(RTTNews) – The major U.S. index futures are currently pointing to a mixed open on Thursday, with the Dow futures pointing to an initial rebound by the Nasdaq futures pointing to continued weakness.
Bargain hunting may contribute to an initial rebound by the Dow after the blue chip index showed a significant turnaround in the previous session.
The Dow reached a new record intraday high in early afternoon trading on Wednesday before pulling back sharply in reaction to the minutes of the latest Federal Reserve meeting.
The minutes of the Fed meeting had a hawkish tone, suggesting the central bank will more aggressive in tightening monetary policy.
In addition to raising rates more quickly than previously anticipated, the minutes also indicated the Fed plans to begin reducing its balance sheet shortly after the first rate hike.
Concerns about tighter monetary policy led to a particularly steep drop by tech stocks, which may carry over into early trading this morning.
With traders reacting negatively to the minutes of the latest Federal Reserve meeting, stocks moved notably lower during trading on Wednesday. The tech-heavy Nasdaq showed a particularly steep drop, extending Tuesday’s sharp pullback.
After reaching a new record intraday high, the Dow turned lower following the release of the Fed minutes, slumping 392.54 points or 1.1 percent to 36,407.11. The Nasdaq plunged 522.54 points or 3.3 percent to 15,100.17 and the S&P 500 tumbled 92.96 points or 1.9 percent to 4,700.58.
The sell-off on Wall Street came as the Fed minutes seemed to have a more hawkish tone, raising concerns the central bank will be more aggressive than anticipated.
According to the minutes of the December 14-15 meeting, members of the Fed are preparing to begin reducing the size of the central bank’s approximately $8.8 trillion balance sheet soon after raising interest rates.
While the previous balance sheet runoff commenced almost two years after policy rate liftoff, participants judge that the appropriate timing this time around would likely be closer to that of policy rate liftoff.
“They noted that current conditions included a stronger economic outlook, higher inflation, and a larger balance sheet and thus could warrant a potentially faster pace of policy rate normalization,” the minutes said.
The discussions about reducing the size of the central bank’s balance sheet came as the Fed also agreed to accelerate the pace of reductions to its asset purchases, with the program currently slated to come to an end in mid-March.
Many economists expect the Fed to begin raising interest rates as soon as the asset program ends, with CME’s FedWatch Tool currently indicating a 71.0 percent chance of a rate hike at the March 15-16 meeting.
Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics, said the minutes reflected the Fed’s “rising discomfort with elevated inflation and stronger confidence in the recovery of the economy and the labor market despite the downside risks due to the Omicron variant.”
“The hawkish tone of the minutes underscores the likelihood of three rate hikes this year, but also signals a reduction in the size of the balance sheet that could start by mid-2022,” she added.
Meanwhile, traders largely shrugged off a report from payroll processor ADP showing much stronger than expected private sector job growth in the month of December.
ADP said private sector employment spiked by 807,000 jobs in December after jumping by a revised 505,000 jobs in November.
Economists had expected private sector employment to increase by 400,000 jobs compared to the addition of 534,000 jobs originally reported for the previous month.
Software stocks extended a recent downward move on the day, dragging the Dow Jones U.S. Software Index down by 4.5 percent to its lowest closing level in three months.
Significant weakness was also visible among semiconductor stocks, as reflected by the 3.2 percent plunge by the Philadelphia Semiconductor Index. The index reached a record intraday high in the previous session.
Biotechnology stocks also saw considerable weakness, with the NYSE Arca Biotechnology Index plummeting by 3.1 percent.
Commercial real estate, networking and airline stocks also moved notably lower, reflecting the broad based weakness that emerged on Wall Street.
Commodity, Currency Markets
Crude oil futures are jumping $1.42 to $79.27 a barrel after advancing $0.86 to $77.85 a barrel on Wednesday. Meanwhile, after climbing $10.50 to $1,825.10 an ounce in the previous session, gold futures are plunging $37 to $1,788.10 an ounce.
On the currency front, the U.S. dollar is trading at 115.79 yen versus the 116.11 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1301 compared to yesterday’s $1.1314.
Asian stocks fell sharply on Thursday after the minutes from the Federal Reserve’s most recent meeting suggested that most members of the committee were thinking interest rates would need to go higher due to inflation as well as a tight labor market.
U.S. non-farm payroll data is set to be released on Friday, which would give further indication on how soon the central bank may raise rates. Higher interest rates increase borrowing costs for businesses and consumers, potentially resulting in less spending.
Chinese shares ended off their day’s lows after data showed activity in China’s services sector expanded at a faster pace in December.
The services sector in China continued to expand in December, and at a faster pace, the latest survey from Caixin revealed, with a services PMI score of 53.1. That’s up from 52.1 in November.
China’s Shanghai Composite Index dropped 9.10 points, or 0.3 percent, to 3,586.08, while Hong Kong’s Hang Seng Index finished 0.7 percent higher at 23,072.86.
