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Beyond the Numbers

Traders Looking Ahead To Powell’s Second Day Of Testimony
3/1/2018 8:57 AM

The major U.S. index futures are pointing to a roughly flat opening on Thursday following the sharp pullback seen over the course of the two previous sessions.

Traders may be reluctant to make significant moves ahead of Federal Reserve Chairman Jerome Powell’s second day of testimony on Capitol Hill.

Powell is due to appear before the Senate Banking Committee after his remarks before the House Financial Services Committee on Tuesday sparked fears the Fed may raise interest rates more than previously estimated.

With Powell’s prepared remarks likely to mirror those he delivered before the House committee, traders are likely to focus on the question-and-answer segment for clues about the outlook for rates.

After moving to the upside early in the session, stocks fluctuated over the course of the trading day on Wednesday. The major averages bounced back and forth across the unchanged line before closing firmly in negative territory for the second straight day.

The major averages accelerated to the downside going into the close, ending the session at their worst levels of the day. The Dow plunged 380.83 points or 1.5 percent to 25,029.20, the Nasdaq slumped 57.35 points or 0.8 percent to 7,273.01 and the S&P 500 tumbled 30.45 points or 1.1 percent to 2,713.83.

The volatility on Wall Street came as traders expressed uncertainty about the outlook for interest rates after new Federal Reserve Chairman Jerome Powell seemed to suggest that the Fed may raise rates more than the three times currently anticipated.

During testimony before the House Financial Services Committee on Tuesday, Powell noted that incoming data has indicated a strengthening in the economy since the median forecast called for three rate hikes at the December meeting.

Powell stressed that he did not want to prejudge the new set of projections, but his comments still raised concerns about four rate increases this year.

A disappointing batch of economic data may have partly offset the interest rate concerns early in the session, with a report from the Commerce Department showing slightly slower than previously estimated economic growth in the fourth quarter.

The Commerce Department said gross domestic product climbed by 2.5 percent in the fourth quarter compared to the previously estimated 2.6 percent increase. The downward revision to GDP growth matched economist estimates.

A separate report from the National Association of Realtors unexpectedly showed a steep drop in pending home sales in the month of January.

NAR said its pending home sales index tumbled by 4.7 percent to 104.6 in January from a downwardly revised 109.8 in December. Economists had expected pending home sales to rise by 0.3 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

With the unexpected decrease, the pending home sales index slumped to its lowest level since hitting 104.1 in October of 2014.

MNI Indicators also released a report showing a bigger than expected slowdown in the pace of growth in Chicago-area business activity in the month of January.

Oil service stocks showed a substantial move to the downside on the day, dragging the Philadelphia Oil Service Index down by 3.6 percent. The weakness among oil service stocks came amid a steep drop by the price of crude oil.

Significant weakness was also visible elsewhere in the energy sector, with the NYSE Arca Natural Gas Index and the NYSE Arca Oil Index slumping by 2.5 percent and 2.3 percent, respectively.

Biotechnology, chemical, and housing stocks also saw notable weakness on the day, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are sliding $0.43 to $61.21 a barrel after tumbling $1.37 to $61.64 a barrel on Wednesday. An ounce of gold is trading at $1,305.90, down $12 compared to the previous session’s close of $1,317.90. On Wednesday, gold edged down $0.70.

On the currency front, the U.S. dollar is trading at 106.86 yen compared to the 106.68 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2176 compared to yesterday’s $1.2194.

Asia

Asian stocks ended on a mixed note on Thursday as investors awaited Federal Reserve Chairman Jerome Powell's second day of congressional testimony for further insight on inflation and interest rates. Gold prices dipped and the yen firmed up a little bit, while oil held mostly steady in Asian trading.

China's Shanghai Composite Index rose 14.35 points or 0.4 percent to 3,273.76 after the latest survey from Caixin showed the country's manufacturing sector expanded at a slightly faster rate in February. Hong Kong’s Hang Seng Index climbed 199.53 points or 0.7 percent to 31,044.25.

The Chinese manufacturing PMI inched up to 51.6 from 51.5 in January as total new work expanded at a slightly faster pace.

Meanwhile, Japanese shares closed sharply lower as the yen gained ground in reaction to a slew of weak U.S. data released overnight. The Nikkei 225 Index tumbled 343.77 points or 1.6 percent to 21,724.47, while the broader Topix Index ended 1.6 percent lower at 1,740.20.

The yen's strength hurt exporters, with Canon, Panasonic, Toyota Motor and Sony losing 2-3 percent. Heavyweights Fast Retailing, SoftBank and Fanuc fell over 1 percent each.

On the other hand, Yahoo Japan advanced 1.6 percent after falling in the previous session on news that its second-largest shareholder Altaba Inc. is selling its stake in the company.

The manufacturing sector in Japan continued to expand in February, albeit at a slightly slower rate, the latest survey from Nikkei revealed with a manufacturing PMI score of 54.1, down from 54.8 in January.

Capital spending in Japan topped expectations to rise 4.3 percent sequentially in the fourth quarter of 2017, while a gauge of consumer confidence unexpectedly weakened in February.

