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Beyond the Numbers

Renewed Concerns About Monetary Policy Outlook May Weigh On Wall Street
3/25/2021 9:02 AM

The major U.S. index futures are pointing to a lower open on Thursday, with stocks likely to extend the downward move seen over the two previous sessions.

Renewed concerns about the outlook for monetary policy may weigh on the markets after comments from Federal Reserve Chair Jerome Powell.

In an interview on National Public Radio’s “Morning Edition,” Powell noted accelerated coronavirus vaccine distribution combined with support from Congress will enable the U.S. to reopen the economy sooner than might have been expected.

Powell also said the Fed plans to gradually roll back its asset purchases as the economy makes substantial progress towards the Fed’s goals of maximum employment and price stability.

While Powell stressed the pullback in support will only come when the “economy has all but fully recovered,” the comments still seem to have spooked investors.

Potentially adding to the concerns about monetary policy, the Labor Department released a report showing initial jobless claims fell to their lowest level since the early days of the pandemic.

After coming under pressure late in Tuesday’s session, stocks saw further downside over the course of the trading day on Wednesday. Technology stocks helped lead the way lower, resulting in a steep drop by the tech-heavy Nasdaq.

The major averages all closed in negative territory, although the Dow edged down just 3.09 points or less than a tenth of a percent to 32,420.06. The Nasdaq plunged 265.81 points or 2 percent to 12,961.89 and the S&P 500 slid 21.38 points or 0.6 percent to 3,889.14.

Lingering concerns about the outlook for high-growth companies contributed to the sell-off by technology stocks, which have seen considerable volatility in recent sessions.

Unlike in previous sessions, however, the weakness in the tech sector came amid a continued pullback by treasury yields.

The yield on the benchmark ten-year note moved lower for the third straight day and has now tumbled by 14 basis points since reaching a fourteen-month intraday high last Thursday.

Within the tech sector, shares of Intel (INTC) showed a substantial downturn on the day, slumping by 2.3 percent after spiking by 6.2 percent to its best intraday level in over a year in early trading.

The initial jump by Intel came after CEO Pat Gelsinger outlined the company's path forward to manufacture, design and deliver leadership products and create long-term value for stakeholders.

Gelsinger announced significant manufacturing expansion plans, including building two new factories in Arizona. He said Intel also plans to become a major provider of foundry capacity in the U.S. and Europe to serve customers globally.

On the U.S. economic front, the Commerce Department released a report showing new orders for U.S. manufactured durable goods unexpectedly decreased in the month of February.

The Commerce Department said durable goods orders slumped by 1.1 percent in February after spiking by an upwardly revised 3.5 percent in January.

The pullback came as a surprise to economists, who had expected durable goods orders to climb by 0.8 percent compared to the 3.4 percent jump that had been reported for the previous month.

Excluding a steep drop in orders for transportation equipment, durable goods orders still fell by 0.9 percent in February after surging up by 1.6 percent in January. Economists had expected a 0.6 percent increase.

The data follows the recent release of disappointing reports on retail sales, industrial production and home sales, although the weakness is largely seen as the result of severe winter storms.

Networking stocks moved sharply lower over the course of the session, dragging the NYSE Arca Networking Index down by 2.2 percent.

Substantial weakness also emerged among biotechnology stocks, as reflected by the 2.2 percent slump by the NYSE Arca Biotechnology Index. The index ended the session at its lowest closing level in well over four months.

Software, computer hardware and semiconductor stocks also came under pressure as the day progressed, contributing to the steep drop by the tech-heavy Nasdaq.

Outside of the tech sector, airline stocks showed a significant downturn over the course of the session, resulting in a 1.9 percent drop by the NYSE Arca Airline Index.

Telecom and brokerage stocks also showed notable moves to the downside, while energy stocks held on to strong gains amid a rebound by the price of crude oil.

