component UnitedHealth (UNH) moving sharply higher after reporting second quarter earnings that exceeded analyst estimates.

Bank of America (BAC) also moved notably higher after the financial giant reported better than expected second quarter earnings.

Shares of Morgan Stanley (MS) also turned positive after seeing initial weakness after the company reported better than expected second quarter earnings.

Traders also reacted positively to the latest U.S. economic news, including a Commerce Department report showing U.S. retail sales came in unchanged in the month of June.

The Commerce Department said retail sales came in flat in June after rising by an upwardly revised 0.3 percent in May.

Economists had expected retail sales to come in unchanged compared to the 0.1 percent uptick originally reported for the previous month.

Excluding a sharp drop in sales by motor vehicle and parts dealers, retail sales climbed by 0.4 percent in June after inching up by 0.1 percent in May. Ex-auto sales were expected to creep up by 0.1 percent.

“Judging by the positive market reaction to the US retail sales data, it appears that investors are focusing on the economic strength for now, while also maintaining a strong belief that monetary policy starts to ease after the summer,” said Dan Coatsworth, investment analyst at AJ Bell.

The Labor Department also released a report showing import prices in the U.S. were unexpectedly flat in the month of June.

The report said import prices were unchanged in June after dipping by a revised 0.2 percent in May. Economists had expected import prices to rise by 0.2 percent compared to the 0.4 percent decrease originally reported for the previous month.

Meanwhile, the Labor Department said export prices declined by 0.5 percent in June after falling by a revised 0.7 percent in May.

Export prices were expected to edge down by 0.1 percent compared to the 0.6 percent decrease originally reported for the previous month.

Housing stocks showed a substantial move to the upside on the day, with the Philadelphia Housing Sector Index spiking by 5.3 percent to a record closing high.

Optimism about the outlook for interest rates contributed to the strength in the sector despite a report from the National Association of Home Builders showing an unexpected dip in homebuilder confidence in the month of July.

Gold stocks are also saw significant strength amid a sharp increase by the price of the precious metal, driving the NYSE Arca Gold Bugs Index up by 3.4 percent. The index reached a more than two-year closing high.

Considerable strength was also visible among airline stocks, as reflected by the 3.3 percent surge by the NYSE Arca Airline Index.

Banking, biotechnology and telecom stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are climbing $0.66 to $81.42 a barrel after slumping $1.15 to $80.76 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,479.30, up $11.50 compared to the previous session’s close of $2,467.80. On Tuesday, gold soared $38.90.

On the currency front, the U.S. dollar is trading at 156.64 yen compared to the 158.35 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0939 compared to yesterday’s $1.0899.

Asia

Asian stocks ended mixed on Wednesday, while the dollar edged up as Donald Trump’s election odds rose and the U.S. Republican presidential candidate said that Taiwan should pay the U.S. for supplying the island with defense equipment.

Regional losses, if any, were limited as U.S. Treasury yields fell on hopes of a September rate cut by the Federal Reserve.

China’s Shanghai Composite Index dropped 0.5 percent to 2,962.86 as investors awaited the outcome of the ruling Communist Party’s third plenum.

Hong Kong’s Hang Seng Index finished marginally higher at 17,739.41 as the International Monetary Fund (IMF) upgraded its economic outlook this year for China, India and Europe.

Japanese markets retreated as chip-related stocks declined amid concerns that another Trump presidency could disrupt global trade.

In addition, the IMF lowered Japan’s 2024 growth outlook, citing temporary auto output disruptions and weak private investment in the first quarter.

The Nikkei 225 Index dipped 0.4 percent to 41,097.69, while the broader Topix Index settled 0.4 percent higher at 2,915.21.

Tokyo Electron plunged 7.5 percent, Screen Holdings gave up 6.5 percent and Advantest fell 2.6 percent.

Seoul stocks fell notably, with the Kospi finishing 0.8 percent lower at 2,843.29 – snapping a two-day winning streak. Market bellwether Samsung Electronics dropped 1.1 percent and SK Hynix plummeted 5.4 percent.

