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Interest Rate Uncertainty May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Tuesday, with stocks likely to show a lack of direction following the sell-off seen in the previous session.

Traders may be reluctant to make significant moves amid lingering uncertainty about the outlook for interest rates ahead of next week's Federal Reserve meeting.

A relatively quiet day on the U.S. economic front may keep traders on the sidelines ahead of Friday's report on producer price inflation.

The University of Michigan is also due to release its preliminary report on consumer sentiment in the month of December on Friday. The report includes readings on inflation expectations that could impact the outlook for interest rates.

While the Fed is widely expected to slow the pace of interest rate hikes next week, recent upbeat economic data has raised concerns about how much further the central bank will raise rates at future meetings.

Traders are likely to pay close attention to the Fed's accompanying statement, although a lot of key data will be released before the next meeting in late January/early February.

After ending last Friday's trading narrowly mixed, stocks moved sharply lower over the course of the session on Monday. The major averages came under pressure in early trading and saw further downside as the day progressed.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow slumped 482.78 points or 1.4 percent to 33,947.10, the Nasdaq dove 221.56 points or 1.9 percent to 11,239.94 and the S&P 500 tumbled 72.86 points or 1.8 percent to 3,998.84.

The sell-off on Wall Street partly reflected lingering uncertainty about the outlook for interest rates following last Friday's stronger-than-expected jobs data.

Adding to the worries about where rates will peak, the Institute for Supply Management released a report this morning showing U.S. service sector activity unexpectedly grew at an accelerated rate in the in the month of November.

The ISM said its services PMI climbed to 56.5 in November from 54.4 in October, with a reading above 50 indicating growth in the sector. The increase surprised economists, who had expected the index to dip to 53.1.

A separate report released by the Commerce Department showed new orders for U.S. manufactured goods jumped by more than expected in the month of October.

"The risks that the Fed might need to do more remain elevated and that is why this economy needs to head to a recession," said Edward Moya, senior market analyst at OANDA.

He added, "This next recession however won't be rescued by quick Fed easing or a fiscal response as that will fuel inflation risks."

Banking stocks turned in some of the market's worst performances on the day, dragging the KBW Bank Index down by 4.4 percent to its lowest closing level in a month.

A sharp pullback by the price of crude oil also weighed on energy stocks. Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 4.0 percent and the NYSE Arca Oil Index dove by 3.0 percent.

Substantial weakness was also visible among transportation stocks, as reflected by the 3.3 percent slump by the Dow Jones Transportation Average.

Retail, computer hardware and brokerage stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slumping $1.09 to $75.84 a barrel after plunging $3.05 to $76.93 a barrel on Monday. Meanwhile, after tumbling $28.30 to $1,781.30 an ounce in the previous session, gold futures are climbing $10.10 to $1,791.40 an ounce.

On the currency front, the U.S. dollar is trading at 136.24 yen compared to the 136.75 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0509 compared to yesterday's $1.0491.

Asia

Asian stocks finished Tuesday's trading on a mixed note, with benchmarks in Hong Kong, South Korea, Australia and New Zealand closing lower amidst anxiety over the Fed's stance given a strong service activity reading. A rate hike by the Reserve Bank of Australia added to the negative sentiment.

Meanwhile, the Shanghai Composite Index as well as the Shenzhen Component Index gained on hopes of the relaxation of Covid curbs and Japanese shares benefitted from a weaker yen.

China's Shanghai Composite Index inched up 0.72 points or less than a tenth of a percent to finish at 3,212.53. The day's trading ranged between 3,195.08 and 3,224.82. The Shenzhen Component Index added 75.48 points or 0.7 percent to close at 11,398.82.

The Japanese benchmark Nikkei 225 Index gained 65.47 points or 0.2 percent to end trading at 27,885.87. The day's trading range was between 27,698.31 and 27,934.07.

NTN Corp was the biggest gainer with a 4.44 percent uptick. Mitsubishi Motors Corp, Mazda Motor Corp and Sumitomo Heavy Industries added close to 3 percent.

Internet media company CyberAgent, which is providing free streaming of football World Cup matches, dropped more than 4 percent after Japan's world cup exit. Eisai Co, dropped 3.3 percent. Softbank Group, Kyowa Kirin and Hitachi Zosen all declined more than 2 percent.

The Hang Seng Index of the Hong Kong Stock Exchange lost 77.11 points or 0.4 percent to finish trading at 19,441.18. The day's trading range was between a high of 19,569.67 and a low of 19,202.87.

