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Profit Taking May Contribute To Initial Weakness On Wall Street

The major U.S. index futures are pointing to a lower open on Wednesday following the best quarter for the markets in decades.

Profit taking may contribute to initial weakness on Wall Street, as some traders cash in on the second quarter's strong gains on the first day of a new quarter.

The Dow soared by 17.8 percent for its biggest quarterly gain since 1987, while the S&P 500 and the Nasdaq spiked by 20 percent and 30.6 percent, respectively, to turn in their best quarters since the late 1990's.

Lingering concerns about the recent spike in new coronavirus cases may also weigh on the markets, with White House health advisor Dr. Anthony Fauci warning on Tuesday that new infections could reach 100,000 per day.

The surge in new cases has led some states to pause or roll back their reopening, although traders generally seem optimistic the U.S. is not headed toward another nationwide lockdown.

While worries about a second wave halted the rebound from the March lows, the major averages have held on to the bulk of their gains.

Extending the strong upward move seen on Monday, stocks moved notably higher over the course of the trading day on Tuesday. The Dow saw some volatility before eventually joining the broader Nasdaq and S&P 500 firmly in positive territory.

The major averages pulled back off their highs going into the close but held on to strong gains. The Dow jumped 217.08 points or 0.9 percent to 25,812.88, the Nasdaq spiked 184.61 points or 1.9 percent to 10,058.77 and the S&P 500 surged up 47.05 points or 1.5 percent to 3,100.29.

The rally on Wall Street capped off one of the best quarters for the markets in decades, with the Dow soaring by 17.8 percent for its biggest quarterly gain since 1987.

Traders continued to express optimism about the economic outlook despite the continued spike in new coronavirus cases across several states.

Adding to the positive sentiment, the Conference Board released a report showing a bigger than expected improvement in consumer confidence in the month of June.

The Conference Board said its consumer confidence index jumped to 98.1 in June from a downwardly revised 85.9 in May.

Economists had expected the consumer confidence index to climb to 90.0 from the 86.6 originally reported for the previous month.

"The re-opening of the economy and relative improvement in unemployment claims helped improve consumers' assessment of current conditions," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

Meanwhile, a separate report released by MNI Indicators showed a continued contraction in Chicago-area business activity in the month of June.

MNI Indicators said its Chicago business barometer rose to 36.6 in June from 32.3 in May, but a reading below 50 still indicates a contraction in regional business activity. Economists had expected the index to jump to 45.0.

Traders also kept an eye on Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin's testimony before the House Financial Services Committee regarding the response to the coronavirus pandemic.

In prepared remarks, Powell noted that output and employment remain far below their pre-pandemic levels and cautioned that the outlook for the economy is "extraordinarily uncertain."

"A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities," Powell said.

He added, "The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed."

Gold stocks moved sharply higher over the course of the session, driving the NYSE Arca Gold Bugs Index up by 3.5 percent to its best closing level in over a month.

The rally by gold stocks came amid a significant increase by the price of the precious metal, which jumped to a nearly nine-year high.

Substantial strength was also visible among semiconductor stocks, as reflected by the 2.7 percent spike by the Philadelphia Semiconductor Index.

Micron Technology (MU) helped to lead the sector higher after the chip maker reported fiscal third quarter results that exceeded estimates and provided upbeat revenue guidance.

Oil service stocks also saw considerable strength on the day, with the Philadelphia Oil Service Index surging up by 2.5 percent despite a decrease by the price of crude oil.

Software, banking, and natural gas stocks also showed strong moves to the upside, while airline stocks were among the few groups to buck the uptrend.

Commodity, Currency Markets

Crude oil futures are inching up $0.15 to $39.42 a barrel after falling $0.43 to $39.27 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,790.30, down $10.20 compared to the previous session's close of $1,800.50. On Tuesday, gold spiked $19.30.

On the currency front, the U.S. dollar is trading at 107.44 yen compared to the 107.93 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1215 compared to yesterday's $1.1234.

Asia

Asian stocks turned in a mixed performance on Wednesday as investors weighed rising U.S.-China political tensions against data showing that the manufacturing sector in China expanded at a faster rate in June.

After Chinese President Xi Jinping signed a controversial security law that gave Beijing new powers over Hong Kong, U.S. Secretary of State Mike Pompeo said it's a "sad day" for the people of the territory and warned Beijing of new countermeasures.

U.S. President Donald Trump wrote on Twitter that he's "more and more angry at China" over the new coronavirus pandemic.

Chinese shares rose sharply after the latest survey from Caixin showed the manufacturing sector in China continued to expand in June, with a manufacturing PMI score of 51.2, up from 50.7 in May.

The benchmark Shanghai Composite Index jumped 41.31 points, or 1.4 percent, to 3,025.98. The Hong Kong market was closed for a public holiday.

Meanwhile, Japanese stocks fell and the yen firmed slightly after a top government spokesman said Japan could re-impose a state of emergency in a worst case scenario amid the continued spread of Covid-19 cases in Tokyo. Weak business confidence and manufacturing data also weighed on markets.

Japanese manufacturers' confidence sank in the second quarter to a level not seen since the 2009 global financial crisis, a closely-watched survey showed, underscoring the damage from the coronavirus pandemic.

The manufacturing sector in Japan continued to contract in June, albeit at a slower pace, the latest survey from Jibun Bank revealed with a manufacturing PMI score of 40.1, up from 38.4 in May.

