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Beyond the Numbers

Profit Taking May Lead To Initial Pullback On Wall Street
3/2/2021 8:45 AM

The major U.S. index futures are currently pointing to a modestly lower open on Tuesday, with stocks likely to give back ground following the rally seen in the previous session.

Profit taking may contribute to initial weakness on Wall Street, as traders cash in on yesterday’s strong gains. The S&P 500 posted its biggest single-day gain since last June on Monday.

Traders are also likely to keep an eye on activity in the bond market, which has been a key driver of trading in recent sessions.

The yield on the benchmark ten-year note is little changed in early trading after moving lower over the two previous sessions.

The ten-year yield spiked above 1.6 percent last Thursday, raising concerns about the outlook for interest rates despite the Federal Reserve’s assurances monetary policy will remain unchanged for the foreseeable future.

Any early selling pressure is likely to be relatively subdued, as continued optimism about coronavirus vaccines and additional fiscal stimulus helps prop up the markets.

A lack of major U.S. economic data may also keep traders from making significant moves ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

U.S. stocks rose sharply on Monday, buoyed by data showing a notable surge in manufacturing activity in the country and on rising hopes about additional stimulus after the House passed a $1.9 trillion coronavirus relief bill on Saturday.

The market also reacted positively to news that Johnson & Johnson's (JNJ) single-shot Covid-19 vaccine received emergency use authorization from the FDA on Saturday, paving the way for its distribution.

A drop in Treasury yields also contributed to the bullish sentiment in the stock market. The yield on the benchmark ten-year note moved lower for the second straight session after ending last Thursday's trading at its highest closing level in a year.

All the major averages ended the session with handsome gains. The Dow surged up 603.14 points or 2 percent to 31,535.51, the S&P 500 jumped 90.67 points or 2.4 percent to 3,901.82, and the Nasdaq soared 396.48 points or 3 percent at 13,588.83.

On the economic front, the Institute for Supply Management released a report showing U.S. manufacturing activity grew at an accelerated rate in the month of February.

The ISM said its manufacturing PMI rose to 60.8 in February from 58.7 in January, with a reading above 50 indicating growth in the manufacturing sector. Economists had expected the index to inch up to 58.8.

A separate report released by the Commerce Department showed U.S. construction spending increased by much more than anticipated in the month of January, rising by 1.7 percent to an annual rate of $1.522 trillion, after jumping by 1.1 percent to a revised rate of $1.497 trillion in December. Economists had expected construction spending to climb by 0.8 percent.

Apple Inc. (AAPL) shares climbed nearly 6 percent after the company said all its stores in the U.S. have been opened to the public for the first time since last March.

Boeing (BA) also ended nearly 6 percent higher. General Electric (GE), Dupont (DWDP), Intel (INTC), Walt Disney (DIS), Goldman Sachs (GS), Honeywell (HON), Cisco Systems (CSCO), Nike (NIKE), Visa (V) and Microsoft (MSFT) gained 2 to 4.5 percent.

Commodity, Currency Markets

Crude oil futures are rising $0.17 to $60.81 a barrel after sliding $0.86 to $60.64 a barrel on Monday. Meanwhile, after falling $5.80 to $1,723 an ounce in the previous session, gold futures are climbing $3.40 to $1,726.30 an ounce.

On the currency front, the U.S. dollar is trading at 106.91 yen compared to the 106.76 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2023 compared to yesterday’s $1.2049.

Asia

Asian stocks fell broadly on Tuesday despite sharp gains on Wall Street overnight on positive vaccine and stimulus news.

Chinese markets fell as the country's top banking regulator warned about asset bubbles in overseas financial markets. The benchmark Shanghai Composite Index ended down 42.81 points, or 1.2 percent, at 3,508.59, while Hong Kong's Hang Seng Index fell 356.71 points, or 1.2 percent, to 29,095.86.

Japanese shares ended lower as investors booked profits after recent sharp gains in the run-up to the fiscal year-end this month. The Nikkei 225 Index dropped 255.33 points, or 0.9 percent, to 29,408.17, while the broader Topix closed 0.4 percent lower at 1,894.85. Both the indexes jumped over 2 percent the previous day.

