Lingering Uncertainty May Lead To Choppy Trading On Wall Street

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

Uncertainty about the near-term outlook for the markets may keep some traders on the sidelines following the significant rebound seen on Wednesday.

Yesterday’s rally lifted the major averages well off their worst levels in over a month, although worries about interest rates and the global economic outlook continue to hang over the markets.

Traders are likely to keep a close eye on comments by Federal Reserve Chair Jerome Powell, who is due to participate in a virtual discussion at the Cato Institute’s 40th Annual Monetary Conference not long before the start of trading.

Powell’s remarks are likely to maintain the same tone as his speech at last month’s Jackson Hole economic symposium, which helped trigger the recent round of weakness on Wall Street.

Meanwhile, the futures have not shown much reaction to the European Central Bank’s decision to raise interest rates by 75 basis points.

Stocks moved sharply higher over the course of the trading day on Wednesday, regaining ground following the notable downward move seen over the past several sessions. The major averages all showed strong moves to the upside, with the tech-heavy Nasdaq snapping a seven-session losing streak.

The major averages finished the session just off their best levels of the day. The Dow jumped 435.98 points or 1.4 percent to 31,581.28, the Nasdaq soared 246.99 points or 2.1 percent to 11,791.90 and the S&P 500 surged 71.68 points or 1.8 percent to 3,979.87.

The rally on Wall Street came as some traders looked to pick up stocks at reduced levels following the recent weakness, which dragged the major averages down to their lowest levels in over a month.

While other recent bargain hunting efforts have faltered over the course of the trading day, traders may now feel that interest rate concerns have been priced into the markets.

The rebound also came amid a pullback by treasury yields, with the yield on the benchmark ten-year note giving back ground after reaching a nearly three-month high on Tuesday.

Stocks saw further upside following the release of the Federal Reserve’s Beige Book, which said economic activity in the U.S. has been essentially unchanged since early July.

The Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts, noted five districts reported slight to modest growth in activity and five others reported slight to modest softening.

With regard to inflation, the Fed said prices remained highly elevated, with substantial price increases reported across all districts, particularly for food, rent, utilities, and hospitality services.

However, the report noted nine districts reported some degree of moderation in rate of price growth in recent months.

A separate report released by the Commerce Department showed the U.S. trade deficit narrowed significantly in the month of July.

The Commerce Department said the trade deficit shrank to $70.6 billion in July from a revised $80.9 billion in June.

Economists had expected the trade deficit to narrow to $70.3 billion from the $79.6 billion originally reported for the previous month.

Airline stocks showed a substantial move back to the upside over the course of the session, with the NYSE Arca Airline Index soaring by 4.3 percent after ending the previous session at its lowest closing level in over a month.

Considerable strength was also visible among gold stocks, as reflected by the 3.8 percent surge by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid an increase by the price of the precious metal.

Utilities stocks also turned in a particularly strong performance, resulting in a 3.3 percent jump by the Dow Jones Utility Average.

Retail, chemical, and biotechnology stocks also saw notable strength on the day, while energy stocks bucked the uptrend amid a steep drop by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are rising $0.57 to $82.51 a barrel after plummeting $4.94 to $81.94 a barrel a barrel on Wednesday. Meanwhile, after climbing $14.90 to $1,727.80 an ounce in the previous session, gold futures are inching up $3.70 to $1,731.50 an ounce.

On the currency front, the U.S. dollar is trading at 143.79 yen versus the 143.74 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0004 compared to yesterday’s $1.0006.

Asia

Asian stocks followed their U.S. peers higher on Thursday, although Chinese and Hong Kong stocks ended on a subdued note on news of extended lockdowns in the Chinese city of Chengdu.

A cautious undertone prevailed as investors awaited the ECB rate decision and remarks by U.S. Federal Reserve Chair Jerome Powell.

Powell will participate in a discussion at a Cato Institute conference, where the rhetoric on rate hikes is expected to remain hawkish overall.

The dollar came off from 20-year highs and bond yields eased, while oil prices rose in Asian trading after falling to levels not seen since before Russia’s invasion of Ukraine overnight on demand concerns.

The rebound came after Russian President Vladimir Putin threatened to stop supplying gas and oil if price caps are imposed on Russia’s energy resources.

China’s Shanghai Composite Index slipped 0.3 percent to 3,235.59 as heavy rains complicated earthquake recovery efforts in southwestern China.

The Chinese megacity of Chengdu extended a lockdown for a majority of its more than 21 million residents, as the caseload remained elevated. Hong Kong’s Hang Seng Index ended 1 percent lower at 18,854.62.

