Interest Rate Optimism May Lead To Continued Strength On Wall Street

The major U.S. index futures are currently pointing to a modestly higher open on Monday, with stocks likely to add to the strong gains posted in the previous session.

Stocks may continue to benefit from optimism about the outlook for interest following last Friday’s report on producer price inflation.

While hopes the Federal Reserve will lower rates by another 50 basis points next month have largely evaporated, the data reinforced optimism the central bank will cut rates by 25 basis points.

Overall trading activity is likely to be relatively subdued, however, with some traders likely to be away from their desks due to the Columbus Day holiday.

A lack of major U.S. economic data may also keep some traders on the sidelines ahead of the release of key reports on retail sales and industrial production later in the week.

Earnings news from big-name companies, such as Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), Johnson & Johnson (JNJ), UnitedHealth (UNH), Morgan Stanley (MS) and Netflix (NFLX), is also likely to attract attention in the coming days.

Following the modest pullback seen in Thursday’s session, stocks showed a strong move back to the upside during trading on Friday. The major averages more than offset Thursday’s losses, with the Dow and the S&P 500 reaching new record closing highs.

The major averages pulled back off their best levels going into the close but remained firmly positive. The Dow jumped 409.74 points or 1.0 percent to 42,863.86, the S&P 500 climbed 34.96 points or 0.6 percent to 5,815.03 and the Nasdaq rose 60.89 points or 0.3 percent to 18,342.94.

For the week, the Dow surged by 1.2 percent, while the Nasdaq and the S&P 500 both shot up by 1.1 percent.

The strength on Wall Street partly reflected a positive reaction to a Labor Department report showing producer prices in the U.S. were unexpectedly unchanged in September.

The Labor Department said its producer price index for final demand came in flat in September after rising by 0.2 percent in August. Economists had expected producer prices to inch up by 0.1 percent.

The report also said the annual rate of growth by producer prices slowed to 1.8 percent in September from an upwardly revised 1.9 percent in August.

Economists had expected the annual rate of producer price growth to dip to 1.6 percent from the 1.7 percent originally reported for the previous month.

“After an upside surprise from the September CPI report, producer prices came in below expectations and provide support for a 25bps rate cut in November,” said Matthew Martin, Senior U.S. Economist at Oxford Economics.

Traders also reacted positively to earnings news from big-name banks, with shares of Wells Fargo (WFC) surging by 5.6 percent after the company reported better than expected third quarter earnings.

JPMorgan Chase (JPM) also jumped by 4.4 percent after reporting third quarter results that exceeded analyst estimates on both the top and bottom lines.

Meanwhile, a steep drop by shares of Tesla (TSLA) limited the upside for the Nasdaq, with the electric vehicle maker plunging by 8.8 percent amid a negative reaction to its long-awaited robotaxi event.

Banking stocks saw substantial strength on the upbeat earnings news from Wells Fargo and JPMorgan, driving the KBW Bank Index up by 3.0 percent to its best closing level in over two years.

Significant strength was also visible among transportation stocks, as reflected by the 2.1 percent surge by the Dow Jones Transportation Average.

Brokerage stocks also showed a strong move to the upside on the day, with the NYSE Arca Broker/Dealer Index climbing by 1.7 percent.

Biotechnology, computer hardware and natural gas stocks also saw notable strength, moving higher along with most of the other major sectors.
Commodity, Currency Markets

Crude oil futures are slumping $1.50 to $74.06 a barrel after falling $0.26 to $75.56 a barrel last Friday. Meanwhile, after surging $37 to $2,676.30 an ounce in the previous session, gold futures are slipping $6.40 to $2,669.90 an ounce.

On the currency front, the U.S. dollar is trading at 149.70 yen versus the 149.13 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0909 compared to last Friday’s $1.0937.

Asia

Asian stocks ended mixed in thin trading on Monday, with Japanese markets closed for a holiday.

The dollar held gains and gold ticked higher on heightened tensions in the Middle East and West Asia, while oil prices were down nearly 2 percent in Asian trading on China demand concerns after China’s weekend stimulus announcement contained no timetable, no amount, and no details of how the money will be spent.

China’s Shanghai Composite Index recovered from an early slide to end 2.1 percent higher at 3,284.32 as investors digested the latest inflation figures and awaited the release of trade figures for further direction.

Chinese consumer inflation unexpectedly eased in September, while producer price deflation deepened, underscoring the need for further policy support to revive falling housing sales and other spending.

Hong Kong’s Hang Seng Index settled 0.8 percent lower at 21,092.87 after a choppy session.

Seoul stocks rallied, with sentiment buoyed by strong profits at big U.S. banks and bets that China will announce more measures to boost its slowing economy. The Kospi jumped 1.0 percent to 2,623.29.

Australian markets eked out modest gains to end near two-week highs, with financials, resource and healthcare stocks pacing the gainers.

The benchmark S&P/ASX 200 Index rose 0.5 percent to 8,252.80, while the broader All Ordinaries Index closed 0.5 percent higher at 8,529.50. WEB Travel plummeted almost 36 percent after downgrading guidance.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dropped 0.6 percent to 12,766.75 after a survey revealed the country’s services sector remained in deep contraction in September.

Europe

European stocks are mixed on Monday after data showed Chinese exports and imports grew far less than expected in September.

A much-anticipated Chinese stimulus announcement over the weekend also failed to inspire confidence among investors.

While the French CAC 40 Index is down by 0.2 percent, the U.K.’s FTSE 100 Index is up by 0.1 percent and the German DAX Index is up by 0.3 percent.

LVMH, Kering and Hermes International have moved notably lower as investors remain jittery over anemic China demand for European designer goods.

Entain and Flutter Entertainment have also tumbled following a report that the Labour government is considering an up to a £3 billion tax hit on the gambling sector in this month’s Budget.

On the other hand, Mulberry Group have skyrocketed following a revised possible takeover offer from Frasers Group Plc.

U.S. Economic News

Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a panel discussion at the Central Bank of Argentina’s Money and Banking Conference at 9 am ET.

At 3 pm ET, Federal Reserve Board Governor Christopher Waller is due to speak on the economic outlook before the “A 50-Year Retrospective on The Shadow Open Market Committee and Its Role in Monetary Policy” conference hosted by Stanford University.

Kashkari is scheduled to participate in a lecture/fireside chat, “The Current State of U.S. Monetary Policy,” hosted by the Department of Economics at Torcuato di Tella University at 5 pm ET.