Market Analysis

The major U.S. index futures are pointing to a higher open on Wednesday, with stocks poised to extend the rebound from the sell-off seen early in the previous session.

The markets may continue to benefit from easing concerns about the outlook for monetary policy following Federal Reserve Chair Jerome Powell’s remarks on Tuesday.

In testimony before the Senate Banking Committee, Powell unsurprisingly reiterated that the Fed is likely to maintain its ultra-easy monetary policy for the foreseeable future.

Powell is set to appear before the House Financial Services Committee later this morning, with his prepared remarks likely to mirror those he delivered yesterday.

While Fed officials have largely been consistent in suggesting policy will remain unchanged, a recent increase in treasury yields has spooked investors.

A notable increase in the yields on ten-year notes and thirty-year bonds this morning may subsequently keep early buying interest somewhat subdued.

After moving sharply lower early in the session, stocks showed a substantial recovery over the course of the trading day on Tuesday. The major averages climbed well off their early lows, with the Dow and the S&P 500 reaching positive territory.

The Dow plunged by more than 360 points in early trading but ended the day up 15.66 points or 0.1 percent at 31,537.35. The S&P 500 also inched up 4.87 points or 0.1 percent to 3,881.37 after tumbling by as much as 71 points.

Meanwhile, the tech-heavy Nasdaq finished the session down 67.85 points or 0.5 percent at 13,465.20 but was well off the nearly one-month intraday low set in early trading.

The early sell-off on Wall Street reflected concerns about the outlook for inflation and the potential for higher interest rates due to the recent increase in bond yields.

The yields on ten-year notes and thirty-year bonds reached their highest intraday levels since the early days of the coronavirus pandemic earlier in the day.

However, selling pressure waned as traders reacted to Federal Reserve Chair Jerome Powell's prepared remarks before the Senate Banking Committee.

Powell reiterated interest rates will remain at near-zero levels and the Fed will continue its asset purchases at the current rate until "substantial further progress" has been made toward its goals of maximum employment and price stability.

"The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved," Powell said.

With regard to inflation, Powell acknowledged that consumer prices have partially rebounded following the steep drop last spring but noted prices for sectors that have been most adversely affected by the pandemic remain "particularly soft."

The Fed chief said annual inflation remains below the central bank's 2 percent target and reiterated monetary policy is likely to remain unchanged until inflation is on track to moderately exceed 2 percent for "some time."

Traders subsequently seemed to use the early weakness on Wall Street as an opportunity to pick up stocks at relatively reduced levels.

On the U.S. economic front, the Conference Board released a report showing consumer confidence has improved more than expected in the month of February.

The Conference Board said its consumer confidence index rose to 91.3 in February from a downwardly revised 88.9 in January.

Economists had expected the consumer confidence index to inch up to 90.0 from the 89.3 originally reported for the previous month.

Oil stocks moved sharply higher over the course of the session, driving the NYSE Arca Oil Index up by 2.4 percent to its best closing level in a year.

The rally by oil stocks came even the price of crude oil closed slightly lower after spiking by more than $2 a barrel on Monday.

Substantial strength also emerged among airline stocks, as reflected by the 2.2 percent jump by the NYSE Arca Airline Index. The index also ended the session at a one-year closing high.

On the other hand, gold stocks showed a significant move to the downside, dragging the NYSE Arca Gold Bugs Index down by 2.1 percent. The pullback by gold stocks came as the price of gold for April delivery slipped after soaring by more than $30 an ounce in the previous session.

Networking stocks also saw considerable weakness on the day, resulting in a 1.3 percent drop by the NYSE Arca Networking Index.

Commodity, Currency Markets

Crude oil futures are rising $0.34 to $62.01 a barrel after edging down $0.03 to $61.67 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,800, down $5.90 compared to the previous session’s close of $1,805.90. On Tuesday, gold slipped $2.50.

On the currency front, the U.S. dollar is trading at 106.06 yen compared to the 105.25 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.2132 compared to yesterday’s $1.2150.

Asia

Asian stocks fell on Wednesday as persistent worries over inflation and steep asset valuations offset signs that the U.S. Federal Reserve would continue its fiscal policy support.

China's Shanghai Composite Index tumbled 72.28 points, or 2 percent, to 3,564.08 as U.S. President Joe Biden showed readiness to meddle in the imprisonment of two Canadian citizens.

Hong Kong's Hang Seng Index plunged 914.40 points, or 3 percent, to 29,718.24, as the city raised the stamp duty on stock trading for the first time since 1993.

Japanese shares also fell sharply as tech stocks succumbed to selling pressure following a decline in the Nasdaq Composite index overnight.

The Nikkei 225 Index slumped 484.33 points, or 1.6 percent, to 29,671.70, falling below the psychologically important 30,000 level for the first time in seven sessions. The broader Topix closed 1.8 percent lower at 1,903.07.

