Middle East Tensions, Profit Taking May Weigh On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Monday, with stocks likely to move to the downside following the mixed performance seen last Friday.

Concerns about rising Middle East tensions may weigh on Wall Street after Israel launched deadly airstrikes on targets in the heart of Lebanon’s capital Beirut for the first time in years.

Traders may also look to cash in on the strong gains posted thus far in September, which is historically a weak month for the markets.

Going into the day, the tech-heavy Nasdaq is up by 2.3 percent for the month, while the Dow and the S&P 500 are up 1.8 percent and 1.6 percent, respectively.

Overall trading activity may be somewhat subdued, however, as traders look ahead to remarks by Federal Reserve Chair Jerome Powell this afternoon.

Powell is due to speak on the economic outlook before the National Association for Business Economics’ Annual Meeting at 1 pm ET.

The Labor Department’s monthly jobs report is likely to be in the spotlight later in the week, while reports on manufacturing and service sector activity may also attract attention.

Stocks turned in a mixed performance during trading on Friday, with the major averages ending the day on opposite sides of the unchanged line. The Dow rose to a new record closing high, but the Nasdaq and the S&P 500 gave back ground.

While the Dow pulled back well off its highs of the session, the blue chip index still ended the day up 137.89 points or 0.3 percent at 42,313.00. The Nasdaq fell 70.70 points or 0.4 percent to 18,119.59 and the S&P 500 edged down 7.20 points or 0.1 percent to 5,738.17.

Despite the mixed performance on the day, the major averages all moved higher for the week, The Nasdaq jumped by 1.0 percent, while the Dow and the S&P 500 both climbed by 0.6 percent.

The mixed performance on Wall Street came following the release of closely watched readings on U.S. consumer price inflation in the month of August.

The Commerce Department said its personal consumption expenditures (PCE) price index inched up by 0.1 percent in August after rising by 0.2 percent in July. The uptick matched expectations.

The report also said the annual rate of growth by the PCE price index slowed to 2.2 percent in August from 2.5 percent in July. Economists had expected the pace of growth to slow to 2.3 percent.

Excluding food and energy prices, the core PCE price index also edged up by 0.1 percent in August after increasing by 0.2 percent in July. Core prices were expected to rise by another 0.2 percent.

Meanwhile, the Commerce Department said the annual rate of growth by the core PCE price index accelerated to 2.7 percent in August from 2.6 percent in July, in line with estimates.

“The August PCE report supports the Fed’s decision to go big on September 18, although the core year-over-year at 2.7% suggests that another round of 50 basis points needs to come under careful scrutiny unless the labor market suggests weakness,” said Quincy Krosby, Chief Global Strategist for LPL Financial.

She added, “Although the Fed cannot declare complete victory on inflation, today’s report – with 2.2% on the year-over- year headline – underscores that overall inflation continues to move decisively in the right direction.”

The readings on inflation, which are said to be preferred by the Federal Reserve, were included in the Commerce Department’s report on personal income and spending.

Oil service stocks showed a significant rebound after falling sharply over the two previous sessions, resulting in a 2.6 percent surge by the Philadelphia Oil Service Index. The rally by oil service stocks came amid an increase by the price of crude oil.

Considerable strength was also visible among telecom stocks, as reflected by the 2.0 percent jump by the NYSE Arca North American Telecom Index. The index reached its best closing level in over two years.

Oil producer, natural gas and housing stocks also saw notable strength on the day, while gold stocks moved sharply lower along with the price of the precious metal.

Semiconductor stocks also came under pressure over the course of the session, contributing to the dip by the tech-heavy Nasdaq.
Commodity, Currency Markets

Crude oil futures are inching up $0.02 to $68.20 a barrel after climbing $0.51 to $68.18 a barrel last Friday. Meanwhile, after tumbling $26.80 to $2,668.10 an ounce in the previous session, gold futures are slipping $7.80 to $2,660.30 an ounce.

On the currency front, the U.S. dollar is trading at 142.80 yen versus the 142.21 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1192 compared to last Friday’s $1.1162.

Asia

Asian stocks ended mixed on Monday, with mainland Chinese and Hong Kong markets closing sharply higher on stimulus euphoria, while Japanese markets succumbed to selling pressure after Japan’s governing party chose Shigeru Ishiba, a critic of the country’s longstanding ultralow interest rates, as its leader.