Commodity, Currency Markets

Crude oil futures are tumbling $2.21 to $58.97 a barrel after soaring $3.42 to $61.18 a barrel on Wednesday. Meanwhile, after climbing $8.10 to $1,733.20 an ounce in the previous session, gold futures are sliding $8.90 to $1,724.30 an ounce.

On the currency front, the U.S. dollar is trading at 109.12 yen versus the 108.73 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1798 compared to yesterday’s $1.1813.

Asia

Asian stocks ended mostly higher on Thursday, although a cautious mood prevailed amid worries over potential U.S. tax hikes and extended lockdowns in Europe.

Chinese stocks ended little changed even as tech stocks fell sharply after the U.S. securities regulator introduced measures that would kick foreign companies off American stock exchanges if they do not comply with U.S. auditing standards.

The benchmark Shanghai Composite Index ended down 3.47 points, or 0.1 percent, at 3,363.59, while Hong Kong's Hang Seng Index edged down 18.53 points, or 0.1 percent, to 27,899.61.

Japanese shares rose sharply to snap a four-day losing streak. The Nikkei 225 Index surged up 324.36 points, or 1.1 percent, to 28,729.88 after finishing at the lowest since February 4 the previous day.

The broader Topix closed 1.4 percent higher at 1,955.55 even as Tokyo confirmed 420 new coronavirus infections on Wednesday, the largest daily figure in March.

Beaten-down cyclical stocks were in focus, with heavyweight Fast Retailing rising 1.4 percent. Banks Mizuho Financial Group., Mitsubishi UFJ Financial and Sumitomo Mitsui Financial jumped 2-3 percent.

Chip-related shares lost ground, with Advantest down 1.5 percent and Advantest losing 1.9 percent.

Australian markets ended a choppy session slightly higher on optimism about the U.S. economic recovery. The benchmark S&P/ASX 200 Index inched up 11.80 points, or 0.2 percent, to 6,790.60, while the broader All Ordinaries Index ended up 8.70 points, or 0.1 percent, at 7,022.60.

Energy stocks ended little changed as oil prices fell more than 1 percent in Asian trading after surging the most since November on fears of supply disruptions and signs of stronger gasoline demand in the U.S.

Healthcare stocks rose as the Aussie dollar weakened. CSL gained 1.4 percent and Sonic Healthcare advanced 1.6 percent.

Tech stocks underperformed, with Afterpay and Appen losing 2-3 percent. Miners ended on a mixed note. Resolute Mining plummeted more than 26 percent as shares emerged from a trading halt.

Seoul stocks ended modestly higher to snap a four-day losing streak as investors bought battered shares that could benefit from the economic rebound. The benchmark Kospi rose 11.98 points, or 0.4 percent, to close at 3,008.33.

Markets had a lackluster start earlier in the day after North Korea launched two projectiles into the East Sea.

Europe

European stocks have fallen on Thursday as lingering worries over potential U.S. tax hikes and extended lockdowns in Europe dented hopes for a global economic recovery.

A clampdown by regulators on tech companies in China and the threat of Chinese stocks being kicked off U.S. exchanges have also kept underlying sentiment cautious.

While the French CAC 40 Index has slumped by 0.9 percent, the German DAX Index and the U.K.’s FTSE 100 Index are down by 1.1 percent and 1.2 percent, respectively.

Miners Anglo American, Antofagasta and Glencore have slid as a third wave of coronavirus infections across Europe threatened to derail the fragile economic recovery.

Cineworld has also plunged after the world's second-largest cinema operator reported a $3 billion loss for 2020 and said it plans to ask shareholders to approve an increae in its debt ceiling.

H&M shares have also fallen in the wake of Beijing's propaganda offensive against the Swedish clothing retailer over previously aired concerns on Xinjiang.

German sportswear firm Adidas has also slumped amid the backlash in China against global brands for refusing to buy Xinjiang cotton.

Internet services company United Internet has also moved to the downside after its EBITDA for the fourth-quarter dropped to 152.5 million euros from 321.7 million euros in the previous year.