The Nikkei 225 Index dropped 166.41 points, or 0.8 percent, to 22,121.73, while the broader Topix closed 1.3 percent lower at 1,538.61, its lowest level since mid-June.

Automobile stocks paced the declines, with Toyota motor, Nissan and Honda Motor falling between 1.6 percent and 2 percent. Suzuki Motor Corp. shares slumped 4.5 percent.

Australian markets rose after data showed that Australia's manufacturing sector swung into expansion territory in June. The upside was capped as Melbourne announced drastic measures across 36 suburbs to tackle Victoria's worsening coronavirus crisis.

The benchmark S&P/ASX 200 Index rose 36.50 points, or 0.6 percent, to 5,934.40, while the broader All Ordinaries Index ended up 39.70 points, or 0.7 percent, at 6,041.

Gold miner Evolution Mining surged 6.2 percent and Newcrest Mining added 3.2 percent after bullion prices ended at a nearly nine-year high overnight on safe-haven demand.

Data centre manager NEXTDC jumped 8.1 percent on news its data centres in New South Wales have won several material customer contracts.

AMP advanced 1.6 percent after it completed the sale of its life insurance business, AMP Life, to New Zealand-based Resolution Life for A$3 billion.

On the other hand, insurer Suncorp Group slumped 4.1 percent after announcing certain management changes.

The total number of building permits issued in Australia in May tumbled a seasonally adjusted 16.4 percent month on month in May, a government report showed today. That missed expectations for a decline of 10.0 percent following the 2.1 percent drop in April.

The manufacturing sector in Australia swung into expansion territory in June, the latest survey from the Australian Industry Group revealed with a seasonally adjusted Performance of Manufacturing Index score of 51.5, up from 41.6 in May.

Seoul stocks edged lower after China passed a new national security law for Hong Kong and data showed the country's exports slumped more than expected in June, extending the double-digit contraction into a third month. The benchmark Kospi gave up early gains to end down 1.63 points, 0.1 percent, at 2,106.70.

The manufacturing sector in South Korea continued to contract in June, albeit at a slower pace, the latest survey from IHS Markit revealed with a manufacturing PMI score of 43.4, up from 41.3 in May.

Europe

European stocks have come under pressure over the course of the trading session on Wednesday, as concerns about rising coronavirus cases and geopolitical tensions offset encouraging data from China and Europe.

Factories across the euro area recorded a stronger performance than initially reported in June, a survey showed. The final PMI rose to a four-month high of 47.4 from 39.4 in May.

The IHS Markit/CIPS U.K. manufacturing Purchasing Managers' Index also climbed to 50.1 from 40.7 in May, unrevised from a preliminary reading.

Earlier in the day, Sweden's central bank expanded its quantitative easing and maintained interest rates at zero to support a recovery. The central bank signaled that it is prepared to take the rate to negative.

While the U.K.'s FTSE 100 Index has fallen by 0.6 percent, the French CAC 40 Index is down by 0.9 percent and the German DAX Index is down by 1 percent.

John Laing Group shares have plunged after the environmental asset investment vehicle said it expects first half NAV, before deducting dividends, to show a single digit decline.

On the other hand, Swiss specialty chemicals maker Clariant has soared after completing the $1.6 billion sale of its masterbatches unit to PolyOne Corp.

Aerospace and defense company Babcock International Group has also jumped. The company has announced the appointment of David Lockwood as CEO, succeeding Archie Bethel, who previously announced his intention to retire.

U.S. Economic Reports

A report released by payroll processor ADP on Wednesday showed a significant increase in private sector employment in the month of June as well as a substantial upward revision to the data for May.

ADP said private sector employment jumped by 2.369 million jobs in June, which was below economist estimates for a spike of about 3.000 million jobs.

However, revised data showed private sector employment soared by 3.065 million jobs in May compared to the previously reported loss of 2.760 million jobs.

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

The ISM's purchasing managers index is expected to climb to 49.5 in June from 43.1 in May, although a reading below 50 would still indicate a contraction in manufacturing activity.

The Commerce Department is also due to release its report on construction spending in the month of May at 10 am ET. Construction spending is expected to increase by 1.0 percent in May after tumbling by 2.9 percent in April.

Also at 10 am ET, Chicago Federal Reserve President Charles Evans is scheduled to moderate a virtual event on how Chicago can meet the public health challenge of COVID-19, rebuild the economy, and ensure all residents share in a strong future for the city.

The Energy Information Administration is due to release its report on oil inventories in the week ended June 26th at 10:30 am ET.

Crude oil inventories are expected to dip by 0.7 million barrels after rising by 1.4 million barrels in the previous week.

At 1 pm ET, San Francisco Federal Reserve President Mary Daly is scheduled to speak in a live-streamed interview with the Washington Post on how to rebuild an economy that works for all Americans.

The Federal Reserve is due to release the minutes of June monetary policy meeting at 2 pm ET. At the meeting, the Fed voted to leave interest rates at near-zero levels.

Stocks In Focus

Shares of Steelcase (SCS) are moving sharply lower in pre-market trading after the office furniture maker reported a wider than expected fiscal first quarter loss on revenues that came in below analyst estimates.

Michael Kors parent Capri Holdings (CPRI) may also see initial weakness after reporting fiscal fourth quarter earnings that missed analyst estimates and forecast a bigger than expected drop in fiscal first quarter sales.

On the other hand, shares of FedEx (FDX) are seeing significant pre-market strength after the delivery giant reported fiscal fourth quarter results that beat expectations on both the top and bottom lines.

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