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Upbeat Economic Data May Lead To Initial Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to move back to the upside following yesterday's late-day pullback.

Early buying interest may be generated in reaction to a report from the Commerce Department showing stronger than expected U.S. economic growth in the fourth quarter of 2021.

The report said real gross domestic product spiked by 6.9 percent in the fourth quarter after jumping by 2.3 percent in the third quarter. Economists had expected GDP to surge up by 5.5 percent.

The Commerce Department said the stronger than expected GDP growth reflected increases in private inventory investment, exports, consumer spending and nonresidential fixed investment.

The data may offset concerns that the Omicron variant of the coronavirus derailed the economy even as the Federal Reserve prepares to begin raising interest rates to combat inflation.

Adding to the positive sentiment, the Labor Department released a report showing initial jobless claims pulled back in the week ended January 22nd following a bigger than expected increase in the previous week.

The report said initial jobless claims fell to 260,000, a decrease of 30,000 from the previous week's revised level of 290,000.

Economists had expected jobless claims to drop to 260,000 from the 286,000 originally reported for the previous week.

However, the upward momentum on Wall Street may be partly offset by a negative reaction to earnings from big-name companies like Intel (INTC), Tesla (TSLA) and McDonald's (MCD).

The Commerce Department also released a separate report showing new orders for durable goods fell by more than expected in the month of December amid a sharp pullback in orders for transportation equipment.

Stocks were mostly higher for much of the trading session on Wednesday but came under pressure in reaction to the Federal Reserve's highly anticipated monetary policy announcement. The major averages all moved to the downside, although the Nasdaq managed to creep back above the unchanged line.

After surging as much as 3.4 percent, the tech-heavy Nasdaq pulled back well off its best levels but still inched up 2.82 points or less than a tenth of a percent to 13,542.12. Meanwhile, the Dow fell 129.64 points or 0.4 percent to 34,168.09 and the S&P 500 dipped 6.52 points or 0.2 percent to 4,349.93.

The late-day pullback on Wall Street came after the Fed indicated that it plans to begin raising interest rates "soon," citing elevated inflation and a strong labor market.

The Fed left interest rates unchanged at near-zero levels as widely expected but said the Federal Open Market Committee expects "it will soon be appropriate to raise the target range for the federal funds rate."

The comments from the Fed were largely in line with expectations, as CME Group's FedWatch Tool currently points to an 85.7 percent chance of a quarter-point rate hike at the next FOMC meeting in mid-March.

In an effort to combat the economic impact of the coronavirus pandemic, the Fed has left interest rates at zero to 0.25 percent since March of 2020.

The Fed previously pledged to leave interest rates unchanged until labor market conditions have reached levels consistent with the FOMC's assessments of maximum employment.

Fed Chair Jerome Powell claimed during his post-meeting press conference that the central bank has "quite a bit of room" to raise interest rates before it would harm the economy.

The central bank also said it would further reduce the pace of its bond purchases to $30 billion per month beginning in February, with the Fed saying it expects to end its asset purchase program by early March.

In a separate statement, the Fed outlined plans to significantly reduce the size of its balance sheet, saying it expects to start the reductions after it begins raising interest rates.

The Fed announcement overshadowed a report released by the Commerce Department showing new home sales in the U.S. surged much more than expected to a nine-month high in the month of December.

Despite the pullback by the broader markets, software giant Microsoft (MSFT) held on to a notable gain after reporting better than expected fiscal second quarter results and providing upbeat guidance.

Gold stocks moved sharply lower over the course of the session, dragging the NYSE Arca Gold Bugs Index down by 3.4 percent. The sell-off by gold stocks came amid a steep drop by the price of the precious metal.

Interest rate-sensitive housing stocks also came under pressure in reaction to the Fed announcement, resulting in a 3 percent nosedive by the Philadelphia Housing Sector Index. The index ended the session at a three-month closing low.

Considerable weakness also emerged among telecom stocks, as reflected by the 2.4 percent slump by the NYSE Arca North American Telecom Index.

AT&T (T) led the telecom sector lower, plunging by 8.4 percent despite reporting better than expected fourth quarter results.

Commercial real estate, tobacco and airline stocks also moved to the downside on the day, while significant strength remained visible among semiconductor stocks.

Commodity, Currency Markets

Crude oil futures are climbing $0.69 to $88.04 a barrel after jumping $1.75 to $87.35 a barrel on Wednesday. Meanwhile, after tumbling $22.80 to $1,829.70 an ounce in the previous session, gold futures are plunging $27.10 to $1,802.60 an ounce.

On the currency front, the U.S. dollar is trading at 115.37 yen versus the 114.64 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1145 compared to yesterday's $1.1240.

Asia

Asian stocks slumped on Thursday after the U.S. Federal Reserve signaled it plans to hike interest rates in March and end its bond purchases that month to counter escalating inflation.

The hawkish tone, reflecting the upside risks to inflation, triggered a dollar rally and dented the appeal of equities. Escalating Russia-Ukraine political tensions also sapped investors' appetite for riskier assets.

Chinese shares hit their lowest levels in nearly 16 months on worries the Federal Reserve would move aggressively to curb inflation.

The benchmark Shanghai Composite Index tumbled 61.42 points, or 1.8 percent, to 3,394.25, while Hong Kong's Hang Seng Index plunged 482.90 points, or 2 percent, to 23,807.

Japanese stocks also fell sharply as the FOMC event resulted in a solid bout of risk aversion across global financial markets. The Nikkei 225 Index sank 841.03 points, or 3.1 percent, to close at 26,170.30, while the broader Topix closed 2.6 percent lower at 1,842.44.