Australian shares tumbled, dragged down by energy stocks after crude oil prices fell more than 2 percent on Wednesday on data showing a larger-than-expected increase in crude oil inventories. Mining stocks also suffered heavy losses after iron ore and copper prices retreated.

The benchmark S&P/ASX 200 Index shed 42.70 points or 0.7 percent to finish at 5,973.30, while the broader All Ordinaries Index ended down 41.60 points or 0.7 percent at 6,075.70.

Rio Tinto shares fell 4.1 percent on going ex-dividend and BHP Billiton dropped 1.3 percent. Smaller rival Fortescue Metals Group declined 1.8 percent to extend losses for the third straight day.

Energy majors Origin Energy, Beach Energy, Woodside Petroleum and Oil Search lost 2-4 percent. The big four banks ended down between 0.2 percent and 0.9 percent.

Explosives and fertilizer maker Orica tumbled 3.5 percent after revealing impairments and writedowns of nearly $400 million.

On the economic front, the Australian manufacturing sector continued to expand in February, albeit at a slightly slower rate, the latest survey from AiG revealed with a PMI score of 57.5, down from 58.7 in January.

Europe

European stocks are extending losses from the previous session on Thursday, with mixed earnings and caution ahead of Federal Reserve Chairman Jerome Powell's second day on congressional testimony weighing on the markets.

While the U.K.’s FTSE 100 Index has fallen by 0.7 percent, the French CAC 40 Index is down by 1 percent and the German DAX Index is down by 1.5 percent.

In economic news, the Eurozone manufacturing sector continued to expand at a robust pace in February, but the pace of growth slowed from January, final data from IHS Markit showed. The factory Purchasing Managers' Index fell to a 4-month low of 58.6 from 59.6 in January.

German online fashion retailer Zalando has tumbled after unveiling expansion plans. Swiss employment services group Adecco has also fallen sharply after reporting slower revenue growth at the start of 2018.

British flooring retailer Carpetright has plummeted after issuing its third profit warning in three months.

WPP, the world's largest advertising firm, has also moved lower after the company cut its long-term profit outlook, saying it is facing significant challenges.

French retailer Carrefour has come under pressure after reporting a net loss for 2017 and issuing a cautious outlook for 2018.

Meanwhile, Anheuser-Busch InBev, the world's biggest brewer, has jumped after its fourth quarter profit topped expectations.

CRH has also climbed after the building materials group raised its dividend after reporting a 16 percent increase in 2017 pre-tax profits.

U.S. Economic Reports

For the second consecutive week, the Labor Department released a report unexpectedly showing a weekly decline in first-time claims for U.S. unemployment benefits.

The report said initial jobless claims fell to 210,000 in the week ended February 24th, a decrease of 10,000 from the previous week’s revised level of 220,000.

Economists had expected jobless claims to inch up to 226,000 from the 222,000 originally reported for the previous week.

With the unexpected decrease, initial jobless claims fell to their lowest level since hitting 202,000 in December of 1969.

A separate report from the Commerce Department showed personal income increased by slightly more than expected in the month of January, while personal spending rose in line with estimates.

The Commerce Department said personal income climbed by 0.4 percent in January, matching the increase seen in December. Economists had expected income to rise by 0.3 percent.

Additionally, the report said personal spending edged up by 0.2 percent in January after climbing by an upwardly revised 0.4 percent in December.

Personal spending had been expected to rise by 0.2 percent compared to the 0.3 percent increase originally reported for the previous month.

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

The Institute for Supply Management is also due to release its report on national manufacturing activity in the month of February at 10 am ET.

The ISM’s purchasing managers index is expected to edge down to 58.7 in February from 59.1 in January, although a reading above 50 would still indicate growth in manufacturing activity.

Also at 10 am ET, the Commerce Department is scheduled to release its report on construction spending in the month of January. Construction spending is expected to rise by 0.3 percent.

New York Fed President William Dudley us due to deliver “Remarks on Trade and Globalization” at a Central Bank of Brazil event in Sao Paulo, Brazil, at 11 am ET.

Stocks In Focus

Shares of Box (BOX) are moving sharply lower in pre-market trading after the cloud storage company reported a narrower than expected fourth quarter loss but provided disappointing revenue guidance.

Energy drink maker Monster Beverage (MNST) may also come under pressure after reporting weaker than expected fourth quarter results.

Shares of L Brands (LB) are also seeing significant pre-market weakness after the Victoria's Secret parent reported fourth quarter results that beat estimates but forecast weaker than expected earnings for the year.

On the other hand, shares of Hostess Brands (TWNK) are moving notably higher in pre-market trading after the snack maker reported better than expected fourth quarter earnings.

Department store chain Kohl’s (KSS) may also see early strength after reporting fourth quarter results that exceeded expectations and providing upbeat guidance.

Shares of Newell Brands (NWL) are also seeing considerable pre-market strength after a report from the New York Post said activist investor Carl Icahn has taken a stake in the consumer products maker.
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