Futures Pointing To Initial Pullback On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Thursday, with stocks likely to move back to the downside following the rally seen in the previous session.

Concerns aggressive monetary policy action by central banks around the world may trigger a global recession are likely to weigh on Wall Street.

Following the Federal Reserve’s widely expected 75 basis point interest rate hike on Wednesday, the Swiss National Bank unexpectedly raised interest rates for the first time since 2007.

The Bank of England also announced another 25 basis point rate hike. The BoE’s Monetary Policy Committee voted 6-3 to raise the bank rate to 1.25 percent, the highest rate since early 2009.

Following the mixed performance seen during trading on Tuesday, stocks showed a strong move to the upside in Wednesday’s session. With the upward move, the Dow and the S&P 500 regained ground after ending Tuesday’s session at their lowest closing levels in over a year.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow jumped 303.70 points or 1 percent to 30,668.53, the Nasdaq spiked 270.81 points or 2.5 percent to 11,099.15 and the S&P 500 surged 54.51 points or 1.5 percent to 3,789.99.

The rally on Wall Street came even as the Federal Reserve announced the biggest increase in interest rates in almost thirty years.

The Fed revealed that it has decided to raise the target rate for the federal funds rate by 75 basis points to 1.50 to 1.75 percent, marking the biggest rate hike since 1994.

The widely expected move by the Fed comes as a recent report from the Labor Department showed consumer price inflation at the fastest annual rate in forty years.

Citing its goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed also indicated that further rate hikes are likely to be appropriate.

In his post-meeting press conference, Fed Chair Jerome Powell indicated the central bank could raise interest rates by another 75 basis points at its next meeting in late July.

The Fed also said it would continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

In its assessment of the U.S. economy, the Fed said overall economic activity appears to have picked up after edging down in the first quarter.

The central bank described recent jobs gains as “robust” and noted the unemployment rate has remained low.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Fed said.

However, the decision to raise interest rates by 75 basis points was not unanimous, as Kansas City Fed President Esther George preferred raising rates by 50 basis points.

On the U.S. economic front, the Commerce Department released a report showing an unexpected decrease in U.S. retail sales in the month of May.

The report showed retail sales fell by 0.3 percent in May after climbing by a downwardly revised 0.7 percent in April. Economists had expected retail sales to edge up by 0.2 percent compared to the 0.9 percent increase originally reported for the previous month.

Excluding the steep drop in sales by motor vehicles and parts dealers, retail sales rose by 0.5 percent in May following a 0.4 percent increase in April. Ex-auto sales were expected to advance by 0.8 percent.

A separate report released by the Labor Department showed U.S. import prices increased by less than expected in the month of May.

The Labor Department said import prices climbed by 0.6 percent in May after rising by a revised 0.4 percent in April.

Economists had expected import prices to jump by 1.1 percent compared to the unchanged reading originally reported for the previous month.

Meanwhile, the report showed export prices surged by 2.8 percent in May following a 0.8 percent increase in April. Export prices were expected to shoot up by 1.3 percent.

The Federal Reserve Bank of New York also released a report showing regional manufacturing activity was little changed in the month of June.

Another report from the National Association of Home Builders showed homebuilder confidence fell to its lowest level since June 2020.

Networking stocks showed a substantial move to the upside on the day, driving the NYSE Arca Networking Index up by 2.8 percent.

Significant strength was also visible among biotechnology stocks, as reflected by the 2.6 percent jump by the NYSE Arca Biotechnology Index.

Retail stocks also turned in a strong performance despite the disappointing retail sales data, with the Dow Jones U.S. Retail Index surging up by 2.6 percent.

Commercial real estate, computer hardware and steel stocks also saw considerable strength on the day, while energy stocks moved lower along with the price of crude oil.

Commodity, Currency Markets

Crude oil futures are slumping $1.51 to $113.80 a barrel after plunging $3.62 to $115.31 a barrel on Wednesday. Meanwhile, after rising $6.10 to $1,819.60 an ounce in the previous session, gold futures are climbing $12.20 to $1,831.80 an ounce.

On the currency front, the U.S. dollar is trading at 132.81 yen versus the 133.84 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0424 compared to yesterday’s $1.0444.

Asia

Asian stocks gave up early gains to end mixed on Thursday amid concerns that higher U.S. interest rates could lead to more capital outflows from emerging markets. Investors also continued to fret about the impact of surging inflation on economic growth and corporate earnings.

After retreating from a 20-year peak, the dollar regained its footing in the Asian session. Gold inched lower, while oil prices recovered some ground after a steep drop in the previous session.

China’s Shanghai Composite Index ended 0.6 percent lower at 3,285.38, giving up early gains. Hong Kong’s Hang Seng Index tumbled 2.2 percent to 20,845.43 following the Fed’s aggressive but expected 75-bps rate hike.

Hong Kong’s financial secretary and de facto central banker both said the city’s banking system has enough liquidity even if they brace for capital outflows.

