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Beyond the Numbers

Futures Pointing To Roughly Flat Open On Wall Street
9/7/2021 8:34 AM

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 long holiday weekend.

Traders may be reluctant to make significant moves as they await further clues about the outlook for the Federal Reserve’s stimulus policy.

With traders showing some uncertainty about the repercussions of the Labor Department's monthly jobs, stocks turned in a lackluster performance during trading on Friday. Despite the choppy trading, the tech-heavy Nasdaq reached a new record closing high.

The major averages finished the day on opposite sides of the unchanged line. While the Nasdaq rose 32.34 points or 0.2 percent to 15,363.52, the Dow dipped 74.73 points or 0.2 percent to 35,369.09 and the S&P 500 edged down 1.52 points or less than a tenth of a percent to 4,535.43.

For the week, the Nasdaq jumped by 1.5 percent and the S&P 500 advance by 0.6 percent, although the Dow slipped by 0.2 percent.

The choppy trading on Wall Street came as traders digested the Labor Department's closely watched monthly employment report, which showed much weaker than expected job growth in the month of August.

The report suggests the delta variant of the coronavirus is weighing on the labor market, although the data could also lead the Federal Reserve to push back its plans to begin scaling back stimulus.

Fed officials have indicated inflation has reached their target but they need to see further improvement in the labor market before they begin tapering asset purchases and raising interest rates.

The Labor Department said non-farm payroll employment rose by 235,000 jobs in August after soaring by an upwardly revised 1.053 million jobs in July.

Economists had expected employment to jump by about 750,000 jobs compared to the spike of 943,000 jobs originally reported for the previous month.

Despite the much weaker than expected job growth, the unemployment rate fell to 5.2 percent in August from 5.4 percent in July, matching economist estimates.

"While the Delta variant is driving renewed virus fear, the labor market recovery seems unlikely to go into reverse," said Lydia Boussour, Lead US Economist at Oxford Economics. "Still, a slower pace of hiring amid a rapidly spreading Delta variant will warrant a patient tapering approach from the Fed."

She added, "We believe The FOMC will opt to wait until the November meeting to make a formal tapering announcement, and start reducing asset purchases in December or January, depending on employment progress and inflation developments this fall."

Meanwhile, a separate report released by the Institute for Supply Management showed U.S. service sector growth slowed from a record pace in the month of August.

The ISM said its services PMI fell to 61.7 in August after reaching an all-time high of 64.1 in July, although a reading above 50 still indicates growth in the sector. Economists had expected the index to drop to 61.5.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Oil service stocks showed a significant move to the downside, however, with the Philadelphia Oil Service Index falling by 1.6 percent. The weakness among oil service stocks came amid a pullback by the price of crude oil.

Airline stocks also saw notable weakness on the day, resulting in a 1.1 percent drop by the NYSE Arca Airline Index.

On the other hand, gold stocks moved sharply higher, driving the NYSE Arca Gold Bugs Index up by 2.6 percent to its best closing level in almost a month. The rally by gold stocks came amid a sharp increase by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are tumbling $1.33 to $67.96 barrel after falling $0.70 to $69.29 a barrel last Friday. Meanwhile, after jumping $22.20 to $1,833.70 an ounce in the previous session, gold futures are slumping $19 to $1,814.70 an ounce.

On the currency front, the U.S. dollar is trading at 110.04 yen versus the 109.86 yen it fetched on Monday. Against the euro, the dollar is trading at $1.1859 compared to yesterday’s $1.870.

Asia

Asian stocks ended broadly higher on Tuesday, aided by hopes that U.S. interest rates would stay low for longer. Trading volumes were thin in the absence of fresh cues from Wall Street, which was closed overnight for a holiday.

Chinese shares rallied after government data showed the country's exports grew more than expected in August. The benchmark Shanghai Composite Index jumped 54.73 points, or 1.5 percent, to 3,676.59, while Hong Kong's Hang Seng Index ended up 0.7 percent at 26,353.63.

Chinese exports advanced 25.6 percent year-on-year in August, bigger than the economists' forecast of 17.1 percent and July's 19.3 percent increase. Imports increased 33.1 percent annually after rising 28.1 percent in July. Economists had forecast an increase of 26.8 percent.

