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Beyond the Numbers

Optimism About Debt Limit Deal May Lead To Strength On Wall Street
10/7/2021 8:56 AM

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to see further upside following the rebound seen over the course of the previous session.

The markets may continue to react positively to news of Senate Minority Leader Mitch McConnell’s, R-Ken., offer to allow a temporary extension of the debt limit.

Senate Majority Leader Chuck Schumer, D-N.Y., said early this morning that an agreement had not yet been reached but said the two sides were “making good progress.”

“We’re not there yet, but I hope we can come to an agreement tomorrow morning,” Schumer said from the Senate floor.

The ongoing negotiations come as lawmakers are facing an October 18th deadline to raise the debt limit and avoid a potential default.

Early buying interest may also be generated in reaction to a report from the Labor Department showing a bigger than expected pullback in first-time claims for U.S. unemployment benefits in the week ended October 2nd.

The release of the weekly jobless claims report comes a day ahead of the release of the Labor Department’s more closely watched monthly jobs report on Friday.

After coming under pressure early in the session, stocks showed a significant turnaround over the course of the trading day on Wednesday. The major averages all climbed well off their lows of the session and into positive territory.

The Dow plunged by more than 450 points in early trading but ended the day up 102.32 points or 0.3 percent at 34,416.99. The Nasdaq also climbed 68.08 points or 0.5 percent to 14,501.91, while the S&P 500 rose 17.83 points or 0.4 percent to 4,363.55.

The turnaround on Wall Street came following news of McConnell’s offer to allow a temporary extension of the debt limit.

In a statement, McConnell said Republicans would allow Democrats to "use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December."

"This will moot Democrats' excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation," McConnell said.

He added, "Alternatively, if Democrats abandon their efforts to ram through another historically reckless taxing and spending spree that will hurt families and help China, a more traditional bipartisan governing conversation could be possible."

Worries about the debt limit weighed on the markets in early trading along with lingering concerns about inflation and the Federal Reserve scaling back stimulus.

On the U.S. economic front, payroll processor ADP released a report showing stronger than expected private sector job growth in the month of September.

ADP said private sector employment jumped by 568,000 jobs in September after rising by a downwardly revised 340,000 jobs in August.

Economists had expected private sector employment to climb by 428,000 jobs compared to the addition of 374,000 jobs originally reported for the previous month.

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to increase by 488,000 jobs in September after rising by 235,000 jobs in August. The unemployment rate is expected to dip to 5.1 percent from 5.2 percent.

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.3 percent. The rally by gold stocks came amid a modest increase by the price of the precious metal.

Considerable strength also emerged among utilities stocks, as reflected by the 1.4 percent advance by the Dow Jones Utility Average.

On the other hand, significant weakness remained visible among oil service stocks, resulting in a 3.5 percent nosedive by the Philadelphia Oil Service Index.

Oil service stocks moved lower along with the price of crude oil, which fell sharply after a report showed an unexpected weekly increase in U.S. crude inventories.

Natural gas, steel and airline stocks also saw notable weakness on the day but climbed well off their worst levels of the session.

Commodity, Currency Markets

Crude oil futures are falling $0.38 to $77.05 a barrel after tumbling $1.50 to $77.43 a barrel on Wednesday. Meanwhile, after inching up $0.90 to $1,761.80 an ounce in the previous session, gold futures are sliding $6.50 to $1,755.30 an ounce.

On the currency front, the U.S. dollar is trading at 111.42 yen versus the 111.41 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1557 compared to yesterday’s $1.1556.

Asia

Asian stocks rallied on Thursday after news emerged that U.S. Congressional Democrats and Republicans could reach a deal to raise the debt limit by a certain level that could tide the Treasury over until December.

Chinese markets remained closed for Golden Week holidays. Hong Kong's Hang Seng Index soared 735.24 points, or 3.1 percent, to 24,701.73.

Shares of Chinese Estates Holdings - a former major shareholder of embattled developer China Evergrande - spiked almost 32 percent after it announced an offer to take the company private for 1.91 billion Hong Kong dollars ($245 million).

Japanese shares rose as investors bought back battered shares amid signs of progress in U.S. political negotiations over the debt ceiling. The Nikkei 225 Index ended up 149.34 points, or 0.5 percent, at 27,678.21 after eight consecutive sessions of losses.