The Korean Stock Exchange's Kospi Index lost 26.16 points or 1.1 percent to close trading at 2,393.16. The day's trading range was between 2,390.20 and 2,416.88.

Australia's S&P/ASX200 Index closed trading at 7,291.30 after shedding 34.30 points or 0.5 percent. The day's trading was between 7,283.00 and 7,325.60.

Clinuvel Pharmaceuticals was the top gainer with a 3 percent rally. Mining business Whitehaven Coal, building materials business Fletcher Building, chemicals business Orica and agricultural inputs company Nufarm all gained more than 2 percent.

Biotechnology company Mesoblast topped the laggards list with a 9.6 percent decline. IT service Appen followed closely with a 9.2 percent drop. Gold miners fell sharply as strong economic data from the U.S. renewed Fed fears and sent gold prices crashing. St Barbara plunged 8.8 percent, while Ramelius Resources and Resolute Mining both shed more than 7 percent.

The NZX 50 Index of the New Zealand Stock Exchange shed 46.15 points or 0.4 percent to close at 11,631.60. Trading ranged between 11,583.92 and 11,680.97.

Dairy business Synlait Milk was the top gainer with a 3.5 percent rally. Electronic components maker EROAD also gained 2.6 percent. Port of Tauranga, The a2 Milk Company and telecommunications business Spark New Zealand all gained more than 1 percent.

Utilities business Manawa Energy and Argosy Property, a diversified REIT, both lost more than 3 percent. Software business Serko, real estate business Stride Property as well as energy business Mercury NZ declined more than 2 percent.

Europe

European stocks are seeing modest weakness on Tuesday, with investors largely staying cautious amid renewed concerns the Federal Reserve will continue with its aggressive interest rate hikes after recent upbeat jobs and services sector activity data.

While the U.K.'s FTSE 100 Index is down by 0.4 percent, the German DAX Index and the French CAC 40 Index are both down by 0.2 percent.

In the U.K. market, Mondi and Pennon Group are posting steep losses. Ferguson, United Utilities, Severn Trent, Vodafone, Carnival, Halma, ICP, BT Group, Fresnillo, Royal Dutch Shell, IAG and BP have also shown notable moves to the downside.

Meanwhile, Rolls-Royce Holdings has moved sharply higher. Phoenix Group Holdings is also posting a strong gain, while BAE Systems, Barclays, Land Securities and British Land Company have also risen.

Ashtead Group has also advanced after the British equipment rental company raised its full-year guidance on the back of strong quarterly earnings.

In Paris, TotalEnergies has slumped. Eurofins Scientific, CapGemini, Societe Generale, Renault, Teleperformance, Credit Agricole, Veolia and WorldLine have also moved lower.

In the German market, Fresenius Medical Care is sharply lower. HelloFresh has also tumbled, while Sartorius, Siemens Healthineers, Infineon Technologies, Porsche Automobil and Fresenius have also moved to the downside.

On the other hand, RWE and Puma are posting strong gains, while Vonovia, Allianz, Munich RE and Deutsche Wohnen have moved moderately higher.

Data released by Destatis showed factory orders in Germany increased 0.8 percent month-over-month in October versus a downwardly revised 2.9 percent slump in September. Economists had expected factory orders to edge up by 0.1 percent.

European Central Bank chief economist Philip Lane said in an interview today that interest rates will need to rise several more times to rein in inflation. However, he said price increases in the eurozone are nearing a peak.

U.S. Economic Reports

Reflecting a decrease in the value of exports and an increase in the value of imports, the Commerce Department released a report on Tuesday showing the U.S. trade deficit widened in the month of October.

The report said the trade deficit widened to $78.2 billion in October from a revised $74.1 billion in September. Economists had expected the trade deficit to increase to $79.1 billion from the $73.3 billion originally reported for the previous month.

The wider trade deficit came as the value of exports slid by 0.7 percent to $256.6 billion, while the value of imports climbed by 0.6 percent to $334.8 billion.

Stocks In Focus

Shares of GitLab (GTLB) are moving sharply higher in pre-market trading after the development operations software maker reported a narrower than expected fiscal third quarter loss on better than expected revenues and provided upbeat guidance.

Jewelry retailer Signet Jewelers (SIG) is also likely to see initial strength after reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

Meanwhile, shares of Royal Caribbean (RCL) may move to the downside after J.P. Morgan Securities downgraded its rating on the cruise operator to Underweight from Overweight.

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