Renewed Interest Rate Concerns May Weigh On Wall Street
The major U.S. index futures are pointing to a lower opening on Friday, with stocks likely to move to the downside after ending the previous session mixed.
Renewed concerns about the outlook for interest rates may weigh on the markets following the Federal Reserve's monetary policy announcement on Thursday.
The Fed left interest rates unchanged as widely expected but indicated it remains on track to gradually raise rates despite signs of a slowdown in the pace of growth in business investment.
Potentially adding to the concerns about interest rates, the Labor Department released a report showing a much bigger than expected increase in producer prices in the month of October.
Following the rally seen in the previous session, stocks fluctuated over the course of the trading session on Thursday. Despite the choppy trading, the Dow inched up to its best closing level in a month.
The major averages ended the day on opposite sides of the unchanged line. While the Dow crept up 10.92 points or less than a tenth of a percent to 26,191.22, the Nasdaq slid 39.87 points or 0.5 percent to 7,530.88 and the S&P 500 fell 7.06 points or 0.3 percent to 2,806.83.
The mixed performance on Wall Street came after the Federal Reserve announced its widely anticipated decision to leave interest rates unchanged.
Citing realized and expected labor market conditions and inflation, the Fed decided to maintain the target range for the federal funds rate at 2 to 2.25 percent.
The Fed's accompanying statement noted a slowdown in the pace of growth in business investment, but the central bank reiterated further gradual increases in interest rates remain appropriate.
"Overall, the statement suggests that the Fed is still on track to continue raising interest rates gradually, with the next hike coming at its December meeting," said Michael Pearce, Senior U.S. Economist at Capital Economics. "We anticipate that will be followed by two rate hikes in the first half of 2019."
He added, "By the middle of next year, however, we expect economic growth to slow below its potential pace, which would force the Fed to the sidelines."
CME Group's FedWatch tool currently indicates a more than 70 percent change the Fed will raise rates by a quarter point following a two-day meeting scheduled for December 18th and 19th.
On the U.S. economic front, the Labor Department released a report showing a slight decrease in initial jobless claims in the week ended November 3rd.
The report said initial jobless claims edged down to 214,000, a decrease of 1,000 from the previous week's revised level of 215,000.
Economists had expected jobless claims to dip to 213,000 from the 214,000 originally reported for the previous week.
Tobacco stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Tobacco Index down by 4.8 percent. With the slump, the index fell to its lowest closing level in two months.
Significant weakness was also visible among energy stocks, which moved sharply lower along with the price of crude oil. Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 3.6 percent, the NYSE Arca Oil Index plummeted by 2.8 percent and the NYSE Arca Natural Gas Index dove by 2.3 percent.
Housing stocks also saw considerable weakness on the day, resulting in a 2.4 percent drop by the Philadelphia Housing Sector Index.
Homebuilder D.R. Horton (DHI) led the housing sector lower after reporting fiscal fourth quarter earnings that matched analyst estimates but weaker than expected revenues.
Networking and steel stocks also moved notably lower, while most of the other major sectors showed more modest moves.
Commodity, Currency Markets
Crude oil futures are slumping $1.04 to $59.63 a barrel after tumbling $1 to $60.67 a barrel on Thursday. Meanwhile, after falling $3.60 to $1,225.10 an ounce in the previous session, gold futures are plunging $11.90 to $1,213.20 an ounce.
On the currency front, the U.S. dollar is trading at 113.93 yen compared to the 114.07 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1340 compared to yesterday's $1.1363.
Asian stocks ended broadly lower on Friday after the Federal Reserve reiterated its hawkish stance and the populist government in Rome flatly dismissed the EU's more pessimistic outlook for the Italian economy, deepening a rift with the European Union.
China's Shanghai Composite Index slumped 36.76 points or 1.4 percent to 2,598.87 as policymakers struggle to dispel stock market gloom with promises of tax cuts and more bank lending. Hong Kong's Hang Seng Index plummeted 625.80 points or 2.4 percent to close at 25,601.92.
Consumer prices in China rose 2.5 percent year-on-year in October, the National Bureau of Statistics said in a report. That was in line with expectations and unchanged from the September reading.
The bureau also said that producer prices climbed an annual 3.3 percent, matching forecasts and slowing from 3.6 percent in the previous month.
Japanese markets fell as the inflation data from China as well as lingering concerns of slowing growth pulled down shares of companies that have large exposure to China. The Nikkei 225 Index tumbled 236.67 points or 1.1 percent to 22,250.25 after hitting a 2-1/2-week high in the previous session. The broader Topix index ended down 0.5 percent at 1,672.98.