As a result, the trade balance showed a surplus of $58.34 billion, which was above the expected level of $51.05 billion.

Japanese shares rose on hopes the Liberal Democratic Party will compile additional economic stimulus to recover from the continued impact of the virus.

The Nikkei 225 Index climbed 256.25 points, or 0.9 percent, to 29,916.14, after having climbed above the psychological barrier of 30,000 points earlier in the day for the first time in five months. The broader Topix ended 1.1 percent higher at 2,063.38.

Heavyweight SoftBank Group soared almost 10 percent on news it is acquiring 4.5 percent stake of Deutsche Telekom AG in an equity share swap.

Australian markets ended little changed with a positive bias after the Reserve Bank of Australia left benchmark lending rate and the 3-year Australian Government bond yield target unchanged at 10 basis points, as widely expected.

Investors also digested data showing that the services sector in the country contracted in August. Weaker iron ore prices weighed on the mining sector, with Rio Tinto and Fortescue Metals Group losing 2-3 percent.

Energy stocks eked out modest gains as oil prices traded mixed in Asian trade amid bargain hunting following recent losses. Banks ended narrowly mixed while gold miners Evolution and Newcrest ended down over 1 percent.

Seoul stocks fell amid a lack of directional cues from Wall Street. The benchmark Kospi dropped 15.91 points, or half a percent, to 3,187.42.

Tech heavyweight Samsung Electronics declined 1.6 percent, SK Hynix dropped 1.4 percent and internet portal operator Naver lost 2.1 percent. On the positive side, chemical firm LG Chem rose over 1 percent.

Europe

European stocks have fallen on Tuesday as investors assess the global outlook against the backdrop of rising Delta coronavirus cases and signs of a slowdown in the economic recovery.

Market participants also looked ahead to Thursday's meeting of the European Central Bank, which may act to slow down its massive bond-buying program in light of recent stronger-than-expected inflation data.

Earlier today, the Reserve Bank of Australia pressed ahead with its decision to reduce bond purchases by A$1 billion a week this month but postponed its next review of the weekly pace from November to mid-February.

Swiss insurer Zurich Insurance Group has shown a notable move to the downside after unveiling new climate measures.

Recruitment firm Adecco Group is little changed after it announced the acquisition of QAPA, a provider of fully digital workforce solutions in France, for an initial consideration of 65 million euros.

Deutsche Telekom AG has edged up slightly after it struck a share-swap deal with Softbank Group to increase its stake in U.S. unit T-Mobile and sold its Dutch unit in a major restructuring.

Allianz has dropped on reports that German regulator BaFin has started its own investigation into the insurance giant's Structured Alpha Funds.

Luxury stocks such as LVMH and Kering have risen in Paris on hopes for more economic stimulus from China and Japan, as well as growing views the U.S. Federal Reserve will delay beginning asset tapering.

British paper and packaging leader DS Smith has rallied after an upbeat trading update.

TP ICAP Group shares have slumped. The world's largest inter-dealer broker reported a lower half-year profit.

Upmarket fashion retailer Ted Baker has climbed after sales surged during the second quarter.

In economic news, German industrial production grew 1 percent month-on-month in July, offsetting a revised 1 percent fall in June, Destatis reported. Economists had forecast a monthly growth of 0.9 percent.

On a yearly basis, industrial output advanced 5.7 percent in July, faster than the 5.4 percent increase posted in June.

Economic expectations declined in Germany for the fourth consecutive month, the ZEW economic research institute said with the corresponding index falling to 26.5 in September from 40.4 in August.

Eurozone GDP grew 2.2 percent sequentially in the second quarter, revised up from prior estimate of 2.0 percent.

U.K. house price index climbed 7.1 percent year-on-year in August following a 7.6 percent rise in the previous month, survey data from the Lloyds Bank subsidiary Halifax showed.

The annual rate has slowed every month since hitting a peak of 9.6 percent in May. The latest increase was the slowest in five months.

U.S. Economic Reports

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $58 billion worth of three-year notes.
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