Lingering Tapering Concerns May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to see initial weakness following the lackluster performance seen in the previous session.

Lingering concerns about the outlook for monetary policy may weigh on the markets following the release of the minutes of the latest Federal Reserve meeting earlier this week.

The Fed minutes indicated most officials were in favor of beginning to scale back the central bank’s asset purchase program later this year.

However, there was some disagreement about the timing of tapering asset purchases, and analysts have pointed out that some disappointing economic data has been released since the July meeting.

Uncertainty about the outlook for monetary policy may lead traders to keep a close eye on upcoming economic data ahead of the Fed’s next meeting in September.

Unfortunately, there is no major U.S. economic data scheduled to be released today, potentially leading to a light trading day.

After pulling back sharply during trading on Tuesday and Wednesday, stocks showed a lack of direction throughout the trading day on Thursday. The major averages bounced back and forth across the unchanged line before ending the day mixed.

While the Dow edged down 66.57 points or 0.2 percent to 34,894.12, the Nasdaq inched up 15.87 points or 0.1 percent to 14,541.79 and the S&P 500 crept up 5.53 points or 0.1 percent to 4,405.80.

The choppy trading on Wall Street came as traders expressed some uncertainty about the near-term outlook for the markets after initial weakness dragged the major averages down to their lowest intraday levels in almost a month.

The initial move to the downside came as traders continued to digest the minutes of the Federal Reserve’s latest monetary policy meeting.

The minutes indicated that most Fed officials currently expect economic conditions to warrant scaling back the central bank’s asset purchase program before the end of the year.

The Fed restarted its asset purchase program back in March of 2020 and is currently purchasing bonds at a pace of $120 billion per month.

The asset purchase program has helped to prop up the markets throughout much of the coronavirus pandemic, with stocks reaching record highs even as the economy struggled.

However, the minutes showed there was still some disagreement about the timing of tapering the asset purchases, leading to some uncertainty on Wall Street.

Potentially adding evidence to Fed officials’ view that the economy is close to the goal of maximum employment, the Labor Department released a report this morning showing initial jobless claims fell to a new pandemic-era low in the week ended August 14th.

The Labor Department said initial jobless claims fell to 348,000, a decrease of 29,000 from the previous week’s revised level or 377,000.

Economists had expected jobless claims to edge down to 363,000 from the 375,000 originally reported for the previous week.

Initial jobless claims decreased for the fourth consecutive week, falling to their lowest level since hitting 256,000 in the week ended March 14, 2020.

Despite the lackluster performance by the broader markets, steel stocks moved sharply lower on the day, dragging the NYSE Arca Steel Index down by 4.2 percent to its lowest closing level in a month.

Substantial weakness also remains visible among energy stocks, which plunged along with the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index and the NYSE Arca Oil Index plummeted by 3.2 percent and 2.7 percent, respectively.

Airline stocks also showed a significant move to the downside on the day, resulting in a 2.3 percent nosedive by the NYSE Arca Airline Index. The index ended the session at a six-month closing low.

Gold, biotechnology and computer hardware stocks also saw considerable weakness, while notable strength was visible among software stocks.

Commodity, Currency Markets

Crude oil futures are slumping $1.33 to $62.36 a barrel after plunging $1.77 to $63.69 a barrel on Thursday. Meanwhile, after edging down $1.30 to $1,783.10 an ounce in the previous session, gold futures are rising $5.20 to $1,788.30 an ounce.

On the currency front, the U.S. dollar is trading at 109.72 yen versus the 109.74 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1671 compared to yesterday’s $1.1675.

Asia

Asian stocks retreated on Friday as the rout in Chinese technology giants deepened. A cautious undertone prevailed amid fears of slowing global growth and a potential easing in U.S. stimulus.

Chinese shares ended lower as the People’s Bank of China left its benchmark lending rate for corporate and household loans unchanged for a 16th straight month, as widely expected, amid weak economic data. The benchmark Shanghai Composite Index fell 38.22 points, or 1.1 percent, to 3,427.33.

Hong Kong’s Hang Seng Index ended down 1.8 percent at 24,849.72, with tech stocks suffering heavy losses after China’s National People’s Congress officially passed a law designed to protect online user data privacy.

Japanese shares ended near an eight-month low a day after Toyota Motor said it would slash global production for September by 40 percent due to the chip crisis. The Nikkei 225 Index ended down 267.92 points, or 1 percent, at 27,013.25, marking its lowest close since December 28. The broader Topix closed 0.9 percent lower at 1,880.68.