The broader Topix ended 0.1 percent lower at 1,939.62, extending losses for the ninth consecutive session and marking its longest losing streak since 2012.

Shipping and tech stocks led the rebound, while supermarket chain operator Aeon lost 6.1 percent after posting disappointing earnings.

Australian markets rose notably as banks rebounded and technology stocks followed their U.S. peers higher. The benchmark S&P/ASX 200 Index climbed 50.20 points, or 0.7 percent, to 7,256.70, while the broader All Ordinaries Index ended up 55 points, or 0.7 percent, at 7,551.20.

Buy-now-pay-later giant Afterpay rallied 3.1 percent, while banks ANZ, NAB and Westpac rose between 1 percent and 1.6 percent. Energy stocks ended lower as oil prices dropped for a second straight session.

Seoul stocks posted strong gains amid easing concerns over the U.S. debt ceiling. The benchmark Kospi jumped 51.15 points, or 1.8 percent, to 2,959.46, with banks and automakers leading the surge. Hyundai Motor shot up 3.6 percent, its smaller affiliate Kia surged 6.8 percent and top bank cap Kakao Bank added 3.5 percent.

South Korea had a current account surplus of $7.51 billion in August, the Bank of Korea said earlier today, down from $8.21 billion in July.

Europe

European stocks have advanced on Thursday as investor concerns about the U.S. debt ceiling eased and U.S. Treasury yields retreated further from the highest level since June ahead of U.S. non-farm payrolls data due on Friday.

The U.S. jobs report is seen as crucial in influencing the timing of the start of winding down the Federal Reserve's asset purchase program.

While the French CAC 40 Index has surged up by 1.6 percent, the German DAX Index is up by 1.4 percent and the U.K.’s FTSE 100 Index is up by 1.2 percent.

Automakers are turning in some of the best performances, with BMW, Daimler, Volkswagen and Renault all posting strong gains.

Sika AG shares have also moved to the upside. The Swiss specialty chemicals company confirmed its fiscal 2021 targets, expecting sales growth in local currencies of 13 percent-17 percent as well as an over-proportional EBIT increase.

Spanish utility Iberdrola has also surged after reports that the company is in talks with the Spanish government over energy pricing.

Volution Group shares have also advanced after the British ventilation-equipment maker said revenue and earnings increased in fiscal 2021.

Workspace Group shares have also jumped. The real estate investment trust company said that customer demand improved during the second quarter of fiscal 2022.

Meanwhile, TeamViewer shares have slumped, extending losses from the previous session after the software company reported quarterly results below its own expectations and cut its full-year guidance.

In economic news, German industrial output fell 4 percent month-on-month in August, reversing a 1.3 percent increase in July, Destatis reported. Economists had forecast a monthly drop of 0.4 percent.

U.K. house prices grew 1.7 percent month-on-month in September, following an increase of 0.8 percent in August as stamp duty holiday draws to a close, survey data released by the Lloyds Bank subsidiary Halifax showed. This was the third consecutive rise in prices.

U.S. Economic Reports

...

At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of three-year and ten-year notes and thirty-year bonds.

Cleveland Federal Reserve President Loretta Mester is due to participate in policy panel before the “Inflation: Drivers and Dynamics Conference 2021” hosted by the European Central Bank and the Cleveland Fed’s Center for Inflation Research.

At 3 pm ET, the Federal Reserve is scheduled to release its report on consumer credit in the month of August. Consumer credit is expected to increase by $17.5 billion.

Stocks In Focus

Shares of Meredith Corp. (MDP) are seeing significant pre-market strength after the media company agreed to be acquired by IAC’s (IAC) Dotdash digital publishing unit for $42.18 per share in cash.

Aerospace company Rocket Lab USA (RKLB) is also moving sharply higher in pre-market trading after announcing that it has been selected to launch NASA’s Advanced Composite Solar Sail System on the Electron launch vehicle.

Shares of Aspen Technology (AZPN) are also likely to see an initial jump after a report from Bloomberg said Emerson Electric (EMR) is in talks with the company about a combination to create an industrial software giant.

On the other hand, shares of Citrix Systems (CTSX) may move to the downside after the cloud computing company announced David J. Henshall has stepped down as President and CEO.
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