Futures Pointing To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Thursday, with stocks likely to extend the pullback seen over the past few sessions.

Profit taking may contribute to continued weakness on Wall Street after the Nasdaq and the S&P 500 reached their best levels in over a year last week.

Traders have been cashing on the recent strength amid concerns about the outlook for interest rates, with Federal Reserve Chair Jerome Powell predicting further rate hikes during congressional testimony on Wednesday.

Powell is due to testify before the Senate Banking Committee this morning and is likely to reiterate that the Fed will continue to raise rates in an effort to reduce inflation.

Potentially adding to the interest rate concerns, the Bank of England raised the interest rate more aggressively, citing persistent inflation and labor market tightness.

However, a report from the Labor Department showing initial jobless claims held at their highest level since October 2021 last week may help limit the downside, as the Fed has warned about the impact of labor market tightness.

After moving mostly lower over the two preceding sessions, stocks saw further downside during trading on Wednesday. The major averages all finished the day in negative territory, with the tech-heavy Nasdaq leading the slide.

The Nasdaq tumbled 165.10 or 1.2 percent to 13,502.20, continuing to give back ground after ending last Thursday’s trading at its best closing level in over a year. The S&P 500 also fell 23.02 points or 0.5 percent to 4,365.69, while the Dow dipped 102.35 points or 0.3 percent to 33,951.52.

Renewed concerns about the outlook for interest rates contributed to the weakness on Wall Street following remarks by Federal Reserve Chair Jerome Powell.

In testimony before the House Financial Services Committee, Powell reiterated the Fed is likely to continue raising interest rates in an effort to contain stubbornly elevated inflation.

“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said.

The Fed left rates unchanged last week, but the central bank’s latest projections suggest it plans to resume raising rates later this year, forecasting a rate of 5.6 percent by the end of 2023.

If the Fed decided to revert to its recent quarter-point increases, the forecast suggests the central bank will raise rates two more times this year.

The forecast for additional rate hikes come as Powell noted inflation pressures continue to run high and said the process of getting inflation back to the Fed’s 2 percent target has a “long way to go.”

Following Powell’s remarks, CME Group’s FedWatch Tool is indicating a 74.4 percent chance the Fed will raise rates by another quarter point following its next meeting in late July.

Semiconductor stocks saw substantial weakness on the day, resulting in a 2.7 percent slump by the Philadelphia Semiconductor Index.

The index continued to give back ground after ending last Wednesday’s trading at its highest closing level in over year.

Networking, software and computer hardware stocks also showed significant moves to the downside, contributing to the steep drop by the tech-heavy Nasdaq.

On the other hand, energy stocks saw notable strength after falling sharply on Tuesday, benefiting from a rebound by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are tumbling $1.31 to $71.22 a barrel after jumping $1.34 to $72.53 a barrel on Wednesday. Meanwhile, after slipping $2.80 to $1,944.90 ounce in the previous session, gold futures are falling $.820 to $1,936.70 an ounce.

On the currency front, the U.S. dollar is trading at 141.91 yen versus the 141.88 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0988 compared to yesterday’s $1.0986.

Asia

Asian stocks ended mixed in thin trading on Thursday, with markets in China, Hong Kong and Taiwan closed for the Dragon Boat Festival.

The dollar languished near a one-month low against a basket of currencies despite Federal Reserve Chairman Jerome Powell affirming that more interest rate increases are likely ahead. Gold and oil prices were modestly lower in Asian trading.

Japanese shares fell sharply after rising in the two previous sessions. The Nikkei 225 Index dropped 0.9 percent to 33,264.88, while the broader Topix Index finished marginally higher at 2,296.50.

Semiconductor shares fell on profit taking after recent sharp gains. Advantest plummeted 6.9 percent, Tokyo Electron plunged 4.6 percent and Screen Holdings lost 3.6 percent.

Banks Mitsubishi UFJ Financial, Sumitomo Mitsui Financial and Mizuho Financial added 2-4 percent.

Panasonic advanced 2.3 percent on news that its energy unit was in talks to supply batteries to power Mazda Motor’s electric vehicles.

Seoul stocks rose to snap a three-day losing streak despite Powell’s hawkish congressional testimony. The Kospi edged up 0.4 percent to 2,593.70.

Samsung Electronics and LG Energy Solution climbed 1-2 percent, while steel giant Posco Holdings rallied 3.5 percent.