Market heavyweight SoftBank Group plummeted 5.2 percent, while chip-related shares such as Tokyo Electron, Shin-Etsu Chemical and Fanuc plunged 3-5 percent.

Department store operators rose on hopes for normalization in the economy after regional governments requested emergency pandemic measures to be lifted ahead of he March 7 scheduled end. IsetanMitsukoshi Holdings, Takashimaya and J. Front Retailing all surged around 5 percent.

Australian markets retreated as commodities stabilized after their recent rally. The benchmark S&P/ASX 200 Index fell 61.40 points, or 0.9 percent, to 6,777.80, while the broader All Ordinaries Index ended down 61.40 points, or 0.86 percent, at 7,049.40.

A drop in Chinese iron ore futures pressured miners, with BHP and Rio Tinto falling around 3 percent. Gold miner Northern Star Resources lost 3.6 percent as a firmer dollar dented the precious metal's appeal.

Technology stocks followed their U.S. peers lower, with buy-now-pay-later giant Afterpay giving up 3 percent ahead of its half-year results due on Thursday.

Woolworths Group rose over 1 percent after the supermarket chain reported a 28 percent jump in its first-half profit. Fuel supplier Viva Energy soared 6 percent despite reporting a full-year loss.

Seoul stocks tumbled to hit nearly one-month lows as massive foreign sell-off raised uncertainy. The benchmark Kospi dove 75.11 points, or 2.5 percent, to 2,994.98, with tech and bio stocks pacing the decliners.

Hyundai Motor slumped 3.9 percent after saying it would replace batteries in over 25,000 Kona electric vehicles due to defects in battery cells.

Business conditions in South Korea deteriorated slightly in February, the Bank of Korea said today, with a Business Survey Index score of 82 - down from 85 in January. The outlook for the following month rose by 4 points to 85, the bank said.

Europe

European stocks have moved higher on Wednesday as positive data from Germany and signs the U.S. Federal Reserve would continue its fiscal policy support helped offset concerns over high valuations and a possible rise in inflation.

The German economy grew more than initially estimated in the fourth quarter, revised data from Destatis showed.

Gross domestic product grew 0.3 percent sequentially in the fourth quarter instead of the 0.1 percent estimated previously. However, this was much slower than the 8.5 percent rebound seen in the third quarter. On a yearly basis, the decline in GDP slowed to 3.7 percent from 4 percent.

While the German DAX Index has advanced by 0.7 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both up by 0.1 percent.

Lloyds Banking has moved sharply higher as it beat forecasts with a pre-tax profit of 792 million pounds ($1.1 billion) in the fourth quarter.

Europe's largest hotel chain Accor has also moved to the upside on the day despite reporting an annual loss.

On the other hand, German sportswear company Puma has slumped. The company said it expects the negative impact from Covid-19 to continue through the first and parts of the second quarter.

Telefonica Deutschland has also fallen despite the telecommunications company returning to a profit in the fourth quarter and posting higher revenue year-on-year.

AstraZeneca has also declined. According to Reuters, the company told the European Union that it expects to deliver less than half the Covid-19 vaccines it was contracted to supply in the second quarter.

U.S. Economic Reports

Federal Reserve Chair Jerome Powell is due to testify before a virtual House Financial Services Committee hearing beginning at 10 am ET.

Also at 10 am ET, the Commerce Department is scheduled to release its report on new home sales in the month of January.

New home sales are expected to jump by 1.5 percent to an annual rate of 855,000 in January after surging up by 1.6 percent to a rate of 842,000 in December.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended February 19th.

Crude oil inventories are expected to decrease by 5.4 million barrels after falling by 7.3 million barrels in the previous week.

Federal Reserve Governor Lael Brainard is also scheduled to give a lecture on “The Federal Reserve's Maximum Employment Mandate” before a Harvard University Principles of Economics class at 10:30 am ET.

At 1 pm ET, Federal Reserve Vice Chair Richard Clarida is due to speak on the “U.S. Economic Outlook and Monetary Policy” before a remote U.S. Chamber of Commerce Chief Economist Committee Meeting.

The Treasury Department is also scheduled to announce the results of this month’s auction of $61 billion worth of five-year notes at 1 pm ET.

At 4 pm ET, Clarida is due to deliver another speech on the “U.S. Economic Outlook and Monetary Policy” before an American Chamber of Commerce in Australia “Live from America” Webinar.

Stocks In Focus

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

Home improvement retailer Lowe’s (LOW) is also likely to see initial strength after reporting fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of TJX Companies (TJX) may move to the downside after the off-price retailer reported fourth quarter earnings and sales that missed expectations.

Financial software company Intuit (INTU) is also seeing pre-market weakness after reporting weaker than expected fiscal second quarter earnings.