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Worries About Economy, Interest Rates May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to extend the sharp pullback seen last week.

Lingering concerns about the outlook for the global economy are likely to continue to weigh on the markets after last week's warning from FedEx (FDX).

An increase in treasury yields may also contribute to continued weakness on Wall Street, with the yield on the benchmark ten-year note jumping to an eleven-year high.

The advance by treasury yields comes ahead of the Federal Reserve's highly anticipated monetary policy announcement on Wednesday.

The Fed is widely expected to raise interest rates by another 75 basis points, although some see an outside chance for a 100 basis point rate hike.

CME Group's FedWatch Tool is currently indicating an 80.0 percent chance of a 75 basis points rate hike and a 20.0 percent chance of a 100 basis point rate hike,

A number of other major central banks around the world are also scheduled to announce their latest monetary policy decisions this week, including the Bank of England and the Bank of Japan.

After coming under pressure over the course of Thursday's session, stocks saw further downside during trading on Friday. The major averages all moved to the downside on the day, ending the session at their lowest closing levels in two months.

The major averages climbed well off their lows of the session going into the close but remained in negative territory. The Dow fell 139.40 points or 0.5 percent to 30,822.42, the Nasdaq slumped 103.95 points or 0.9 percent to 11,448.40 and the S&P 500 slid 28.02 points or 0.7 percent to 3,873.33.

With the extended downward move, the major averages all posted steep losses for the week. The Dow tumbled by 4.1 percent, while the S&P 500 plunged by 4.8 percent and the Nasdaq plummeted by 5.5 percent.

A steep drop by shares of FedEx (FDX) contributed to the weakness on Wall Street, with the delivery giant plunging by 21.4 percent to a two-year closing low.

The sell-off by FedEx came after the company reported weaker than expected preliminary fiscal first quarter results and withdrew its full-year guidance.

FedEx cited global volume softness and expectations for a continued volatile operating environment and warned it expects business conditions to further weaken in the second quarter.

The warning from FedEx added to concerns about the outlook for the global economy amid monetary policy tightening by central banks around the world.

Concerns about the outlook for interest rates also continued to weigh on the markets ahead of the Federal Reserve's monetary policy decision.

"Wall Street was already nervous that the Fed's inflation fighting mission was going to trigger a recession, but now it seems corporate America is already showing signs that the economy is slowing," said Edward Moya, senior market analyst at OANDA.

Meanwhile, traders largely shrugged off a report from the University of Michigan showing a modest improvement in consumer sentiment and a decrease in inflation expectations.

The University of Michigan said its consumer sentiment index inched up to 59.5 in September from 58.2 in August. With the uptick, the consumer sentiment index reached its highest level since hitting 65.2 in April.

The report also showed the recent decline in energy prices has contributed to a decrease in inflation expectations.

One-year inflation expectations dipped to 4.6 percent in September from 4.8 percent in August, while five-year inflation expectations edged down to 2.8 percent from 2.9 percent.

The Fed has indicated that its aggressive monetary policy tightening partly reflects a desire to prevent elevated inflation expectations from becoming entrenched.

With FedEx leading the way lower, transportation stocks showed a substantial move to the downside, resulting in a 5.1 percent nosedive by the Dow Jones Transportation Average. The average tumbled to its lowest closing level in well over a year.

Significant weakness was also visible among oil service stocks, as reflected by the 3.7 percent plunge by the Philadelphia Oil Service Index. The sell-off by oil service stocks came even though the price of crude oil ended the day nearly flat.

Natural gas stocks also saw considerable weakness amid an extended pullback by the price of natural gas, with the NYSE Arca Natural Gas Index tumbling by 2.8 percent.

Brokerage, chemical and biotechnology stocks also showed notable moves to the downside, while gold stocks saw some strength amid a modest increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are plunging $2.35 to $82.76 a barrel after inching up $0.01 to $85.11 a barrel last Friday. Meanwhile, after rising $6.20 to $1,683.50 an ounce in the previous session, gold futures are advancing sliding $10.40 to $1,673.10 an ounce.