Japanese shares fell the most in six months after a sell-off on Wall Street last night. The Nikkei 225 Index plummeted 844.29 points, or 2.9 percent, to 28,487.87, marking its biggest drop since June. The broader Topix tumbled 42.26 points, or 2.1 percent, to 1,997.01.
Tokyo Electron, Advantest and Screen Holdings all lost around 4 percent. Sony Group slumped 6.9 percent after climbing almost 4 percent in the previous session. Uniqlo clothing shop owner Fast Retailing gave up 4.9 percent after posting an 11 percent drop in December same-store sales.
Australian markets posted their biggest drop since September 2020, as signs of an earlier-than-anticipated U.S. rate hike hit technology stocks hard. Buy now, pay later firm Afterpay plummeted 10.8 percent, Xero tumbled 6.5 percent and Wisetech Global declined 6.9 percent.
Banks and miners also ended broadly lower amid rising risk aversion in the global markets. The benchmark S&P/ASX 200 Index plunged 207.50 points, or 2.7 percent, to 7,358.30, while the broader All Ordinaries Index ended down 220.30 points, or 2.8 percent, at 7,679.30.
Seoul stocks retreated for the second straight session on U.S. rate hike woes. The Kospi fell 33.44 points, or 1.1 percent, to 2,920.53. Internet portal giant Naver shed 4.7 percent and its rival Kakao lost 5.2 percent.
On the positive side, electric car maker LG Chem jumped 3.9 percent and steelmaker POSCO climbed 3 percent.
European stocks are pulling back off record highs on Thursday, as investors digest the hawkish tone in the minutes from the latest U.S. Federal Reserve meeting.
The minutes from the Fed’s December meeting indicated a faster timetable for raising interest rates this year amid a very tight job market and unabated inflation.
Covid-19 worries also weighed, with a French government spokesperson saying that a “supersonic” rise in Covid-19 infections will continue in the coming days.
In economic news, Germany’s factory orders rebounded in November, largely driven by foreign demand, data from Destatis showed.
New orders grew 3.7 percent month-on-month in November, reversing a sharp decline of 5.8 percent in October. The pace of growth also exceeded the economists’ forecast of 2.1 percent.
Separate survey results from IHS Markit showed that Germany’s construction sector contracted at a slower pace in December.
While the French CAC 40 Index has tumbled by 1.4 percent, the German DAX Index is down by 1.1 percent and the U.K.’s FTSE 100 Index is down by 0.5 percent.
Clothing company Next Plc has shown a notable move to the downside despite raising its profit forecast for the fifth time.
Catering and food services group Sodexo has also declined after warning that the return to remote working this winter could affect its volumes.
Meanwhile, B&M European Value Retail shares have risen. The variety store company said that it expects to report an adjusted Ebitda for fiscal 2022 above current analysts’ consensus.
Societe Generale has also moved higher. The lender’s car leasing division ALD has agreed to buy rival LeasePlan for 4.9 billion euros ($5.5 billion).
U.S. Economic Reports
With the more closely watched monthly jobs report looming, the Labor Department released a report on Thursday unexpectedly showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended January 1st.
The report showed initial jobless claims crept up to 207,000, an increase of 7,000 from the previous week’s revised level of 200,000.
The uptick came as a surprise to economists, who had expected jobless claims to edge down to 197,000 from the 198,000 originally reported for the previous week.
A separate report from the Commerce Department showed the U.S. trade deficit widened significantly in November amid a spike in the value of imports. The report said the trade deficit widened to $80.2 billion in November from a revised $67.2 billion in October. Economists had expected the deficit to widen to $77.1 billion from the $67.1 billion originally reported for the previous month.
The wider than expected trade deficit came as the value of imports spiked by 4.6 percent to $304.4 billion, while the value of exports crept up by 0.2 percent to $244.2 billion.
At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of December.
The ISM’s services PMI is expected to drop to 66.9 in December from 69.1 in November, although a reading above 50 would still indicate growth.
The Commerce Department is also due to release its report on new orders for manufactured goods in the month of November at 10 am ET. Factory orders are expected to jump by 1.3 percent.
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.
Stocks In Focus
Shares of Allbirds (BIRD) are moving sharply higher in pre-market trading after Morgan Stanley upgraded its rating on the footwear maker to Overweight from Equal-Weight.
Drug store operator Walgreens (WBA) may also see initial strength after reporting better than expected fiscal first quarter results and raising its full-year guidance.
Shares of Bed Bath & Beyond (BBBY) have shown a significant turnaround in pre-market trading after initially coming under pressure after the housewares retailer reported an unexpected fiscal third quarter loss.
Meanwhile, shares of Conagra Brands (CAG) may move to the downside after packaged food company reported fiscal second quarter earnings that missed analyst estimates.