Interest Rate Optimism May Lead To Extended Rebound On Wall Street

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to extend the rebound seen in the previous session.

Optimism about the outlook for interest rates may continue to inspire traders to get back into the markets following the notable pullback seen to start the week.

Federal Reserve Chair Jerome Powell told members of Congress on Wednesday that the central bank is likely to begin cutting interest rates later this year.

While Powell also reiterated officials needs “greater confidence” inflation is slowing, traders remain optimistic the Fed will begin cutting rates in June.

The futures did not show much reaction to the latest batch of U.S. economic data, including a Labor Department report showing first-time claims for U.S. unemployment benefits came in unchanged from an upwardly revised level in the week ended March 2nd.

Following a notable pullback to start the week, stocks moved mostly higher during trading on Wednesday. The major averages all moved to the upside on the day but remain well off their recent record highs.

The major averages finished the day off their highs of the session but still in positive territory. The Nasdaq climbed 91.95 points or 0.6 percent to 16,031.54, the S&P 500 rose 26.1 points or 0.5 percent to 5,104.76 and the Dow edged up 75.86 points or 0.2 percent to 38,661.05.

The rebound on Wall Street partly reflected a positive reaction to Powell’s testimony before the House Financial Services Committee.

The Fed Chief described the economic outlook as “uncertain” and said progress towards the Fed’s 2 percent inflation objective is “not assured.”

“Reducing policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy to get inflation back to 2 percent,” Powell said.

He added, “At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

Powell said future interest rate decisions would be based on careful assessment of the incoming data, the evolving outlook, and the balance of risks.

Meanwhile, a report released by payroll processor ADP showed private sector employment in the U.S. increased by slightly less than expected in the month of February.

ADP said private sector employment rose by 140,000 jobs in February after climbing by an upwardly revised 111,000 jobs in January.

Economists had expected private sector employment to grow by 150,000 jobs compared to the addition of 107,000 jobs originally reported for the previous month.

Semiconductor stocks turned in a strong performance on the day, with the Philadelphia Semiconductor Index surging by 2.4 percent to a record closing high.

Considerable strength was also visible among computer hardware stocks, as reflected by the 1.8 percent jump by the NYSE Arca Computer Hardware Index. The index also reached a record closing high.

Gold stocks also saw significant strength amid an increase by the price of the precious metal, resulting in a 1.8 percent gain by the NYSE Arca Gold Bugs Index.

Airline and networking stocks also moved to the upside on the day, while banking stocks gave back ground after turning in a strong performance on Tuesday.

Commodity, Currency Markets

Crude oil futures are falling $0.40 to $78.73 a barrel after jumping $0.98 to $79.13 a barrel on Wednesday. Meanwhile, after climbing $15.60 to $2,141.90 an ounce in the previous session, gold futures are rising $10.30 to $2,168.50 an ounce.

On the currency front, the U.S. dollar is trading at 147.62 yen versus the 149.38 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0879 compared to yesterday’s $1.0899.

Asia

Asian stocks ended mixed on Thursday, with Japanese markets falling sharply as the yen hit a one-month high against the dollar on growing speculation that the Bank of Japan could end negative interest rates this month.

Chinese and Hong Kong markets also ended lower as rising U.S.-China tensions overshadowed better-than-expected trade data for the first two months of the year.

Gold hit a new record high, benefiting from a dip in the dollar index after Federal Reserve Chair Jerome Powell signaled a possible rate cut later this year in his testimony before Congress.

Oil consolidated the previous session’s gains after this week’s EIA data showed steep draws of more than 4 million barrels each in gasoline and distillate fuel inventories.

China’s Shanghai Composite Index dropped 0.4 percent to 3,027.40 after reports that the U.S. and its allies may further tighten restrictions on China’s access to semiconductor technology.

The downside was capped after customs data revealed Chinese exports and imports grew more than expected in the first two months of 2024.

Exports registered an annual increase of 7.1 percent in the January to February period, while imports grew 3.5 percent, resulting in a trade surplus of $125.16 billion for the period.

China’s central bank chief told reporters Wednesday there is room to cut banks’ reserve requirement ratio. In another development, China’s securities regulator said it would move to fix “market failures” in extreme cases.

Hong Kong’s Hang Seng Index tumbled 1.3 percent to 16,229.78 as investors tracked corporate earnings from China.

e-commerce firm JD.com surged 6 percent after beating fourth-quarter revenue estimates and initiating a $3 billion share buyback program.

Japanese markets lost ground, while the yen firmed to a one-month high after the latest wage figures cemented expectations the Bank of Japan will hike interest rates for the first time since 2007.

