Rebound By Regional Banks May Contribute To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to move to the upside following the mixed performance seen in the previous session.

The markets may benefit from a rebound by regional banks, which came under pressure on Thursday amid ongoing concerns about turmoil in the sector.

PacWest Bancorp (PACW) is seeing notable pre-market strength after falling sharply in the previous session, while Western Alliance (WAL) is also likely to move to the upside.

Buying interest may be somewhat subdued, however, as concerns about the economic outlook and the debt ceiling crisis continue to hang over the markets.

A debt ceiling meeting between President Joe Biden and top lawmakers that had been scheduled for Friday has been postponed until early next week, adding to jitters about a potential default.

“The discussion between the U.S. president and Congress around the debt ceiling issue could increasingly become a pain point for the stock market as the potential date for a default approaches,” said Bas Kooijman, CEO at DHF Capital. “A U.S. default could have a tremendously negative impact on the global economy and on the financial system.”

“In this regard, some banks have started putting in place contingency plans to face a potential default,” he added. “As such, investors could be monitoring the developments around this issue every step of the way in the coming days.”

Stocks came under pressure in early trading on Thursday but regained ground over the course of the session. The major averages climbed well off their worst levels of the day, with the tech-heavy Nasdaq reaching positive territory.

The Nasdaq rose 22.06 points or 0.2 percent to 12,328.51, its best closing level in over eight months. Meanwhile, the S&P 500 dipped 7.02 points or 0.2 percent to 4,130.62 and the Dow slid 221.82 points or 0.7 percent to 33,309.51.

The Dow closed lower for the fourth consecutive session, with a steep drop by shares of Disney (DIS) weighing on the blue chip index.

Disney plunged by 8.7 percent to a four-month closing low after the entertainment giant reported fiscal second quarter earnings and revenue roughly in line with estimates but a decrease in streaming subscribers.

Renewed concerns about turmoil in the banking sector also weighed on Wall Street amid a nosedive by shares of PacWest Bancorp (PACW).

PacWest Bancorp plummeted by 22.7 percent after the regional bank revealed in a SEC filing that deposits slumped by 9.5 percent last week.

Meanwhile, the Nasdaq may have benefited from easing concerns about the outlook for interest rates following the release of the Labor Department’s report on producer price inflation in the month of April.

The Labor Department said its producer price index for final demand inched up by 0.2 percent in April after falling by a revised 0.4 percent in March.

Economists had expected producer prices to rise by 0.3 percent compared to the 0.5 percent drop originally reported for the previous month.

The report also showed the annual rate of producer price growth slowed to 2.3 percent in April from 2.7 percent in March. The pace of growth was expected to slow to 2.4 percent.

Following yesterday’s report on consumer price inflation, the data added to optimism the Federal Reserve will leave interest rates unchanged next month.

A separate Labor Department report showed initial jobless claims climbed to their highest level in well over a year in the week ended May 6th.

The report said initial jobless claims rose to 264,000, an increase of 22,000 from the previous week’s unrevised level of 242,000. Economists had expected jobless claims to inch up to 245,000.

With the much bigger than expected advance, jobless claims reached their highest level since hitting a matching number in the week ended October 30, 2021.

Gold stocks moved sharply lower over the course of the session, dragging the NYSE Arca Gold Bugs Index down by 3.6 percent. The sell-off by gold stocks came amid a decrease by the price of the precious metal.

Substantial weakness also remained visible among oil service stocks, resulting in a 2.9 percent slump by the Philadelphia Oil Service Index. The index plunged to a nearly seven-month closing low.

Oil service stocks moved lower along with the price of crude oil. Steel, banking and utilities stocks also saw notable weakness on the day, while retail stocks moved to the upside over the course of the session.

Commodity, Currency Markets

Crude oil futures are rising $0.45 to $71.32 a barrel after plunging $1.69 to $70.87 a barrel on Thursday. Meanwhile, after sliding $16.60 to $2,020.50 an ounce in the previous session, gold futures are slipping $6.80 to $2,013.70 an ounce.

On the currency front, the U.S. dollar is trading at 134.93 yen versus the 134.53 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0883 compared to yesterday’s $1.0916.

Asia

Asian stocks retreated on Friday on lingering worries over the health of U.S. banks, an ongoing impasse over the U.S. debt ceiling and the Chinese economic recovery.

A firmer dollar weighed on commodity prices, with oil falling for a third consecutive session, copper hovering near six-month lows and gold nudging back towards $2,000 an ounce.

The yield on two-year Treasury slipped to 3.90 percent from 3.91 percent on growing expectations that the Federal Reserve will hold off on hiking interest rates at its next meeting in June.

However, Federal Reserve Governor Michelle Bowman said in a speech today that policy rate would need to remain sufficiently restrictive for some time to bring inflation down and create conditions that will support a sustainably strong labor market.

