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Monday, June 27, 2022

Inflation Worries May Lead To Continued Weakness On Wall Street

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The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to extend the downward move seen over the two previous sessions.

Concerns about the accelerating pace of inflation may continue to weigh on Wall Street following the release of the Labor Department’s report on consumer prices in the month of April.

The Labor Department said its consumer price index climbed by 0.8 percent in April after rising by 0.6 percent in March. Economists had expected consumer prices to inch up by 0.2 percent.

Excluding food and energy prices, core consumer prices also advanced by 0.9 percent in April following a 0.3 percent uptick in March. Core prices were expected to rise by another 0.3 percent.

With the much bigger than expected monthly increase, consumer prices in April were up by 4.2 percent compared to the same month a year ago, reflecting the biggest jump since September of 2008.

Core consumer prices also surged up by 3.0 percent year-over-year, marking the biggest annual increase since January of 1996.

The significantly faster price growth is likely to raise concerns about the outlook for monetary policy even though the Federal Reserve has repeatedly downplayed the risks of inflation.

The Fed has indicated that it won’t begin tightening monetary policy until inflation is moderately above its 2 percent target for “some time.”

Stocks moved mostly lower during trading on Tuesday, extending the pullback seen over the course of Monday’s session. The Nasdaq hit its worst intraday level in well over a month in early trading but rebounded to end the day only modestly lower.

After plunging as much as 2.2 percent, the tech-heavy Nasdaq closed down just 12.43 points or 0.1 percent at 13,389.43. Meanwhile, the Dow tumbled 473.66 points or 1.4 percent to 34,269.16 and the S&P 500 slid 36.33 points or 0.9 percent to 4,152.10.

The weakness on Wall Street partly reflected concerns about an acceleration in the rate of inflation and potential monetary policy tightening by the Federal Reserve.

The Fed has attributed the increase in inflation to “transitory factors,” although analysts have suggested the central bank will still begin considering tapering its asset purchases in the coming months.

Adding to the inflation concerns, the Labor Department released a report showing the number of job openings reached a series high of 8.1 million on the last business day of March.

The data led to worries that employers will have to raise wages to entice workers, which could carry over into higher inflation.

The inflation concerns contributed to an early sell-off by tech stocks, although selling pressure waned over the course of the session.

Tech giant Apple (AAPL) tumbled as much as 3.2 percent in early trading to hit its lowest intraday level in over a month before regaining ground and ending the day down by 0.7 percent.

Shares of Tesla (TSLA) slumped by 1.9 percent after a report from Reuters said the electric car maker has halted plans to buy land to expand its Shanghai plant and make it a global export hub.

Housing stocks turned in some of the worst performances on the day, with the Philadelphia Housing Sector Index plunging by 3.2 percent after ending the previous session at its best closing level since a two-for-one split in early 2006.

Substantial weakness was also visible among oil stocks, as reflected by the 2.4 percent slump by the NYSE Arca Oil Index. The index extended the pullback seen after it reached a one-year intraday high in early trading on Monday.

The weakness among oil stocks came even though the price of crude oil turned higher over the course of the session after an early drop.

Computer hardware stocks also showed a significant move to the downside, dragging the NYSE Arca Computer Hardware Index down by 2.4 percent to its lowest closing level in over a month.

Transportation, banking and commercial real estate stocks also saw notable weakness, while steel and gold stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are climbing $0.67 to $65.95 a barrel after rising $0.36 to $65.28 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,828.50, down $7.60 compared to the previous session’s close of $1,836.10. On Tuesday, gold edged down $1.50.

On the currency front, the U.S. dollar is trading at 109.11 yen compared to the 108.62 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.2109 compared to yesterday’s $1.2148.

Asia

An extended sell-off amid rising inflation expectations and valuation concerns saw Asian stocks hitting their lowest in seven weeks on Wednesday. A cautious undertone prevailed as investors awaited U.S. consumer inflation data due out later in the day for direction.

Chinese shares rose as the U.S. agreed to remove Xiaomi from a blacklist that would have barred Americans from investing in the Chinese smartphone maker.

The benchmark Shanghai Composite Index climbed 20.91 points, or 0.6 percent, to 3,462.75, while Hong Kong’s Hang Seng Index advanced 217.23 points, or 0.8 percent, to 28,231.04.

Japanese stocks fell sharply to extend losses from the previous session as investors fretted over the accelerating daily coronavirus infection rates caused by highly contagious variants of the virus. According to the Health Ministry, the number of COVID-19 patients with severe symptoms in Japan rose to a record 1,176.

The Nikkei 225 Index tumbled 461.08 points, or 1.6 percent, to 28,147.51, while the broader Topix ended 1.5 percent lower at 1,877.95.

Market heavyweight SoftBank Group plunged 3.5 percent, while automaker Toyota Motor climbed 2.2 percent after more than doubling its fourth quarter net profit.

Nissan Motor plummeted more than 10 percent. The company said it expects to break even this business year, defying expectations for a return to profitability.

Australian markets fell for a second straight day despite the government unveiling a big spending budget to spur the country’s rebounding economy.

The benchmark S&P/ASX 200 Index dropped 52.10 points, or 0.7 percent, to 7,044.90, while the broader All Ordinaries Index ended down 50.50 points, or 0.7 percent, at 7,281.10.

