Market Analysis

Beyond the Numbers

Bargain Hunting May Contribute To Initial Strength On Wall Street
10/5/2021 8:45 AM

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to move back to the upside after ending the previous session sharply lower.

The markets may benefit from bargain hunting, as traders look to pick up stocks at reduced levels following the steep drop seen on Monday.

The tech-heavy Nasdaq ended yesterday’s session at its lowest closing level in over three months, while the S&P 500 dropped to a more than two-month closing low.

Concerns about inflation and the Federal Reserve tapering its asset purchases continued to weigh on the markets along with an increase in treasury yields.

On the U.S. economic front, a report released by the Commerce Department showed the U.S. trade deficit widened by much more than expected in the month of August.

U.S. stocks ended sharply lower on Monday after languishing in negative territory throughout much the day's session.

High commodity prices, a surge in Treasury yields, worries about growth and rising inflation rendered the mood bearish.

Traders were also worried that regulatory crackdowns and a collapse at Evergrande could hurt an already fragile Chinese economy and weigh on global growth.

Market participants were closely watching beleaguered developer China Evergrande, whose shares were suspended in Hong Kong ahead of an announcement about a major transaction.

Among the major averages, the Dow, which plunged to 33,821.58 a little before noon, ended with a loss of 323.54 points or 0.9 percent at 34,002.92. The S&P 500 settled with a loss of 56.58 points or 1.3 percent at 4,300.46, while the tech-heavy Nasdaq closed with a loss of 311.21 points or 2.1 percent at 14,255.48, more than 70 points off the session's low of 14,181.69.

A report released by the Commerce Department showed new orders for U.S. manufactured goods jumped by more than expected in the month of August, with factory orders surging up by 1.2 percent in the month, after climbing by an upwardly revised 0.7 percent in July.

Economists had expected factory orders to increase by 0.9 percent compared to the 0.4 percent rise originally reported for the previous month.

The report showed orders for durable goods shot up by 1.8 percent, while orders for non-durable goods rose by 0.6 percent.

Meanwhile, the Commerce Department said shipments of manufactured goods inched up by 0.1 percent in August after jumping by 1.5 percent in July.

Facebook (FB) shares tumbled nearly 5 percent after a whistle-blower alleged that the company prioritizes profit over the wellbeing of its users. Shares of two other social media firms, Twitter (TWTR) and Snap (SNAP) also fell sharply.

Meanwhile, Merck (MRK) shares moved up more than 2 percent, lifted by an announcement from the company that its coronavirus pill reduces the risk of death and hospitalization.

Energy stocks found support as oil prices rose sharply after the Organization of the Petroleum Exporting Countries, Russia and their allies decided to stick to their current crude output plan of hiking production by 400,000 barrels per day in November.

Commodity, Currency Markets

Crude oil futures are jumping $0.89 to $78.51 a barrel after spiking $1.74 to $77.62 a barrel on Monday. Meanwhile, after climbing $9.20 to $1,767.60 an ounce in the previous session, gold futures are falling $6.50 to $1,761.10 an ounce.

On the currency front, the U.S. dollar is trading at 111.22 yen compared to the 110.93 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1599 compared to yesterday’s $1.1621.


Asian stocks ended mostly lower on Tuesday as investors fretted about rising Treasury yields, the debt ceiling tussle in the United States and debt crises involving Chinese property developers, with Fantasia joining Evergrande in missing a coupon payment.

Markets in China remain shut until Friday for the Golden Week holidays. Hong Kong's Hang Seng index rose 67.78 points, or 0.3 percent, to 24,104.15.

Japanese shares hit a one-month low as surging oil prices stoked further worries about inflation and monetary tightening globally. New Japanese Prime Minister Fumio Kishida's proposal to raise taxes on capital gains also dented sentiment.

In economic news, Japan's services sector activity shrank for a 20th straight month in September, a survey showed, though the pace of decline eased from the sharp contraction seen in August.

The Nikkei 225 Index tumbled 622.77 points, or 2.2 percent, to 27,822.12, while the broader Topix closed 1.3 percent lower at 1,947.75.

Fast Retailing plummeted 6.9 percent after the operator of the Uniqlo casual clothing chain reported a 19 percent drop in its existing store sales in September.

Tech shares fell across the board, with Screen Holdings, Advantest and Tokyo Electron losing 1-2 percent. SoftBank Group gave up 3.8 percent on concerns about falling values of its investment in tech firms, in particular Alibaba.

