Traders May Stick To The Sidelines Following Recent Weakness

The major U.S. index futures are currently pointing to a roughly flat open on Wednesday, with stocks likely to show a lack of direction following the downturn seen over the course of the previous session.

Traders may be reluctant to make significant moves amid uncertainty about the near-term outlook for the markets following the downward trend seen over the past several sessions.

The Dow ended the previous session at its lowest closing level in almost two months, while the tech-heavy Nasdaq closed lower for four straight session.

Trading could be impacted by reaction to a report from the Federal Reserve on industrial production in the month of August, which is due just before the start of trading. Industrial production is expected to increase by 0.5 percent.

Meanwhile, traders may look ahead to upcoming reports on retail sales and consumer sentiment as well as next week’s Fed meeting.

The futures did not show much reaction to a report from the Labor Department unexpectedly showing a decrease in U.S. import prices in the month of August.

Stocks moved to the upside at the start of trading on Tuesday but came under pressure over the course of the session. The major averages pulled back well off their early highs and slid firmly into negative territory as the day progressed.

After snapping a five-session losing streak on Monday, the Dow slid 292.06 points or 0.8 percent to 34,577.57, its lowest closing level in almost two months. The S&P 500 fell 25.68 points or 0.6 percent to 4,443.05, while the Nasdaq dropped 67.82 points or 0.5 percent to 15,037.76, closing lower for the fifth straight session.

Stocks initially benefited from a positive reaction to a highly anticipated Labor Department report showing consumer prices increased by slightly less than expected in the month of August.

The Labor Department said its consumer price index rose by 0.3 percent in August after climbing by 0.5 percent in July. Economists had expected consumer prices to increase by 0.4 percent.

Excluding food and energy prices, core consumer prices inched up by just 0.1 percent in August after rising by 0.3 percent in July. Economists had been expecting another 0.3 percent increase.

The report also showed a slowdown in the annual rate of consumer price growth, which dipped to 5.3 percent in August from 5.4 percent in July.

The annual rate of core consumer price growth also slowed to 4.0 percent in August from 4.3 percent in the previous month.

The relatively tame inflation data initially generated optimism that the Federal Reserve may delay plans to begin scaling back stimulus.

However, subsequent comments from economists suggested that the Fed is still likely to begin tapering its asset purchases as soon as December.

The Fed is scheduled to hold a monetary policy meeting next week, with many expecting the central bank to provide an update on the outlook for its asset purchase program.

Steel stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Steel Index down by 2.1 percent to its lowest closing level in almost two months.

Significant weakness was also visible among banking stocks, as reflected by the 2 percent slump by the KBW Bank Index.

Oil service stocks also saw considerable weakness on the day, resulting in a 2 percent drop by the Philadelphia Oil Service Index. The weakness in the sector came as the price of crude oil ended the day nearly flat.

Tobacco, natural gas and housing stocks also showed notable moves to the downside, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are jumping $1.26 to $71.72 a barrel after inching up $0.01 to $70.46 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,803.40, down $3.70 compared to the previous session’s close of $1,807.10. On Tuesday, gold climbed $12.70.

On the currency front, the U.S. dollar is trading at 109.36 yen compared to the 109.69 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1814 compared to yesterday’s $1.1803.

Asia

Asian stocks ended mostly lower on Wednesday, as weak Chinese data and fears over the rapid spread of the Delta strain of COVID-19 in the region overshadowed optimism over cooling U.S. inflation.

Chinese shares ended lower on worries about a slowing economy after data showed industrial output and retail sales in August grew at slowest pace in a year. The benchmark Shanghai Composite Index dropped 6.38 points, or 0.2 percent, to 3,656.22.

Hong Kong’s Hang Seng Index tumbled 469.02 points, or 1.8 percent, to 25,033.21. China Evergrande shares plunged 4.4 percent after the property giant said it is unable to sell its assets fast enough in order to repay mounting debt of $305 billion.

Japanese shares retreated from three-decade peaks hit in the previous session as a weaker than expected rebound in core machinery orders in July added to concerns about the strength of economic recovery. The Nikkei 225 Index ended down 158.39 points, or 0.5 percent, at 30,511.71, while the broader Topix closed 1.1 percent lower at 2,096.39.

Heavyweight SoftBank Group, which has exposure to Alibaba and other Chinese tech firms, plunged 5.8 percent on regulatory concerns. Murata Manufacturing shed 2.7 percent and Nitto Denko tumbled 3.3 percent, a day after Apple launched its iPhone 13 and iPhone 13 Pro series.

Park24 plummeted 7.9 percent after the operator of parking lots posted its sixth consecutive quarterly net loss.

Australian markets fell modestly, with material stocks leading losses. The benchmark S&P/ASX 200 Index dipped 20.30 points, or 0.3 percent, to 7,417, while the broader All Ordinaries Index ended down 17.10 points, or 0.2 percent, at 7,723.20.