The Nikkei 225 Index shed 1.2 percent to close at 39,598.71, while the broader Topix Index settled 0.4 percent lower at 2,718.54.

Chip-testing equipment maker Advantest led losses to close 4.5 percent lower and Tokyo Electron fell 3.9 percent, while lender Sumitomo Mitsui Financial Group rose 1.7 percent.

Seoul stocks eked out modest gains, with the Kospi edging up 0.2 percent to 2,647.62. Samsung Biologics gained 1.4 percent after it entered into a $352.7 million agreement with Belgium-based biopharma firm UCB for the production of UCB’s products.

Australian stocks advanced, led by financial stocks, as Wednesday’s weak GDP data boosted rate cut bets. Gold miners also climbed as bullion prices hit a fresh record high. Woodside Energy fell 2.7 percent on going ex-dividend.

The benchmark S&P ASX 200 Index rose 0.4 percent to 7,763.70 and the broader All Ordinaries Index settled up 0.5 percent at 8,026.70.

Europe

European stocks are mostly higher on Thursday as the European Central Bank announced its widely expected decision to keep interest rates unchanged at a record high. The ECB also lowered its annual growth and inflation forecasts.

In economic news, data showed German factory orders declined sharply in January. New orders in manufacturing posted a monthly decline of 11.3 percent, in contrast to the 12.0 percent increase in December. Economists had forecast a 6.0 percent fall.

Destatis said the sharp decline in January was due to the high volume of large orders in December 2023. On a yearly basis, new orders decreased 6.0 percent, reversing December’s 6.6 percent rise.

Elsewhere, data from mortgage lender Halifax showed that British house prices rose by 1.7 percent in the year to February, slowing from January’s 2.3 percent increase.

On a monthly basis, house prices advanced 0.4 percent compared to a 1.2 percent jump in January and the expected 0.8 percent increase.

While the French CAC 40 Index is up by 0.5 percent, the German DAX Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.2 percent.

Insurer Aviva has moved sharply higher after reporting a 9 percent increase in annual operating profit.

Virgin Money UK has also soared after Britain’s Nationwide Building Society agreed to buy the lender in a potential 2.9 billion pounds ($3.69 billion) all-cash deal.

Meanwhile, Germany’s Hugo Boss has plummeted after the fashion house said it expects 2024 operating profit below market expectations.

Stellantis N V., an automotive major, has also fallen after saying that it would invest 5.6 billion euros in South American region from 2025 to 2030.

Shares of Grafton Group have also declined in London after the building materials distributor and DIY retailer reported that its fiscal 2023 profit before tax fell 27 percent from last year.

Airline Lufthansa has also dropped after giving a subdued outlook for 2024, while tyre maker Continental AG has slumped after reporting full-year operating result below expectations.

U.S. Economic Reports

A report released by the Labor Department on Thursday showed first-time claims for U.S. unemployment benefits came in unchanged from an upwardly revised level in the week ended March 2nd.

The Labor Department said initial jobless claims came in at 217,000, unchanged from the previous week’s revised level.

Economists had expected jobless claims to come in unchanged compared to the 215,000 originally reported for the previous week.

Meanwhile, the report said the less volatile four-week moving average edged down to 212,250, a decrease of 750 from the previous week’s revised average of 213,000.

The Commerce Department also released a report on Thursday showing the U.S. trade deficit widened in the month of January.

The report said the trade deficit increased to $67.4 billion in January from a revised $64.2 billion in December.

Economists had expected the trade deficit to widen to $63.5 billion from the $62.2 billion originally reported for the previous month.

The wider trade deficit came as the value of imports jumped by 1.1 percent to $324.6 billion, while the value of exports inched up by 0.1 percent to $257.2 billion.

Labor productivity in the U.S. saw an unrevised jump in the fourth quarter of 2023, according to a separate report released by the Labor Department on Thursday.

The Labor Department said labor productivity shot up by 3.2 percent in the fourth quarter, unchanged from the previous estimate. Economists had expected the surge in productivity to be downwardly revised to 3.1 percent.

Meanwhile, the report said unit labor costs rose by 0.4 percent in the fourth quarter compared to the previously reported 0.5 percent advance. Economists had expected the increase in labor costs to be upwardly revised to 0.6 percent.

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

The Treasury Department is due to announce the details of this month’s auction of three-year and ten-year notes and thirty-year bonds at 11 am ET.

At 11:30 am ET, Cleveland Federal Reserve President Loretta Mester is scheduled to speak virtually on the economic outlook as part of the European Economics and Financial Centre’s Distinguished Speaker Series.

The Federal Reserve is due to release its report on consumer credit in the month of January at 3 pm ET. Consumer credit is expected to increase by $9.25 billion.