Oil companies benefited from rising crude oil prices, with Idemitsu Kosan climbing 3.7 percent and Inpex rallying 5.6 percent. Insurer Dai-ichi Life Holdings rose 1.7 percent and T&D Holdings added 1.6 percent as bond yields surged to an 18-month high.

Australian markets ended modestly lower as the Reserve bank kept interest rates on hold, as widely expected, and reiterated that it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range.

The benchmark S&P/ASX 200 Index ended down 30.10 points, or 0.4 percent, at 7,248.40 after having fallen more than 1 percent earlier in the day in response to weak services sector and retail sales data. The broader All Ordinaries Index slipped 40.30 points, or 0.5 percent, to 7,536.50.

Technology stocks led losses, with buy-now-pay-later giant Afterpay plunging 5 percent to close at its lowest level in over two months. Artificial intelligence firm Appen also settled 5 percent lower at a three-and-a-half-year low.

Seoul stocks fell sharply to hit a seven-month low as traders returned to their desks after an extended holiday tied to the Oct. 3 National Foundation Day. The benchmark Kospi slumped 57.01 points, or 1.9 percent, to close at 2,962.17, marking the lowest finish since March 10.

Samsung Electronics, SK Hynix, Naver and LG Chem lost 1-3 percent. Pharmaceutical giant Samsung Biologics plummeted 7.2 percent.


European shares are trading higher on Tuesday after a survey showed business growth across Europe remained strong last month despite shortages of inputs.

The final composite output index fell to 56.2 in September from 59.0 in August. The flash reading was 56.1.

"Although for now the overall rate of expansion remains relatively solid by historical standards, the economy enters the final quarter of the year on a slowing growth trajectory," Chris Williamson, chief business economist at IHS Markit said.

Elsewhere, the final reading of the IHS Markit/CIPS composite Purchasing Managers' Index (PMI), which combines Britain's services and manufacturing sectors, edged up to 54.9 from 54.8 in August. That was also higher than the preliminary estimate of 54.1.

French industrial production growth doubled in August, largely driven by a rebound in the manufacture of machinery and equipment and mining, separate data showed.

Industrial production grew 1 percent month-on-month, faster than the 0.5 percent increase in July. Economists had forecast the rate to slow to 0.3 percent.

While the French CAC 40 Index has advanced by 0.8 percent, the U.K.’s FTSE 100 Index is up by 0.6 percent and the German DAX Index is up by 0.4 percent.

Higher yields have lifted banks, with BNP Paribas, Societe Generale, Credit Agricole, Lloyds Bank and Standard Chartered Bank posting notable gains.

Reinsurance giant Swiss Re has edged down slightly. The company announced its estimated preliminary claims burden from Hurricane Ida of approximately $750 million.

British Baker and fast food chain Greggs has moved sharply higher after raising its annual profit forecast.

Turnaround specialist Melrose has dropped after it warned of chip shortages and supply chain problems.

Infineon Technologies has rallied after confirming its 2021 revenue and segment result margin guidance. For fiscal 2022, the company expects strong revenue growth and a further margin uplift.

U.S. Economic Reports

A report released by the Commerce Department on Tuesday showed the U.S. trade deficit widened by much more than expected in the month of August.

The Commerce Department said the trade deficit widened to $73.3 billion from a revised $70.3 billion in July.

Economists had expected the trade deficit to increase to $70.5 billion from the $70.1 billion originally reported for the previous month.

The wider trade deficit came as the value of imports jumped by 1.4 percent to $287.0 billion, while the value of exports rose by 0.5 percent to $213.7 billion.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of September.

The ISM’s services PMI is expected to slip to 60.0 in September from 61.7 in August, although a reading above 50 would still indicate growth in the sector.

Richmond Federal Reserve President Thomas Barkin is due to participate in a "Fed Listens" event with local community leaders at 10:30 am ET.

At 1:15 pm ET, Federal Reserve Vice Chair for Supervision Randal Quarles is scheduled to speak on “LIBOR Transition” before the Structured Finance Association Conference: SFVegas 2021.

Stocks In Focus

Shares of Lordstown Motors (RIDE) are moving sharply lower in pre-market trading after Morgan Stanley downgraded its rating on the electric truck maker to Underweight from Equal-Weight.

Supermarket operator Albertsons (ACI) may also move to the downside after BMO Capital lowered its rating on the company’s stock to Underperform from Market Perform.

On the other hand, shares of PepsiCo (PEP) may move to the upside after the snack and beverage giant reported better than expected fiscal third quarter results and raised its full-year guidance.
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