Market heavyweight SoftBank lost 9 percent and Uniqlo operator Fast Retailing declined 2.6 percent. Sony Group, which is facing a fresh challenge from cash-rich rivals in the war over the future of gaming, plunged 6.7 percent, while Tokyo Electron, which produces tools to build semiconductors, gave up 4.8 percent.

Industrial robot maker Fanuc rose 1.1 percent after upgrading its full-year earnings forecast.

Australian markets fell into correction territory after the Fed signaled interest rate hikes as early as March. The benchmark S&P/ASX 200 Index fell 123.30 points, or 1.8 percent, to 6,838.30 - extending losses for a four straight session and hitting its lowest levels since last April.

The broader All Ordinaries Index slumped 133.60 points, or 1.8 percent, to 7,114.50, with tech and gold stocks leading the losses. Xero, SEEK and Newcrest Mining lost 6-7 percent.

Energy stocks bucked the weak trend as oil prices broke past $90 a barrel for the first time since 2014. Santos rallied 3.6 percent and Woodside Petroleum added 2.5 percent.

Seoul stocks ended lower for the fifth straight session to hit a 14-month low amid the Fed's hawkish stance and a steep drop by LG Energy Solution in its market debut. The Kospi plummeted 94.75 points, or 3.5 percent, to 2,614.49 - marking the lowest close since November 30, 2020.

Tech stocks such as Samsung Electronics, SK Hynix and Naver all fell around 3 percent even as Samsung broke both its quarterly and annual records for revenue in the fourth quarter of 2021.

LG Energy Solution closed at 505,000 won, down 15.4 percent from its opening price of 597,000 won but still higher than the IPO price of 300,000 won.

Central bank data showed earlier in the day that sentiment among South Korean businesses over the economic situation worsened in January due to higher logistics cost and weaker demand in the construction and electronics sectors.

Europe

After seeing early weakness in reaction to the Fed announcement, European stocks have moved to the upside over the course of the session on the back of positive earnings news.

While the U.K.'s FTSE 100 Index is up by 0.9 percent, the French CAC 40 Index is up by 0.5 percent and the German DAX Index is just above the unchanged line.

French-Italian chipmaker STMicroelectronics has jumped. The company announced plans to double its investments this year after posting higher net profit for the fourth quarter.

EasyJet has also moved notably higher in London. The low-cost airline said it has seen a recent boost in bookings from the move to scrap Covid travel tests.

Private equity firm 3i Group has also moved to the upside after posting total return of 32.6 percent for the nine months to December 31, 2021.

Soft drink maker Britvic has also advanced on the day after reporting strong performance in the first quarter of fiscal 2022.

Online trading platform IG Group Holdings has also surged after its profit before tax for the half-year grew 8 percent to 245.2 million pounds.

Lender Deutsche Bank has also moved sharply higher after posting a surprise profit in the fourth quarter of 2021.

Meanwhile, business software group SAP has plunged after it agreed to buy a majority stake in privately held U.S. fintech firm Taulia.

U.S. Economic Reports

After reporting a bigger than expected increase in first-time claims for U.S. unemployment benefits in the previous week, the Labor Department released a report on Thursday showing initial jobless claims pulled back in line with estimates in the week ended January 22nd.

The report said initial jobless claims fell to 260,000, a decrease of 30,000 from the previous week's revised level of 290,000.

Economists had expected jobless claims to drop to 260,000 from the 286,000 originally reported for the previous week.

Meanwhile, the Labor Department said the less volatile four-week moving average rose to 247,000, an increase of 15,000 from the previous week's revised average of 232,000.

Preliminary data released by the Commerce Department on Thursday showed a sharp increase in U.S. economic activity in the fourth quarter of 2021.

The report said real gross domestic product spiked by 6.9 percent in the fourth quarter after jumping by 2.3 percent in the third quarter. Economists had expected GDP to surge up by 5.5 percent.

The Commerce Department said the stronger than expected GDP growth reflected increases in private inventory investment, exports, consumer spending and nonresidential fixed investment.

Decreases in both federal and state and local government spending somewhat limited the upside along with an increase in imports, which are a subtraction in the calculation of GDP.

A separate report from the Commerce Department showed new orders for durable goods fell by more than expected in the month of December amid a sharp pullback in orders for transportation equipment.

The report said durable goods orders slumped by 0.9 percent in December after soaring by an upwardly revised 3.2 percent in November.

Economists had expected durable goods orders to decrease by 0.5 percent compared to the 2.6 percent spike that had been reported for the previous month.

Excluding the steep drop in orders for transportation equipment, durable goods orders rose by 0.4 percent in December after jumping by 1.1 percent in November. Ex-transportation orders were expected to increase by 0.5 percent.

At 10 am ET, the National Association of Realtors is scheduled to release its report on pending home sales in the month of December. Pending home sales are expected to edge down by 0.2 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.

At 1 pm ET, the Treasury Department is due to announce the results of this month's auction of $53 billion worth of seven-year notes.

Stocks In Focus

Shares of ServiceNow (NOW) are moving sharply higher in pre-market trading after the software company reported better than expected fourth quarter results and provided upbeat 2022 revenue guidance.

Apparel company Levi Strauss (LEVI) is also likely to see initial strength after reporting fourth quarter results that exceeded estimates and offering an upbeat annual forecast.

On the other hand, shares of LendingClub (LC) are seeing substantial pre-market weakness after the peer-to-peer lending company reported better than expected fourth quarter results but provided disappointing guidance.

Semiconductor equipment maker Lam Research (LRCX) may also come under pressure after reporting fiscal second quarter earnings that beat estimates but issuing a weaker than expected quarterly forecast.

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