Refiner SK Innovation rallied 5.7 percent ahead of a board meeting to determine the company’s merger with group affiliate SK E&S.

Australian markets hit record highs, with financials, gold miners and real estate stocks leading the surge. The benchmark S&P/ASX 200 Index climbed 0.7 percent to 8,057.90, while the broader All Ordinaries Index closed up 0.7 percent at 8,303.50.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index jumped 0.9 percent to 12,292.03 after data showed inflation in the country softened by more than expected in the three months through June.

Europe

European stocks have drifted lower for a third day running on Wednesday as investors digest regional inflation data and look forward to the European Central Bank’s rate-setting meeting later in the week for directional cues.

Chinese demand concerns and fears that Donald Trump’s return to the White House would herald more inflation and higher interest rates also weighed on markets.

The French CAC 40 Index and the German DAX Index are both down by 0.5 percent, although the U.K.’s FTSE 100 Index has bucked the downtrend and crept up by 0.1 percent.

Dutch semiconductor firm ASML Holding has moved sharply lower on concerns about more curbs on exports to China.

Danish hearing aid company Demant has also plummeted after a profit warning.

Mining giant Antofagasta has also slumped. The Chilean miner warned annual production would be at the lower end of guidance.

HSBC Holdings was marginally lower as the lender announced the appointment of Georges Elhedery as the group chief executive.

Smiths Group has also moved to the downside after the engineering firm announced the sale of 1.2 million shares in ICU Medical.

Reckitt Benckiser shares were fluctuating. The consumer goods group said sales will be affected by a tornado that struck a warehouse in Mount Vernon, Indiana.

Meanwhile, Pernod Ricard shares have risen in Paris. The conglomerate has inked a deal to sell its international wine brands to Australian Wine Holdco Limited, a consortium of international institutional investors and owner of Accolade Wines.

Adidas has also jumped. The sportswear maker raised its full-year guidance after reporting a 11 percent increase in revenue during second quarterly of FY24.

In economic news, Eurozone consumer price inflation has been finalized at 2.5 percent year-on-year in June, down from May’s 2.6 percent. A year earlier, the rate was 5.5 percent.

U.K. inflation came in unchanged at the official target in June, but the stability of services inflation reduced chances of a rate cut in August.

The consumer price index grew 2.0 percent on a yearly basis, the same pace of growth as seen in May, the Office for National Statistics said. Headline inflation was expected to ease to 1.9 percent.

The chances of an interest rate cut in August diminished a bit more as services inflation steadied at 5.7 percent.

U.S. Economic Reports

The Commerce Department released a report on Wednesday showing a significant rebound by new residential construction in the U.S. in the month of June.

The report said housing starts shot up by 3.0 percent to an annual rate of 1.353 million in June after plunging by 4.6 percent to a revised rate of 1.314 million in May.

Economists had expected housing starts to jump by 2.6 percent to a rate of 1.310 million from the 1.277 million originally reported for the previous month.

The Commerce Department said building permits also surged by 3.4 percent to an annual rate of 1.446 million in June after tumbling by 2.8 percent to a revised rate of 1.399 million in May.

Building permits, an indicator of future housing demand, were expected to rise by 0.3 percent to an annual rate of 1.390 million from the 1.386 million originally reported for the previous month.

At 9 am ET, Richmond Federal Reserve President Thomas Barkin is scheduled to give informal remarks on the economy before the Greater Prince George’s Business Roundtable.

The Federal Reserve is due to release its report on industrial production in the month of June at 9:15 am ET. Industrial production is expected to rise by 0.3 percent in June after jumping by 0.9 percent in May.

At 9:35 am ET, Federal Reserve Board Governor Christopher Waller is scheduled to speak on the economic outlook before an event hosted by the Federal Reserve Bank of Kansas City.

The Energy Information Administration is due to release its report on oil inventories in the week ended July 12th at 10:30 am ET.

Crude oil inventories are expected to edged up by 0.8 million barrels after falling by 3.4 million barrels in the previous week.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $13 billion worth of twenty-year bonds.

The Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts, at 2 pm ET.