Industrial robotics company Fanuc plummeted 5.8 percent, cosmetics maker Shiseido lost 5 percent and gaming giant Nintendo shed 2.6 percent.
Australian markets edged lower but scored their second week of gains. The benchmark S&P/ASX 200 Index slipped 6.40 points or 0.1 percent to 5,921.80 but ended the week up more than 1 percent. The broader All Ordinaries Index finished slightly lower at 6,011.
Mining heavyweights BHP Billiton and Rio Tinto ended narrowly mixed on concerns that they might be hit by new resource regulations to be unveiled by Australia's Queensland state next week. South32 declined 2.8 percent and Bluescope Steel lost 3.3 percent
Energy stocks such as Woodside Petroleum, Santos, Origin Energy and Oil Search dropped 1-2 percent after oil prices fell 1.6 percent on Thursday to extend losses to a ninth straight session on concerns over rising inventories and economic uncertainty.
Property manager LendLease Group plunged 18.3 percent after it announced a A$350 million writedown in the first half of 2019.
In economic news, the total number of home loans issued in Australia fell a seasonally adjusted 1.0 percent in September, the Australian Bureau of Statistics said. That was in line with expectations following the 2.1 percent contraction in August.
European stocks have retreated on Friday after the Federal Reserve reaffirmed its monetary tightening stance and data showed Chinese producer price inflation slowed for the fourth month in October on cooling domestic demand.
Closer to home, French industrial production logged a monthly drop of 1.8 percent in September following a 0.2 percent uptick in August, official data showed. The decrease reflected the first drop in five months and the biggest since January.
Another report showed U.K. GDP grew 0.6 percent sequentially in the third quarter, matching expectations.
While the German DAX Index has fallen by 0.3 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index are down by 0.6 percent and 0.7 percent, respectively.
Energy stocks have moved to the downside as oil futures entered a bear market on concerns over rising supply and economic slowdown.
Banks have also moved lower as Italian bonds have extended losses on renewed concerns over the country's debt situation.
UBS is showing a particularly steep drop after the Swiss bank said it would contest a residential mortgage-backed securities civil complaint filed by U.S. Justice Department.
Richemont has also slumped. The luxury goods group reported a drop in first-half underlying net profits amidst growing volatility in consumer demand.
ThyssenKrupp has also plunged in Frankfurt as it lowered its profit outlook for the second time this year, citing legal provisions for a probe into steel-price fixing.
U.S. Economic Reports
Partly reflecting a jump in prices for trade services, the Labor Department released a report showing a much bigger than expected increase in U.S. producer prices in the month of October.
The Labor Department said its producer price index for final demand climbed by 0.6 percent in October after rising by 0.2 percent in September. Economists had been expecting another 0.2 percent uptick.
Excluding food and energy prices, core producer prices still rose by 0.5 percent in October after edging up by 0.2 percent in September. Core prices had been expected to rise by another 0.2 percent.
Federal Reserve Vice Chair for Supervision Randal Quarles is scheduled to deliver remarks on the current and future state of financial regulation at the Brookings Institution at 9 am ET, followed by a fireside chat with Brookings Senior Fellow Martin Baily.
At 10 am ET, the University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of November. The consumer sentiment index is expected to edge down to 98.0 in November after dipping to 98.6 in October.
The Commerce Department is also due to release its report on wholesale inventories in the month of September at 10 am ET. Wholesale inventories are expected to rise by 0.3 percent.
Stocks In Focus
Shares of Activision Blizzard (ATVI) are moving sharply lower in pre-market trading after the video game publisher beat third quarter earnings estimates but forecast weaker than expected fourth quarter results.
Communications company CenturyLink (CTL) may also come under pressure after reporting better than expected third quarter earnings but revenues that missed expectations.
Shares of General Electric (GE) could also see initial weakness after J.P. Morgan Securities lowered its price target for the industrial conglomerate's stock to $6 per share from $10 per share.
On the other hand, shares of Disney (DIS) may move to the upside after the entertainment giant reported fiscal fourth quarter results that beat analyst estimates on both the top and bottom lines.
Cosmetics maker Revlon (REV) is also moving notably higher in pre-market trading after reporting a narrower third quarter net loss and unveiling a restructuring plan.
Shares of Hertz Global (HTZ) are also seeing significant pre-market strength after the car rental company reported better than expected third quarter results.
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