On the currency front, the U.S. dollar is trading at 143.51 yen versus the 142.92 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $0.9989 compared to last Friday's $1.0016.

Asia

Asian stocks ended broadly lower on Monday as investors braced for a slew of central bank decisions this week.

The Federal Reserve meets on Wednesday, while the Bank of England and the Swiss National Bank will announce their monetary policy decisions on Thursday.

The Bank of Japan is also meeting on Thursday, with no change in interest rates expected.

The dollar hovered near a two-decade peak versus major peers and Treasury yields ticked higher amid bets the Fed will raise its benchmark interest rate by at least 75 basis points at the end of a two-day policy meeting on Wednesday.

Both gold and oil fell about 1 percent in Asian trading amid dollar strength.

Japanese markets were closed for Old Age Day. Chinese shares ended modestly lower despite the megacity of Chengdu exiting a two-week lockdown and the People's Bank of China cutting its 14-day reverse repo rates to revive credit demand and prop up the sputtering economy.

China's Shanghai Composite Index dropped 0.4 percent to 3,115.60, while Hong Kong's Hang Seng Index slumped 1.0 percent to 18,565.97.

Seoul stocks fell for a fourth straight session to hit over two-month low as investors braced for the Fed to raise rates by 75 basis points for the third straight time.

The Kospi ended down 1.1 percent at 2,355.66, marking the lowest level since July 12. Battery maker LG Energy Solution led losses to close 5.6 percent lower, while state-run utility Korea Electric Power Corp. rallied 3.2 percent amid speculation the government could raise electricity rates by a big margin next month.

Australian markets gave up early gains to end lower as oil prices reversed course, weighing on energy stocks. The benchmark S&P ASX 200 Index slipped 0.3 percent to 6,719.90, while the broader All Ordinaries Index closed 0.4 percent lower at 6,948.60.

Europe

European stocks have fallen in cautious trading on Monday ahead of a busy week of central bank meetings. Thirteen central bank meetings are scheduled this week, which are likely to see borrowing costs rise across the globe.

As inflation worries mount, it remains to be seen whether the Federal Reserve will be forced to raise rates by 100 basis points at the end of a two-day policy meeting on Wednesday.

The Bank of England meets on Thursday, with markets split on whether the central bank will raise rates by 50 or 75 basis points ahead of a mini budget to be unveiled by the new Chancellor of the Exchequer Kwasi Kwarteng on Friday. The BoE meeting was delayed by a week after the death of Queen Elizabeth II.

While the French CAC 40 Index has slumped by 1.0 percent, the U.K.'s FTSE 100 Index and the German DAX Index are down by 0.6 percent and 0.5 percent, respectively.

Swiss drug major Roche has moved to the downside despite the European Commission approving its Vabysmo to treat vision loss.

City of London Investment Trust shares have also fallen. The British company reported that its fiscal 2022 net return before taxation declined to 100.47 million pounds from last year's 267.16 million pounds.

Volkswagen is also moving lower, reversing early gains. The German automaker is seeking to raise nearly 9.4 billion euros ($9.41 billion) from the initial public offering of its iconic sports-car maker Porsche AG.

U.S. Economic Reports

The National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of September at 10 am ET. The housing market index is expected to edge down to 48 in September from 49 in August.

Stocks In Focus

Shares of Take-Two (TTWO) may come under pressure after a report from Bloomberg said a hacker published authentic, pre-release footage from development of the video game company's highly anticipated Grand Theft Auto VI.

Software company Adobe (ADBE) may also see further downside after Wells Fargo downgraded its rating on the company's stock to Equal Weight from Overweight.

On the other hand, shares of bluebird bio (BLUE) are seeing significant pre-market strength after the FDA granted accelerated approval for the biotechnology company's Skysona gene therapy for early, active cerebral adrenoleukodystrophy.

Auto parts retailer AutoZone (AZO) may also move to the upside after reporting fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

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