Chinese factory activity shrank for a fifth straight month in September but there was some improvement in the overall economic sentiment, an official survey showed.

The non-manufacturing business activity posted steady performance in September and PMIs from the private survey underperformed, reflecting broader weakness in both manufacturing and services.

A surging yen steadied today after Ishiba called for a loose monetary policy, saying the country’s monetary policy must remain accommodative as a trend.

Geopolitical tensions remained on investors’ radar after the Israeli military carried out an air raid on targets in the heart of Lebanon’s capital for the first time in years.

Gold held steady in Asian trading ahead of Fed Chair Jerome Powell’s speech later in the day and upcoming U.S. jobs data.

Oil prices climbed more than 1 percent in response to China’s stimulus efforts and developments in the Middle East over the weekend.

Chinese stocks rose for the ninth consecutive day and extended one of their most remarkable turnarounds in history after three of China’s biggest cities eased curbs on home buying and the country’s central bank announced lower mortgage rates for existing home loans before October 31.

The benchmark Shanghai Composite Index soared 8.1 percent to 3,336.50, while Hong Kong’s Hang Seng Index jumped 2.4 percent to 21,133.68.

Japanese markets slumped after Ishiba expressed support for the Bank of Japan’s moves to raise interest rates from their near-zero level and also backed other policies, such as possibly raising corporate taxes.

The Nikkei 225 Index plunged 4.8 percent to 37,919.55, while the broader Topix Index closed 3.5 percent lower at 2,645.94.

Automakers Honda Motor, Toyota and Nissan plummeted 6-8 percent after the dollar fell from over 146 yen to under 143 yen.

Seoul stocks fell sharply as investors awaited more U.S. economic data this week for additional clues on the rate outlook. The Kospi slumped 2.1 percent to 2,593.27. Tech heavyweight Samsung Electronics lost 4.2 percent and SK Hynix gave up 5 percent.

Australian markets rose notably to hit a new record high as China’s sweeping stimulus measures aimed to rejuvenate its property market boosted mining and energy stocks.

The benchmark S&P/ASX 200 Index climbed 0.7 percent to 8,269.80, while the broader All Ordinaries Index settled 0.7 percent higher at 8,538.40.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dipped 0.3 percent to 12,423.82.

Europe

European stocks have declined on Monday as Middle East worries escalated and investors awaited comments from ECB President Christine Lagarde and Federal Reserve Chair Jerome Powell for additional clues on the rate outlook.

Government bond yields nudged higher despite rising odds that the ECB would accelerate the pace of its interest rate cuts.

Elsewhere, official data showed the U.K. economy grew at a slower-than-estimated pace in the second quarter on weaker industrial and construction sectors.

Gross domestic product advanced 0.5 percent from the first quarter, revised down from the first estimate of 0.6 percent, figures from the Office for National Statistics revealed.

While the French CAC 40 Index has tumbled by 1.7 percent, the German DAX Index is down by 0.8 percent and the U.K.’s FTSE 100 Index is down by 0.6 percent.

Rightmove has moved sharply lower after the British online property website rejected a £6.2 billion takeover offer by Rupert Murdoch’s Australian property group.

Private equity and venture capital firm 3i Group has also fallen after short-seller Shadowfall Capital reportedly took a multimillion-pound short position against the company.

German carmaker Volkswagen and French-Italian carmaker Stellantis N.V. have also tumbled after slashing their annual guidance.

U.S. Economic News

At 9:45 am ET, MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of September. The Chicago business barometer is expected to inch up to 46.2 in September from 46.1 in August, but a reading below 50 would still indicate contraction.

Federal Reserve Chair Jerome Powell is due to speak on the economic outlook before the National Association for Business Economics’ Annual Meeting at 1 pm ET.

Stocks In Focus

U.S.-listed shares of Nio (NIO) are moving sharply higher in pre-market trading after the Chinese electric vehicle maker announced a 13.3 billion yuan investment in Nio China from strategic investors.

Healthcare company CVS Health (CVS) may also see initial strength after a report from the Wall Street Journal said hedge fund Glenview Capital Management will meet top executives on Monday to propose ways the struggling company can improve its operations.

On the other hand, shares of Stellantis (STLA) are seeing substantial pre-market weakness after the automaker cut its full-year adjusted operating profit margin outlook.