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Uncertainty About Near-Term Outlook May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Friday, with stocks likely to show a lack of direction in early trading.

Traders may be reluctant to make significant moves amid uncertainty about the near-term outlook for the markets following recent volatility.

Stocks showed wild swings over the two previous sessions, rallying strongly during trading on Wednesday before pulling back sharply on Thursday.

The futures gave back ground following the release of the Commerce Department's report on personal income and spending, which includes a reading on inflation said to be preferred by the Federal Reserve.

The report showed the annual rate of core consumer price growth accelerated to 4.9 percent in August from a revised 4.7 percent in July.

Economists had expected the annual rate of growth in core consumer prices, which exclude food and energy prices, to tick up to 4.7 percent from the 4.6 percent originally reported for the previous month.

The faster rate of price growth is likely to convince the Fed that it must maintain is aggressive stance regarding future interest rate hikes.

After moving sharply higher over the course of Wednesday's session, stocks showed a substantial move back to the downside during trading on Thursday. The major averages largely offset Wednesday's gains, with the S&P 500 once again falling to its lowest closing level since late 2020.

The major averages climbed well off their worst levels going into the close but continued to post steep losses. The Dow slumped 458.13 points or 1.5 percent to 29,225.61, the Nasdaq plunged 314.13 points or 2.8 percent to 10,737.51 and the S&P 500 tumbled 78.57 points or 2.1 percent to 3,640.47.

The sharp pullback on Wall Street came as traders cashed in on yesterday's gains, as the buying interest generated by the Bank of England's bond market intervention quickly evaporated.

The moves by the BoE contributed to a pullback by bond yields and the U.S. dollar, inspiring traders to pick up stocks at reduced levels following recently weakness.

However, bond yields moved back to the upside, with the yield on the benchmark ten-year note partly offsetting yesterday's 25.9 basis point plunge.

A report from the Labor Department showing first-time claims for U.S. unemployment benefits unexpectedly fell to a five-month low last week also weighed on the markets.

While the report points to continued strength in the labor market, traders may view the data as giving the Federal Reserve confidence that it can continue to aggressively raise interest rates.

The report showed initial jobless claims slipped to 193,000 in the week ended September 24th, a decrease of 16,000 from the previous week's revised level of 209,000.

The dip surprised economists, who had expected jobless claims to inch up to 215,000 from the 213,000 originally reported for the previous week.

With the unexpected decline, jobless claims dropped to their lowest level since hitting 181,000 in the week ended April 23rd.

"While overall economic activity is expected to slow in response to sharply higher interest rates and a weakening global backdrop, the low level of claims is a reminder that labor market conditions remain extremely tight even as we head toward a mild recession next year," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

"The imbalance between the supply and demand for workers, which is putting upward pressure on wages, is a key factor behind the Fed's plans to continue aggressively raising interest rates," she added. "We expect the Fed to raise rates another 125bps this year."

A separate report from the Commerce Department showed the annual rate of growth in core consumer prices in the second quarter was upwardly revised to 5.0 percent from 4.8 percent.

"To the extent that there are any clear implications for the Fed, that will further support officials' current hawkish stance," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

The surge in core consumer prices, which exclude food and energy prices, was still slightly slower than the 5.3 percent spike in the first quarter.

Adding to the negative sentiment on Wall Street, data from Freddie Mac showed the 30-year fixed-rate mortgage averaged 6.70 percent in the week ending September 29th, up from 6.29 percent the week before.

Airline stocks turned in some of the market's worst performances on the day, resulting in a 4.4 percent nosedive by the NYSE Arca Airline Index. The index plummeted to a two-year closing low.

Interest rate-sensitive utilities and commercial real estate stocks also saw substantial weakness, dragging the Dow Jones Utility Average and the Dow Jones U.S. Real Estate Index down by 4.1 percent and 3.1 percent, respectively.

Significant weakness was also visible among semiconductor stocks, with the Philadelphia Semiconductor Index plunging by 3.3 percent to its lowest closing level in almost two years.

Telecom, computer hardware and housing stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are sliding $0.68 to $80.55 a barrel after falling $0.92 to $81.23 a barrel on Thursday. Meanwhile, after edging down $1.40 to $1,668.60 an ounce in the previous session, gold futures are rising $7.70 to $1,676.30 an ounce.

On the currency front, the U.S. dollar is trading at 144.45 yen versus the 144.46 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $0.9767 compared to yesterday's $0.9815.

Asia

Asian stocks fell again on Friday, with growing worries about the U.K.'s fiscal policy, Europe's energy crisis and hawkish Fed commentary weighing on the markets.

Chinese manufacturing data proved to be a mixed bag, with the official PMI bouncing back to expansion territory in September, while the Caixin PMI indicated a second straight month of contraction.

China's Shanghai Composite Index slid 0.6 percent to 3,024.39, while Hong Kong's Hang Seng Index rose 0.3 percent to 17,222.83.

Japanese shares ended at a three-month low despite encouraging economic readings. Japan's industrial production and retail sales figures for August beat expectations, while the jobless rate fell to 2.5 percent in the month.

