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Beyond the Numbers

Futures Pointing To Continued Weakness On Wall Street
2/5/2018 8:42 AM

The major U.S. index futures are pointing to a sharply lower opening on Monday, with stocks poised to extend the sell-off seen last week.

Concerns about higher interest rates may weigh on Wall Street, although analysts have noted that the markets are due for correction following recent strength.

With traders worried about the prospect of higher interest rates, stocks moved sharply lower over the course of the trading session on Friday. The sell-off on the day extended the pullback off record highs seen earlier this week.

The major averages ended the day just off their lows of the session. The Dow tumbled 665.75 points or 2.5 percent to 25,520.96, the Nasdaq slumped 144.92 points or 2 percent to 7,240.95 and the S&P 500 dove 59.85 points or 2.1 percent to 2,762.13.

For the week, the Dow plummeted by 4.1 percent, while the Nasdaq and the S&P 500 plunged by 3.5 percent and 3.9 percent, respectively.

The concerns about higher interest rates came after the Labor Department released a report showing stronger than expected job growth and a jump in wages.

The report said non-farm payroll employment surged up by 200,000 jobs in January after climbing by an upwardly revised 160,000 jobs in December.

Economists had expected employment to increase by about 180,000 jobs compared to the addition of 148,000 jobs originally reported for the previous month.

The Labor Department said the unemployment rate came in at 4.1 percent in January, unchanged from the three previous months and in line with economist estimates.

Meanwhile, the annual rate of growth in average hourly employee earnings accelerated to 2.9 percent in January from an upwardly revised 2.7 percent in December.

"Given companies such as WalMart have credited Trump's tax cuts as a way for them to afford higher worker pay we suspect we will see the wage numbers pick-up further," said James Knightley, Chief International Economist at ING.

He added, "Consequently, it will need a big shock to prevent the Fed from hiking in March, but it could happen in the form of a damaging government shutdown should politicians fail to resolve their differences."

A negative reaction to quarterly results from big name tech companies like Google parent Alphabet (GOOGL) and Apple (AAPL) also contributed to the sell-off.

Energy stocks turned in some of the market's worst performances on the day, with the S&P Energy Index plunging by 4.1 percent. The index fell to its lowest closing level in a month.

Industry giant Exxon Mobil (XOM) posted a steep loss after reporting fourth quarter earnings that came in below analyst estimates.

Substantial weakness was also visible among computer hardware stocks, as reflected by the 4.1 percent slump by the Dow Jones Computer Hardware Index. With the drop, the index hit a three-month closing low.

Steel, gold, housing, and airline stocks also moved sharply lower on the day, reflecting the broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.36 to $65.09 a barrel after dipping $0.35 to $65.45 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,339.80, up $2.50 from the previous session’s close of $1,337.30. On Friday, gold slumped $10.60.

On the currency front, the U.S. dollar is trading at 109.86 yen compared to the 110.17 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.2445 compared to last Friday’s $1.2463.

Asia

Most Asian stocks fell on Monday, following steep losses on Wall Street on Friday, after a strong jobs report for January helped fuel expectations that the Federal Reserve will lift interest rates more than the three times initially expected this year.

Chinese shares bucked the weak regional trend to end notably higher after data showed that China's private sector activity expanded at the fastest pace in seven years in January, driven by accelerated rates of growth across both manufacturing and services. The Caixin composite PMI rose to 53.7 from 53.0 in December.

The benchmark Shanghai Composite index climbed 25.30 points or 0.73 percent to 3,487.50, while Hong Kong's Hang Seng index slumped 356.56 points or 1.09 percent to 32,245.22.

Japanese shares followed regional peers lower, with selling seen across the board. The Nikkei 225 index plunged 592.45 points or 2.55 percent to finish at 22,682.08, logging its biggest decline in 15 months. The broader Topix index closed 2.17 percent lower at 1,823.74.

Panasonic, Sony, Canon, SoftBank and Mitsubishi Electric shed 2-5 percent. Honda Motor rallied 2.1 percent after the carmaker lifted its annual profit forecast.

On the data front, Japan's service sector activity expanded at a slightly faster pace in January, results of a survey by IHS Markit showed. The seasonally adjusted services purchasing managers' index rose to 51.9 from 51.1 in December.

Australian shares tumbled, with all sectors closing deep in the red after the major U.S indexes fell more than 2 percent on Friday on worries about higher interest rates. The benchmark S&P/ASX 200 index dropped 95.20 points or 1.56 percent to 6,026.20, while the broader All Ordinaries index ended down 101.40 points or 1.63 percent at 6,128.40.

The big four banks fell more than 1 percent, and miners BHP Billiton, Rio Tinto and South32 lost 2-3 percent. Energy majors Woodside Petroleum, Origin Energy, Oil Search, Beach Energy and Santos tumbled 2-4 percent.

AWE declined 3 percent after it accepted a $602 million takeover bid from Japanese firm Mitsui. Engineering and mining services firm Downer EDI plunged 3.8 percent after flagging a $77 million impairment charge.

Wesfarmers slumped 4.5 percent after announcing executive changes at its underperforming U.K. hardware business.

In economic news, Australia' service sector activity expanded at an accelerated pace in January, the latest survey from the Australian Industry Group showed.

Europe

European stocks are falling for a sixth consecutive session on Monday as investors fret about higher interest rates and coalition negotiations between German Chancellor Angela Merkel's conservative party and the Social Democrats broke down over the weekend.

French President Emmanuel Macron's party lost two by-elections for parliamentary seats on Sunday and the dollar paused after recovering somewhat on Friday on the back of robust U.S. employment data, further weighing on markets.

While the German DAX Index is down by 0.9 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are down by 1.3 percent and 1.4 percent, respectively.

Ryanair has fallen sharply after the budget carrier warned of some localized disruptions and adverse PR in the months ahead.

Global consulting and IT service firm Capgemini has also moved to the downside after announcing the acquisition of LiquidHub.

German airline Lufthansa has fallen after it unveiled plans to replace top management at Brussels Airlines..

In economic news, the euro area economy expanded at the fastest pace since mid-2006 in January, final data from IHS Markit showed.

The final composite output index rose more than initially estimated to 58.8 in January from 58.1 in December. The flash score was 58.6.

A gauge of Eurozone investor confidence weakened in February, while the region's retail sales declined in December after recovering a month ago, separate reports showed.

Elsewhere, British service sector activity expanded at the slowest pace in nearly one-and-a-half years in January, survey data from IHS Markit showed.

U.S. Economic Reports

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of January.

The non-manufacturing index is expected to inch up 56.5 in January after dropping to 56.0 in December, with a reading above 50 indicating growth in the service sector.
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