Japanese shares led regional gains to end at a one-week high as the yen’s rapid depreciation raised hopes for a better outlook for exporters.

The Nikkei 225 Index soared 2.3 percent to 28,065.28, marking its biggest single-day gain in four weeks and the highest closing level since August 31. The broader Topix closed 2.2 percent higher at 1,957.62, snapping a six-session losing streak.

Heavyweights SoftBank and Fast Retailing both rose over 2 percent. Tech stocks such as Advantest, Tokyo Electron and Screen Holdings gained 1-2 percent.

ANA Holdings added 2.5 percent and Japan Airlines jumped 3.6 percent after the government further eased its COVID-19 border control measures.

Official data showed earlier today that Japan’s economy grew more than initially estimated in the second quarter as a result of increased capital expenditure by businesses.

Seoul stocks eked out modest gains to rebound from a seven-week low hit the previous day, as the dollar rally paused and Treasury yields eased. The Kospi rose 0.3 percent to close at 2,384.28 ahead of a long holiday weekend.

South Korea’s financial markets will be closed on Friday through next Monday for local holidays.

Australian markets rose the most in 10 weeks after RBA Governor Philip Lowe said the Board was not on a pre-set path and there is a case for a slower pace of rate hikes.

The benchmark S&P/ASX 200 Index surged 1.8 percent to 6,848.70 after two straight sessions of losses. The broader All Ordinaries Index ended 1.8 percent higher at 7,085.30.

Higher iron ore prices helped lift miners, with Fortescue Metals Group spiking nearly 5 percent.

Payments platform Tyro skyrocketed 27.9 percent after rejecting an unsolicited takeover offer from private equity firm Potentia Capital Management and a group of investors.

Europe

European stocks are mostly lower on Thursday after the European Central Bank announced its decision to raise interest rates by 75 basis points.

The ECB said the aggressive rate hike “frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target.”

The central bank also said it expects to continue to raise interest rates in an effort to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.

Investors also await comments from Federal Reserve Chair Jerome Powell for additional clues on the outlook for U.S. interest rates.

While the German DAX Index has slid by 0.6 percent, the U.K.’s FTSE 100 Index is down by 0.1 percent and the French CAC 40 Index is just below the unchanged line.

Philips has fallen after reports that French prosecutors have opened a preliminary investigation into a respiratory device recall by the Dutch medical device maker.

Valneva SE shares have also moved lower in Paris. The vaccine maker focused on infectious diseases and VBI Vaccines Inc. said that they have joined hands for the marketing and distribution of PreHevbri in select European countries.

Automakers BMW and Volkswagen have also moved to the downside after the Chinese megacity of Chengdu extended a lockdown for a majority of its more than 21 million residents.

Melrose, the turnaround specialist that owns British engineer GKN, has also dipped. The company announced plans to separate its GKN Automotive and GKN Powder Metallurgy divisions and list them as a separate independent business.

On the other hand, shares of Restaurant Group have surged after the company reported a narrower half-year net loss.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly showed a modest decrease in the week ended September 3rd, according to a report released by the Labor Department on Thursday.

The report showed initial jobless claims edged down to 222,000, a decrease of 6,000 from the previous week’s revised level of 228,000

Economists had expected jobless claims to inch up to 240,000 from the 232,000 originally reported for the previous week.

With the unexpected dip, jobless claims fell to their lowest level since hitting 202,000 in the week ended May 28th.

At 9:10 am ET, Federal Reserve Chair Jerome Powell is scheduled to participate in a virtual discussion at the Cato Institute’s 40th Annual Monetary Conference.

The Energy Information Administration is due to release its report on oil inventories in the week ended September 2nd at 11 am ET.

Crude oil inventories are expected to edge down by 0.7 million barrels after falling by 3.3 million barrels in the previous week.

Also at 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

Chicago Federal Reserve Bank President Charles Evans is due to speak on current economic conditions and monetary policy before the College of DuPage Economic Forum at 12 pm ET.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of July. Consumer credit is expected to increase by $33.0 billion.

Stocks In Focus

Shares of Asana (ASAN) are soaring in pre-market trading after the communications software company reported a narrower than expected fiscal second quarter loss on revenues that beat estimates and provided upbeat guidance.

Video game retailer GameStop (GME) is also seeing pre-market strength after reporting a narrower than expected fiscal second quarter loss and announcing a partnership with cryptocurrency exchange FTX.

Meanwhile, shares of American Eagle Outfitters (AEO) may come under pressure after the apparel retailer reported fiscal second quarter results that missed analyst estimates.

Discount airline Frontier Group (ULCC) may also move to the downside after Raymond James downgraded its rating on the company’s stock to Market Perform from Outperform.