Toyota shares plunged 4.1 percent, while Honda Motor, Mitsubishi Motors and Nissan Motor plummeted 5-7 percent. Auto parts makers Denso and Aisin Seiki lost 8.8 percent and 5.3 percent, respectively.

Shippers also fell broadly, with Nippon Yusen and Kawasaki Kisen both ending down over 8 percent. Market heavyweight SoftBank Group tumbled 3.6 percent and Uniqlo operator Fast Retailing declined 1.6 percent.

In economic news, overall consumer prices in Japan were down 0.3 percent year-on-year July, official data showed. That missed expectations for a flat reading following the downwardly revised 0.5 percent contraction in June.

Australian shares fluctuated before ending marginally lower as the country struggled to contain the coronavirus situation, primarily in New South Wales.

Miners ended mixed, with BHP losing 0.7 percent, while Rio Tinto ended flat and Fortescue Metals Group rose 1.1 percent. Gold miners fell broadly, with Newcrest tumbling 3.3 percent.

Banks saw modest losses. Energy stocks ended mixed as oil edged up from three-month lows in Asian trade. Poultry producer Inghams group jumped 4.6 percent after its FY21 profit doubled.

Cochlear slumped 7.4 percent despite the meditech giant reporting record $1.4 billion in revenue. Sydney Airport edged down slightly after reporting a wider loss for the first half.

Seoul stocks fell sharply on concerns that the U.S. Federal Reserve may start tapering its accommodative policy as early as the final quarter this year. The benchmark Kospi fell 37.32 points, or 1.2 percent, to settle at 3,060.51.

Top automaker Hyundai Motor lost 2.4 percent, while pharmaceutical giant Samsung Biologics rose 1.1 percent.

Europe

European stocks have fallen on Friday, extending losses from the previous session amid uncertainty over the spread of the coronavirus and the Fed’s taper plans.

A rout in Chinese technology giants also deepened after Chinese authorities passed a major data protection law, along the lines of Europe’s Global Data Protection Regulation, making it harder and costlier for tech firms in China to access and use consumer information.

The law, one of the world’s toughest on personal data security, places legal restrictions on how personal data can be collected, used and managed after it comes into effect on November 1.

While the German DAX Index has fallen by 0.4 percent, the French CAC 40 Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is down by 0.1 percent.

Travel-related stocks such as EasyJet and IAG have moved lower on fears the spread of the Delta variant could lead to more travel restrictions.

On the other hand, Swedish real estate web portal Hemnet has moved sharply higher after reporting a jump in quarterly sales and profits.

Marks and Spencer Group has also soared. The retailer raised its profit guidance for the full year after reporting improved sales performance and profit delivery for 19 weeks to 14 August 2021.

Supermarket Morrisons has also shown a strong move to the upside after it agreed a takeover offer worth 7.0 billion pounds ($9.54 billion).

Shares of Vertu Motors have also jumped. The car dealership chain lifted its first-half and fiscal year outlook for adjusted pre-tax profit and announced that it plans to start a share buyback.

In economic news, German producer prices grew 10.4 percent yearly in July following a 8.5 percent rise in June, Destatis reported. Economists had forecast an increase of 9.2 percent. This was the fastest rise since January 1975, when prices grew sharply amid the oil crisis.

On a monthly basis, overall producer price inflation rose to 1.9 percent from 1.3 percent in June. Economists had forecast a rise of 0.8 percent.

Separate data showed a surprise drop in U.K. retail sales last month. Sales volumes fell by 2.5 percent from June, marking the biggest drop since January when Britain returned to lockdown.

U.S. Economic Reports

Dallas Federal Reserve Bank President Robert Kaplan is due to participate in a moderated question-and-answer session before a virtual event hosted by Texas Tech University Rawls College of Business at 11 am ET.

Stocks In Focus

Shares of Foot Locker (FL) are moving sharply higher in pre-market trading after the athletic footwear and apparel retailer reported second quarter results that exceeded analyst estimates on both the top and bottom lines.

Fashion accessories retailer Buckle (BKE) is also likely to see initial strength after reporting better than expected second quarter results.

On the other hand, shares of Ross Stores (ROST) may come under pressure after the discount retailer reported second quarter results that exceeded analyst estimates but provided disappointing guidance.