Chinese shares tumbled after inflation data pointed to weakening demand in the country. The benchmark Shanghai Composite Index slumped 1.1 percent to 3,272.36, while Hong Kong’s Hang Seng Index dropped 0.6 percent to 19,627.24.

Japanese shares advanced amid gains in the tech sector and encouraging earnings news from Nissan Motor. Tokyo Electron, Advantest and Screen Holdings jumped 2-3 percent, while Nissan Motor surged 5.3 percent.

SoftBank Group lost 3.7 percent after reporting losses for a second consecutive year. Drug maker Takeda declined 2.5 percent after its annual profit missed estimates.

The Nikkei 225 Index advanced 0.9 percent to 29,388.30, while the broader Topix closed 0.6 percent higher at 2,096.39.

Seoul stocks closed lower for a fourth straight session after a Fed official said the U.S. central bank would need to raise rates further if inflation stays high. The Kospi fell 0.6 percent to 2,475.42, with LG Energy Solution and Korea Gas Corp losing 1-2 percent.

State utility Korea Electric Power rallied 1.9 percent on news that it plans to cut costs and sell assets as part of its self-rescue plans amid snowballing losses.

Australian markets ended flat with a positive bias as financial and healthcare stocks rose, offsetting losses in the mining and energy sectors. Gold miner Newcrest fell 2.2 percent after it extended the exclusivity period for Newmont’s $20 billion buyout offer.

QBE Insurance lost 3.6 percent despite hiking its gross written premium growth forecast for fiscal 2023.

Europe

European stocks have moved mostly higher on Friday, with financials and luxury goods makers rising on the back of strong earnings.

Sentiment was also helped by optimism that the Federal Reserve would halt interest rate increases in the next policy review in June.

In economic news, the U.K. economy expanded for the second straight quarter, in line with expectations, though output shrunk unexpectedly in the month of March, preliminary data from the Office for National Statistics showed.

Gross domestic product grew 0.1 percent from the fourth quarter, when it expanded at the same pace.

Data out of France showed that consumer price inflation in the country accelerated slightly as initially estimated in April.

The consumer price index climbed 5.9 percent year-over-year in April, following a 5.7 percent rise in March, according to the statistical office Insee. That was in line with the flash data published on April 28.

While the U.K.’s FTSE 100 Index has inched up by 0.2 percent, the German DAX Index and the French CAC 40 Index are both up by 0.4 percent.

Swiss luxury goods group Richemont has soared as it posted record earnings, benefiting strongly from a return in business in China. Peers LVMH and Hermes have also moved to the upside.

Insurer Beazley jumped has also moved sharply higher after reporting growth in first quarter gross premiums written.

French lender Societe Generale has also rallied after reporting an increase in first-quarter net profit. Reinsurer SCOR SE has also surged after its first quarter earnings beat forecasts.

German insurer Allianz has edged higher after reporting a sharp increase in first-quarter net profit and confirming its 2023 guidance.

Meanwhile, THG has plunged in London after the ecommerce technology group ended takeover talks with Apollo Global Management.

Turbine manufacturer Nordex Group has also moved lower after posting a wider first-quarter loss on the back of higher costs.

U.S. Economic Reports

Reflecting a significant rebound in prices for fuel imports, the Labor Department released a report on Friday showing U.S. import prices increased by slightly more than expected in the month of April.

The Labor Department said import prices climbed by 0.4 percent in April after falling by a revised 0.8 percent in March.

Economists had expected import prices to rise by 0.3 percent compared to the 0.6 percent decrease originally reported for the previous month.

The report also said export prices rose by 0.2 percent in April following a revised 0.6 percent drop in March. The uptick in export prices matched economist estimates.

At 10 am ET, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of May. The consumer sentiment index is expected to edge down to 63.0 in May from 63.5 in April.

San Francisco Federal Reserve President Mary Daly is due to deliver the commencement address before the University of Southern California Sol Price School of Public Policy at 2:20 pm ET.

At 7:45 pm ET, St. Louis Federal Reserve Bank President James Bullard is scheduled to speak on Toward a Monetary Policy Strategy in a panel discussion at the Hoover Monetary Policy Conference: How to Get Back on Track hosted by the Stanford University Hoover Institution.

Stocks In Focus

Shares of News Corp (NWSA) are seeing significant pre-market strength after the media company reported fiscal third quarter results that beat analyst estimates on both the top and bottom lines.

Clean energy company First Solar (FSLR) may also move to the upside after announcing the acquisition of Evolar AB, a European leader in perovskite technology, for up to $80 million.

On the other hand, shares of Fox Corp. (FOX) may move to the downside after Wells Fargo downgraded its rating on the media company’s stock to Equal Weight from Overweight.