Japanese shares eked out modest gains, led by consumer cyclicals. Sony, Fast Retailing and Toyota Motor rallied 1-3 percent.

The Nikkei 225 Index rose 0.4 percent to 26,431.20, snapping a four-day losing streak ahead of Friday’s BoJ meeting, where the central bank is expected to stick with all its main policy settings. The broader Topix closed 0.6 percent higher at 1,867.81.

Japan posted its biggest trade deficit in more than eight years for May as high commodity prices and declines in the yen swelled imports, data showed earlier today.

Seoul stocks snapped a seven-day losing streak, though overall gains remained modest due to rising macro uncertainties. The Kospi inched up 0.2 percent to 2,451.41, with tech and chemical stocks pacing the gainers. LG Chem and Samsung SDI both jumped around 4 percent.

Finance Minister Choo Kyung-ho pointed to fears over growing market volatility and a global economic slowdown amid accelerating monetary tightening, vowing responses “with a sense of urgency.”

Australian markets gave up early gains to end slightly lower as recession worries overshadowed solid labor market data. The nation’s jobless rate remained steady at 3.9 percent last month with a better-than-expected 60,600 jobs added to the economy.

The benchmark S&P/ASX 200 Index slipped 0.2 percent to 6,591.10, extending losses for a fifth straight session. The broader All Ordinaries Index finished marginally lower at 6,783.70.

Healthcare stocks led losses, with heavyweights CSL and Ramsay Health Care both falling 0.9 percent and 1.4 percent, respectively.

Link Administration slumped 10.4 percent after the competition regulator flagged concerns about Canadian firm Dye & Durham’s proposed US$2.48 billion deal to buy the share registry company.

Europe

European stocks have fallen sharply on Thursday as fears mount that the Fed might trigger a recession sometime in the next year with its aggressive rate action.

Earlier today, the Swiss National Bank unexpectedly increased interest rates for the first time since 2007. The Bank of England also announced another 25 basis point rate hike.

While the French CAC 40 Index has tumbled by 2.1 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both down by 2.6 percent.

Roche has declined after the Swiss drug maker announced a setback in the development of its crenezumab drug for the treatment of Alzheimer’s disease.

British fashion retailer ASOS has plunged and rival Boohoo has slumped after both reported slowing sales.

CRH, a building materials business, has also fallen after it entered into arrangements with UBS A.G., London Branch to repurchase shares on CRH’s behalf for up to $300 million.

BHP shares have also moved to the downside. The miner announced it would retain New South Wales Energy Coal in its portfolio.

Capgemini SE has also come under pressure. The French IT services and consulting company said it plans to open semiconductor design services centers across Europe.

Automakers BMW, Volkswagen and Renault have also tumbled after industry data showed European passenger car registrations declined for the tenth successive month in May, but at a slower pace.

Software maker Dassault Systèmes SE has also fallen. The company said that it is on the trajectory to achieve its 2024 non-IFRS earnings per share objective and is well positioned to capitalize on significant long-term growth opportunities.

Food retailer Casino Group has also moved lower after it inked a deal with Gorilla, an on-demand grocery delivery company, to extend their partnership for Frichti, a French groceries platform.

U.S. Economic Reports

The Labor Department released a report on Thursday showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended June 11th.

The report showed initial jobless claims edged down to 229,000, a decrease of 3,000 from the previous week’s revised level of 232,000.

Economists had expected jobless claims to dip to 220,000 from the 229,000 originally reported for the previous week.

Meanwhile, the Labor Department said the less volatile four-week moving average crept up to 218,500, an increase of 2,750 from the previous week’s revised average of 215,750.

A separate report released by the Commerce Department showed new residential construction in the U.S. plunged by much more than expected in the month of May.

The Commerce Department said housing starts tumbled by 14.4 percent to an annual rate of 1.549 million in May after jumping by 5.5 percent to a revised rate of 1.810 million in April.

Economists had expected housing starts to decrease by 1.3 percent to an annual rate of 1.701 million from the 1.724 million originally reported for the previous month.

The report also showed building permits slumped by 7.0 percent to an annual rate of 1.695 million in May after falling by 3.0 percent to a revised rate of 1.823 million in April.

Building permits, an indicator of future housing demand, were expected to decline by 1.9 percent to an annual rate of 1.785 million from the 1.819 million originally reported for the previous month.

The Federal Reserve Bank of Philadelphia also released a report showing a modest contraction in regional manufacturing activity in the month of June.

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds.

Stocks In Focus

Shares of Revlon (REV) are moving lower in pre-market trading after the cosmetics and hair-care company filed for Chapter 11 bankruptcy protection.

Electric vehicle maker Tesla (TSLA) may also move to the downside amid news the company has raised prices on its U.S. models amid higher raw material costs and the global supply chain crisis.

On the other hand, shares of Commercial Metals (CMC) are likely to move to the upside after the metal products manufacturer reported better than expected fiscal third quarter results.