Commonwealth Bank rose over 1 percent after the lender reported third quarter cash profits that doubled from last year to A$2.4 billion. The other three big banks ended down between 0.6 percent and 1.2 percent.

Mining heavyweights BHP and Rio Tinto posted modest losses, while smaller rival Fortescue Metals Group advanced 1.4 percent. Tech shares saw modest gains, with Xero rising 2.3 percent.

Trading in shares of Carsales.Com was halted after the vehicle classifieds site confirmed it is raising $600 million to fund the purchase of a 49 percent stake in U.S. branded marketplace platform Trader Interactive.

CSR surged 4.2 percent after the building materials firm reinstated a final dividend of 14.5 cents and said it will also pay a special 9.5-cent dividend.

In economic news, the total number of building permits issued in Australia was up a seasonally adjusted 17.4 percent sequentially in March, official data showed. That matched expectations following the 20.1 percent jump in February.

Seoul stocks tumbled as foreign investors dumped local shares on growing worries over inflation and possibly earlier rate hikes. The benchmark Kospi slumped 47.77 points, or 1.5 percent, to 3,161.66.

Chemical maker LG Chem led losses to end 5.3 percent lower and pharmaceutical firm Celltrion gave up 3 percent, while market heavyweight Samsung Electronics declined 1.5 percent and No. 2 chipmaker SK Hynix lost 2.9 percent.

Investors ignored data showing that unemployment in South Korea dropped to an eight-month low in April. The number of people employed also rose at the fastest pace in nearly seven years, suggesting that the economy is well on the road to recovery.

Europe

European stocks are mostly higher on Wednesday, with encouraging earnings and hopes for a strong economic recovery offering some support.

While the French CAC 40 Index is just above the unchanged line, the German DAX Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.7 percent.

U.K. gross domestic product shrank 1.5 percent sequentially in the first quarter, reversing a 1.3 percent rise in the fourth quarter, the Office for National Statistics reported. Economists had forecast a sequential drop of 1.6 percent.

GDP grew 2.1 percent month-on-month in March as schools and some part of the economy reopened through the month.

Spirits maker Diageo has moved sharply higher. The company restarted its capital return program and said that it expects to report organic operating growth of at least 14 percent in fiscal 2021.

UDG Healthcare shares have also soared. The pharmaceuticals services company has agreed to a 2.61 billion-pound ($3.69 billion) takeover by Clayton, Dubilier & Rice.

EDF Group shares have also advanced. The French power group confirmed its full-year guidance after sales rose in the first quarter.

German lender Commerzbank has also surged higher after it swung to a first quarter profit, beating expectations.

SGL Carbon has also rallied. The carbon and graphite product manufacturing company confirmed guidance for the full year 2021, with sales revenue to be EUR 920 million to EUR 970 million.

Deutsche Telekom has also risen. The telecommunications company raised its profit guidance for 2021 after a strong showing by its businesses in the United States and Europe in the first quarter.

Bayer has also jumped. The pharmaceutical and chemical conglomerate backed its outlook for the year after reporting an increase in quarterly net profit.

Meanwhile, Just Eat Takeaway.com NV has tumbled after rival food delivery firm Delivery Hero SE announced plans to re-enter its home market of Germany next month.

U.S. Economic Reports

Partly reflecting a spike in prices for used cars and trucks, the Labor Department released a report on Wednesday showing U.S. consumer prices increased by much more than expected in the month of April.

The Labor Department said its consumer price index climbed by 0.8 percent in April after rising by 0.6 percent in March. Economists had expected consumer prices to inch up by 0.2 percent.

Excluding food and energy prices, core consumer prices also advanced by 0.9 percent in April following a 0.3 percent uptick in March. Core prices were expected to rise by another 0.3 percent.

At 9 am ET, Federal Reserve Vice Chair Richard Clarida is due to discuss the U.S. economic outlook and monetary policy before a virtual National Association for Business Economics global symposium.

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 7th at 10:30 am ET.

Crude oil inventories are expected decrease by 2.3 million barrels after slumping by 8.0 million barrels in the previous week.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $41 billion worth of ten-year notes.

Atlanta Federal Reserve Bank Raphael Bostic is also scheduled to speak on the economic outlook and monetary policy in a virtual moderated conversation hosted by the Council on Foreign Relations at 1 pm ET.

At 1:30 pm ET, Philadelphia Federal Reserve President Patrick Harker is due to speak before a virtual Institutions of Higher Education: Financial Viability and COVID-19 event.

Stocks In Focus

Shares of FuboTV (FUBO) are soaring in pre-market trading after the sports TV streaming platform reported record first quarter revenues and raised its full-year guidance.

Fast food chain Wendy’s (WEN) is also likely to see initial strength after reporting better than expected first quarter results and boosting its full-year earnings forecast.

On the other hand, shares of Lemonade (LMND) are seeing notable pre-market weakness after the online insurance company reported a wider than expected first quarter loss and provided disappointing revenue guidance for the current quarter.

Battery technology company QuantumScape (QS) may also move to the downside after reporting a wider than expected first quarter loss.

First published at RTTNEWS

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