The Nikkei 225 Index plunged 1.8 percent to 25,937.21, marking the lowest since July 1. The broader Topix closed 1.8 percent lower at 1,835.94 despite news the government is preparing another round of economic stimulus measures.

Separately, Finance Minister Shunichi Suzuki said at a meeting of the Asian Development Bank in Manila that the government would "take necessary action" to respond to undesirable rapid, speculative currency movements.

Tech stocks followed their U.S. peers lower, with Advantest, Screen Holdings and Tokyo Electron all falling over 3 percent. SoftBank Group, Sony Group, Hitachi and Toyota Motor lost 3-4 percent.

Seoul stocks hit over two-month lows, with auto and chemical stocks pacing the decline amid recession woes. The Kospi ended 0.7 percent lower at 2,155.49. LG Chem, Hyundai Motor and Kia fell 2-3 percent.

South Korean factory output contracted for a second month in August, while retail sales jumped 4.3 percent, marking the fastest gain since May 2020, separate reports showed.

Australian markets fell sharply, dragged down by weakness among financial and technology stocks. Miners bucked the weak trend as China reported a ramp-up in its output due to rising construction demand.

The benchmark S&P/ASX 200 Index shed 1.2 percent to close at 6,474.20, while the broader All Ordinaries Index slumped 1.2 percent to 6,678.70.

Europe

European stocks have rebounded on Friday, as government bond yields pull back from recent highs and new data showed the U.K. economy has not yet fallen into a recession.

U.K. GDP for the second quarter of this year has been revised upwards to show growth of 0.2 percent compared to the previous estimate of a contraction of 0.1 percent. Nonetheless, the pace of growth was weaker than the 0.7 percent expansion posted in the first quarter.

Currency markets calmed, with the euro and sterling hitting new one-week highs after the British government agreed to meet with the country's independent budget experts.

While the U.K.'s FTSE 100 Index has inched up by 0.2 percent, the German DAX Index and the French CAC 40 Index are up by 0.7 percent and 0.8 percent, respectively.

Swiss chemical firm Clariant has jumped after Credit Suisse upgraded its rating on the stock to Outperform and raised its price target.

Italian builder Webuild has also moved to the upside after saying its commercial results will likely significantly exceed the guidance for 2022.

Meanwhile, Dignity, a British funeral-related service provider, has plunged after posting a loss for the first half, amidst a decline in revenues and a surge in administrative expenses.

U.S. Economic Reports

Personal income in the U.S. increased in line with economist estimates in the month of August, according to a report released by the Commerce Department on Friday.

The Commerce Department said personal income rose by 0.3 percent in August, matching the upwardly revised increase in July as well as expectations.

The report showed personal spending also climbed by 0.4 percent in August after edging down by a revised 0.2 percent in July.

Economists had expected personal spending to inch up by 0.2 percent compared to the 0.1 percent uptick originally reported for the previous month.

Meanwhile, a reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth accelerated to 4.9 percent in August from a revised 4.7 percent in July.

Economists had expected the annual rate of growth in core consumer prices, which exclude food and energy prices, to tick up to 4.7 percent from the 4.6 percent originally reported for the previous month.

At 9 am ET, Federal Reserve Vice Chair Lael Brainard is due to give opening remarks before a hybrid Financial Stability Considerations for Monetary Policy Conference.

MNI Indicators is scheduled to release its report on Chicago-area business activity in the month of September at 9:45 am ET.

The Chicago business barometer is expected to edge down to 51.8 in September from 52.2 in August, although a reading above 50 would still indicate growth.

At 10 am ET, the University of Michigan is due to release its revised reading on consumer sentiment in the month of September.

The consumer sentiment index for September is expected to be unrevised from the preliminary reading of 59.5, which was up from 58.2 in August.

Federal Reserve Governor Michelle Bowman is scheduled to speak virtually on Principles for Large Bank Supervision before an Institute of International Finance event at 11 am ET.

At 12:30 pm ET, Richmond Federal Reserve President Thomas Barkin is due to speak on What's Driving Inflation? before the Prince William County Chamber of Commerce.

New York Federal Reserve President John Williams is scheduled to give closing remarks before a hybrid Financial Stability Considerations for Monetary Policy Conference at 4:15 pm ET.

Stocks In Focus

Shares of Amylyx Pharmaceuticals (AMLX) are moving sharply higher in pre-market trading after the FDA approved the drug maker's Relyvrio for the treatment of adults with amyotrophic lateral sclerosis, or ALS.

Chipmaker Micron Technology (MU) may also move to the upside on news Japan will give the company a subsidy of up to $320 million to help make advanced memory chips at its Hiroshima plant.

After the close of trading on Thursday, Micron reported mixed fiscal fourth quarter results and provided weaker than expected revenue guidance.

On the other hand, shares of Nike (NKE) may come under pressure after the athletic footwear and apparel giant reported better than expected fiscal first quarter earnings and revenues but warned it will need to cut prices amid a surge in inventories.

Rent-to-own company Rent-A-Center (RCII) is also seeing significant pre-market weakness after lowering its third quarter earnings guidance.

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