Siemens Healthineers AG has also declined. The healthcare firm has decided to increase its share capital through a partial utilization of its authorized capital under the exclusion of shareholders' subscription rights to 1.13 billion euros from 1.08 billion euros.

French utility Suez SA has also dipped, while energy management firm Schneider Electric has edged up slightly. The companies have announced an agreement to form joint venture to develop and market a joint offering of innovative digital solutions for the management of the water cycle.

Meanwhile, Compass Group shares have risen. The foodservice company said it expects operating margin to increase by around 130 bps from 2.7 percent in the first quarter to about 4.0 percent in the second quarter.

In economic news, German consumer sentiment is set to improve in April after the easing of the hard lockdown and falling infection rates at the time of the survey, data from market research group GfK revealed.

The forward-looking consumer sentiment index rose to -6.2 in April from a revised -12.7 in March. The reading was forecast to climb to -11.9.

France's manufacturing business confidence index came in at 98 in March, unchanged from February, survey data from Insee showed. The score is the highest since March last year, when it was at the same level.

Earlier in the day, the Swiss central bank maintained its expansionary monetary policy and raised its inflation projections.

U.S. Economic Reports

After reporting an unexpected increase in first-time claims for U.S. unemployment benefits in the previous week, the Labor Department released a report on Thursday showing initial jobless claims pulled back by much more than expected in the week ended March 20th.

The report said initial jobless claims slid to 684,000, a decrease of 97,000 from the previous week’s revised level of 781,000.

Economists had expected jobless claims to decline to 730,000 from the 770,000 originally reported for the previous week.

With the much bigger than expected decrease, jobless claims dropped to their lowest level since hitting 282,000 in the week ended March 14, 2020.

A separate report from the Commerce Department showed economic activity in the U.S. unexpectedly grew faster than previously estimated in the fourth quarter of 2020.

The report showed real gross domestic product surged up by 4.3 percent in the fourth quarter compared to the previously reported 4.1 percent jump. Economists had expected the pace of GDP growth to be unrevised.

The Commerce Department said the stronger than previously estimated growth primarily reflected an upward revision to private inventory investment that was partly offset by a downward revision to non-residential fixed investment.

At 10:10 am ET, Federal Reserve Vice Chair Richard Clarida is scheduled to participate in a virtual discussion on the U.S. economic outlook and monetary policy at the Institute of International Finance Washington Policy Summit.

New York Federal Reserve President John Williams is due to participate in a virtual roundtable discussion with Syracuse community development leaders at 10:30 am ET.

At 12 pm ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to speak on “Measuring the Economy in a Time of COVID” via webinar to the Economic Club of New York.

The Treasury Department is due to announce the results of this month’s auction of $62 billion worth of seven-year notes at 1 pm ET.

Also at 1 pm ET, Chicago Federal Reserve President Charles Evans is scheduled to participate in a moderated question-and-answer session on current economic conditions and monetary policy before a virtual Women in Housing and Finance Public Policy Luncheon.

San Francisco Federal Reserve President Mary Daly is due to speak on monetary and fiscal policy in the COVID era before a virtual CSU Fullerton Center for Economic Education Fireside Chat at 7 pm ET.

Stocks In Focus

Shares of Rite Aid (RAD) are moving sharply lower in pre-market trading after the drugstore chain said its fiscal fourth quarter results were significantly impacted by a soft cough, cold and flu season and forecast a full-year net loss.

Athletic footwear and apparel giant Nike (NKE) may also come under pressure as the company faces social media backlash in China after expressing concerns about reports of forced labor in Xinjiang.

On the other hand, shares of RH (RH) are likely to see initial strength after the Restoration Hardware parent reported fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Multi-brand restaurant operator Darden Restaurants (DRI) may also move to the upside after reporting better than expected fiscal third quarter results and announcing a new $500 million share repurchase program.
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