Australian markets tumbled as tech stocks suffered heavy losses on concerns about the outlook for interest rates. Afterpay owner Block gave up 2.3 percent, Appen shed 1.1 percent and WiseTech Global slumped 4 percent.

Miners also fell, with heavyweights BHP and Rio Tinto falling 1-2 percent on worries about China’s economic recovery.

The benchmark S&P/ASX 200 Index slumped 1.6 percent to 7,195.50 while the broader All Ordinaries Index settled 1.7 percent lower at 7,381.

Siren Gold jumped 12.4 percent after an announcement that its ionic leach trial has detected mineralization below the surface at its Sams Creek project in New Zealand.

Across the Tasman, New Zealand shares ended lower, with the benchmark S&P/NZX-50 Index closing down 0.3 percent at 11,739.05.

Transport fleet management software firm Eroad soared nearly 60 percent after receiving a nearly $150 million takeover offer from a subsidiary of Canadian software group Constellation.

Europe

European stocks have fallen near three-month lows on Thursday, as investors digest hawkish signals from Fed and ECB policymakers as well as interest rate hikes by the Bank of England and Swiss National Bank. Selling has been seen across the board, with banks and tech stocks declining the most.

The Bank of England raised interest rates more aggressively, citing persistent inflation and labor market tightness.

The rate-setting panel voted 7-2 to increase the bank rate by 50 basis points to 5.00 percent, the highest since 2008. Markets were expecting a quarter point increase.

Meanwhile, the Swiss National Bank continued its policy tightening with yet another hike to its interest rates, but at a slower pace as expected.

After hiking its policy rate by 25 basis points to 1.75 percent, Switzerland’s central bank said more such moves are likely to counter rising inflationary pressures.

In economic news, French manufacturers’ confidence unexpectedly improved in June, underpinned by the strength in past and future production as well as an increase in order books, monthly data from the statistical office INSEE revealed earlier today.

The manufacturing sentiment index rose to 101 in June from a 26-month low of 99 in May. The reading was forecast to remain unchanged at 99.

While the U.K.’s FTSE 100 Index has slumped by 1.0 percent, the French CAC 40 Index is down by 0.9 percent and the German DAX Index is down by 0.5 percent.

Automakers Renault, BMW, Mercedes Benz and Volkswagen have dropped after U.S. lawmakers late on Wednesday urged the Federal Trade Commission to finalize new consumer protections for car buyers.

Novo Nordisk has also declined. The healthcare company said the European Union’s drug watchdog had last month raised a thyroid cancer safety signal for several of its drugs.

Meanwhile, shares of British grocery delivery firm Ocado Group have soared after the Times newspaper reported possible talk of bid interest in the company.

SES SA shares have also jumped in Paris after the company confirmed that it has ceased merger talks with Intelsat to create a satellite giant.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits were unchanged in the week ended June 17th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims came in at 264,000, unchanged from the previous week’s revised level. Economists had expected jobless claims to edge down to 260,000 from the 262,000 originally reported for the previous week.

Reflecting the upward revision to the previous week, jobless claims held at their highest level since hitting 269,000 in the week ended October 23, 2021.

Federal Reserve Governor Michelle W. Bowman is due to deliver opening remarks at a Fed Listens event hosted by the Federal Reserve Bank of Cleveland at 9:55 am ET.

At 10 am ET, Federal Reserve Chair Jerome Powell is scheduled to deliver his semi-annual monetary policy testimony before the Senate Banking Committee.

The National Association of Realtors is also due to release its report on existing home sales in the month of May at 10 am ET. Existing home sales are expected to decrease by 0.6 percent in May after plunging by 3.4 percent in April.

Also at 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of May. The leading economic index is expected to fall by 0.7 percent in May after sliding by 0.6 percent in April.

The Energy Information Administration is due to release its report on oil inventories in the week ended June 16th at 11 am ET. Crude oil inventories are expected to edge down by 0.4 million barrels after jumping by 7.9 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 two-year, five-year and seven-year notes.

Stocks In Focus

Shares of Tesla (TSLA) may move see initial weakness after Morgan Stanley downgraded its rating on the electric vehicle maker’s stock to Equal Weight from Overweight.

Aerostructures manufacturer Spirit AeroSystems (SPR) is also likely to come under pressure after suspending production at its Kansas factory in light of the decision to strike by employees represented by the International Association of Machinists and Aerospace Workers.

On the other hand, shares of Overstock.com (OSTK) are surging in pre-market trading after the internet retailer won an auction to buy Bed Bath & Beyond’s intellectual property and digital assets.