Mining heavyweights Rio Tinto and BHP fell 1.9 percent and 3.5 percent, respectively, as commodity prices dipped across the board. South32, Fortescue Metals Group, Iluka Resources and OZ Minerals dropped 1-2 percent.

Energy stocks also declined despite oil prices climbing on data showing a larger than expected drawdown in crude oil inventoreis. Oil Search, Santos, Origin Energy, Beach Energy and AGL Energy lost 3-7 percent.

Brambles fell 2.1 percent to extend losses from the previous session after the logistics company announced big spending plans.

Meanwhile, Seoul stocks ended slightly higher after data showed the unemployment rate for August fell to the lowest on record, a sign of continued recovery from the pandemic.

The benchmark Kospi edged up 4.57 points, or 0.2 percent, to 3,153.40, extending gains for the fourth day running, supported by foreign buying.

Pharmaceutical giant Samsung Biologics rallied 2.5 percent, while leading chemical firm LG Chem lost 2.2 percent.

Europe

European stocks have dipped on Wednesday as weak Chinese data, a strong inflation reading in the U.K. and disappointing sales from fashion retailer H&M raised concerns about the global economic recovery.

China’s industrial output in August rose at its weakest pace since July 2020 and retail sales growth also slowed significantly due to strict COVID-19 curbs, heightening concerns about slowing growth in the world’s second-biggest economy.

While the French CAC 40 Index has slid by 0.7 percent, the German DAX Index and the U.K.’s FTSE 100 Index are down by 0.2 percent and 0.1 percent, respectively.

Eurostat reported that industrial output in the 19 countries sharing the euro rose 1.5 percent month-on-month in July for a 7.7 percent year-on-year rise.

Elsewhere, data showed that the U.K.’s annual consumer inflation accelerated to the fastest pace on record in August.

Data from the Office for National Statistics showed that the consumer price index rose 3.2 percent year-on-year following a 2.0 percent jump in July. Economists had forecast 2.9 percent inflation.

The 1.2 percentage point increase was the largest ever recorded in the 12-month rate series that began in January 1997.

Output price inflation accelerated more than expected to the highest since 2011, raising questions for the Bank of England on the timing of tightening monetary policy and interest rate hikes.

Output price inflation increased to 5.9 percent in August from 5.1 percent in July. The rate was expected to climb moderately to 5.4 percent. This was the highest rate since November 2011.

Swedish retailer Hennes & Mauritz AB has tumbled after sales at the world’s second-biggest fashion retailer grew less than expected in the three months to the end of August.

Fashion brand Zara owner Inditex has also shown a notable move to the downside despite sales approaching pre-pandemic levels.

Swiss drug major Roche has also fallen after announcing it has no plan to enter legal disputes with drug makers such as Hetero over patent rights.

Shares of zooplus AG has also slumped as financial investor KKR terminated discussions regarding a potential voluntary public takeover offer for the German online pet platform.

Restaurant Group has also moved sharply lower after reporting lackluster results for the first half of the year.

Travel and leisure stocks have also declined on concerns about the spread of COVID-19 cases in China. China tightened lockdowns and increased orders for mass testing in cities along its east coast today amid the latest surge in coronavirus cases.

On the other hand, British oil & gas company Tullow Oil has surged after it swung back to profit in the first half of 2021.

U.S. Economic Reports

Reflecting a sharp pullback in fuel prices, the Labor Department released a report on Wednesday unexpectedly showing a decrease in U.S. import prices in the month of August.

The Labor Department said import prices fell by 0.3 percent in August after climbing by an upwardly revised 0.4 percent in July.

The drop surprised economists, who had expected import prices to rise by 0.3 percent, matching the increase originally reported for the previous month.

Meanwhile, the report said export prices increased by 0.4 percent in August after jumping by a downwardly revised 1.1 percent in July.

Economists had expected export prices to advance by 0.5 percent compared to the 1.3 percent surge originally reported for the previous month.

A separate report from the New York Fed showed an unexpected rebound in the pace of growth in regional manufacturing activity in the month of September.

The New York Fed said its general business conditions index surged up to 34.3 in September after plunging to 18.3 in August, with a positive reading indicating growth in regional manufacturing activity.

The substantial rebound in the pace of regional manufacturing growth came as a surprise to economists, who had expected the index to edge down to 18.0.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of August. Industrial production is expected to increase by 0.5 percent.

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

Stocks In Focus

Shares of Sage Therapeutics (SAGE) are seeing significant pre-market strength after the FDA granted Fast Track Designation to the biopharmaceutical company’s experimental treatment for Huntington’s disease.

Software giant Microsoft (MSFT) may also move to the upside after raising its quarterly dividend by 11 percent to $0.62 per share and announced a new $60 billion share repurchase program.

On the other hand, shares of Wynn Resorts (WYNN) and Las Vegas Sands (LVS) are likely to come under pressure on news regulators are considering tighter regulations on casino operators in Macau.

Restaurant operator Yum China (YUMC) is also likely to see initial weakness after warning its third quarter profits may be reduced by 50 to 60 percent as a result of the Delta variant outbreak.