SoftBank's internet subsidiary Z Holdings Corp. lost 4.8 percent after it unveiled plans to invest 500 billion yen ($4.7 billion) in technology over five years. Ship builder Mitsui E&S Holdings tumbled 4.1 percent and system integration company NTT Data gave up 3.9 percent.

In economic news, the unemployment rate in Japan came in at a seasonally adjusted 2.9 percent in January, unchanged from the December reading and shy of expectations for 3.0 percent.

Australian markets erased early gains to end lower as the Reserve Bank left its cash rate and asset purchase program unchanged and indicated that it will not raise the rate until inflation returns to the target range.

The benchmark S&P/ASX 200 Index ended down 27.30 points, or 0.4 percent, at 6,762.30 as domestic bond yields rose once again following the central bank's meeting. The broader All Ordinaries Index dropped 32.80 points, or 0.5 percent, to 7,009.90.

Banks ANZ, Commonwealth and NAB rose between half a percent and 1.1 percent, while mining heavyweight BHP fell 1.9 percent and Fortescue Metals Group lost 4.7 percent.

James Hardie Industries advanced 1.8 percent even as data showed the total number of building permits issued in Australia tumbled by a seasonally adjusted 19.4 percent sequentially in January.

Afterpay declined 1.7 percent after one of its major competitors, Klarna, raised $US1 billion at a valuation of $31 billion. Woodside Petroleum and Santos fell about 1.8 percent ahead of a meeting of OPEC and its allies to discuss increasing output.

Gold miners Newcrest, Northern Star Resources and Evolution Mining tumbled 2-4 percent as gold prices slumped to their lowest in 8-1/2 months.

Meanwhile, Seoul stocks rose sharply as trading resumed after a long holiday weekend. The Kospi climbed 30.92 points, or 1 percent, to 3,043.87 after the government unveiled a 15 trillion won ($13.35 billion) extra budget and data showed the country's exports expanded for a fourth straight month in February.

The manufacturing sector in South Korea expanded at a faster pace in February and industrial production jumped 7.5 percent year-on-year, while the total value of retail sales rose 1.6 percent from the previous month in January, separate reports showed.

Europe

European stocks have moved higher over the course of the trading day on Tuesday, extending the strong upward move seen in the previous session.

While the German DAX Index has risen by 0.4 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index are both up by 0.5 percent.

TeamViewer AG, a provider of secure remote connectivity solutions and workplace digitalization technology, has shown a strong move to the upside.

The company announced its acquisition of Upskill, the U.S.-based pioneer in augmented reality software for frontline workers for an undisclosed amount.

Hedge fund manager Man Group has also moved higher. After reporting a drop in its 2020 core pre-tax profit, the company said it is entering 2021 with good momentum.

Homebuilder Taylor Wimpey has also risen after its 2020 pretax profit fell 68 percent, in line with expectations.

On the other hand, meal-kit delivery company HelloFresh has slumped despite reporting quarterly sales above market expectations.

In economic news, German retail sales decreased for a second straight month and at a faster than expected pace in January, preliminary figures from Destatis showed.

Retail sales fell 4.5 percent month-on-month, which was worse than the 0.3 percent decline economists had expected. In December, sales decreased 9.1 percent.

U.K. house price inflation accelerated in February, defying expectations for further slowing, survey data from the Nationwide Building Society showed.

U.S. Economic Reports

Federal Reserve Governor Lael Brainard is scheduled to speak on the U.S. economic outlook and monetary policy at “A Conversation with Lael Brainard” hosted by the Council on Foreign Relations at 1 pm ET.

At 2 pm ET, San Francisco Federal Reserve President Mary Daly is due to speak before a virtual event of the Economic Club of New York.

Stocks In Focus

Shares of Lemonade (LMND) are moving sharply lower in pre-market trading after the online insurance company reported better than expected fourth quarter results but provided disappointing guidance for the current quarter.

Vaccine development company Novavax (NVAX) is also likely to come under pressure after reporting a wider than expected fourth quarter loss.

On the other hand, shares of Zoom Video (ZM) are seeing significant pre-market strength after the communications technology company reported better than expected fourth quarter results and providing upbeat guidance.

Measurement and data analytics company Nielsen Holdings (NLSN) is also likely to move to the upside after announcing the sale of its digital advertising business to Roku (ROKU). Nielsen and Roku also formed a strategic partnership.
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