Market Analysis

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to see initial strength as trading resumes following the long holiday weekend.

Traders may look to pick up stocks at reduced levels following recent weakness, which saw the Dow end last Friday’s trading at its lowest closing level in well over a year.

Bargain hunting has also contributed to strength in the overseas markets and may carry over onto Wall Street early in the session.

Buying interest may remain somewhat subdued, however, as concerns about the economic outlook amid aggressive monetary policy tightening by global central banks continue to hang over the markets.

Following the sell-off seen during trading on Thursday, stocks saw substantial volatility over the course of the session on Friday. The major averages showed wild swings as the day progressed before finishing the session mixed.

While the tech-heavy Nasdaq jumped 152.25 points or 1.4 percent to 10,798.35 and the S&P 500 crept up 8.07 points or 0.2 percent to 3,674.84, the narrower Dow edged down 38.29 points or 0.1 percent to 29,888.78, closing at its lowest level since December of 2020.

Despite the mixed performance on the day, the major averages all moved sharply lower for the week. The Dow and the Nasdaq both plunged by 4.8 percent, while the S&P 500 tumbled by 5.8 percent for its worst week since 2020.

The volatility on Wall Street came amid a "quadruple witching" day, which refers to the simultaneous expiration of stock index futures, single-stock futures, stock options and stock index options.

Traders may also have been expressing some uncertainty about the near-term outlook for the markets following Thursday's sell-off, which reflected concerns about the economic impact of aggressive monetary policy tightening.

In U.S. economic news, the Federal Reserve released a report showing industrial production increased by less than expected in the month of May,

The Fed said industrial production crept up by 0.2 percent in May after surging by an upwardly revised 1.4 percent in April.

Economists had expected production to rise by 0.4 percent compared to the 1.1 percent jump originally reported for the previous month.

"The muted 0.2% m/m rise in industrial production in May adds to the evidence that the economy is slowing," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "But there is still little in activity data to suggest a recession is on the horizon, or to dissuade the Fed from pressing ahead with more aggressive policy tightening."

A separate report from the Conference Board showed a continued decrease by its reading on leading U.S. economic indicators in the month of May.

The report showed the Conference Board's leading economic index fell by 0.4 percent in May, matching the revised drop seen in April as well as economist estimates.

"The US LEI fell again in May, fueled by tumbling stock prices, a slowdown in housing construction, and gloomier consumer expectations," said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board.

He added, "The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term—and tighter monetary policy is poised to dampen economic growth even further."

Airline stocks showed a substantial move back to the upside on the day, with the NYSE Arca Airline Index soaring by 5.2 percent after ending Thursday's trading at its lowest closing level in almost two years.

Significant strength was also visible among biotechnology stocks, as reflected by the 3.5 percent spike by the NYSE Arca Biotechnology Index.

Networking and computer hardware stocks also turned in strong performances, contributing to the jump by the tech-heavy Nasdaq.

On the other hand, energy stocks moved sharply lower along with the price of crude oil. Crude for July delivery plummeted $8.03 to $109.56 a barrel amid concerns about the outlook for demand.

Reflecting the weakness in the energy sector, the NYSE Arca Oil Index plunged by 5.8 percent, the Philadelphia Oil Service Index dove by 4.6 percent and the NYSE Arca Natural Gas Index tumbled by 4.2 percent.

Commodity, Currency Markets

Crude oil futures are jumping $2.38 to $110.37 a barrel after plummeting $$7.26 to $107.99 a barrel last Friday. Meanwhile, after falling $9.30 to $1,840.60 an ounce in the previous session, gold futures are slipping $2.60 to $1,838 an ounce.

On the currency front, the U.S. dollar is trading at 136.04 yen versus the 135.07 yen it fetched on Monday. Against the euro, the dollar is trading at $1.0553 compared to yesterday’s $1.0511.

Asia

Asian stocks posted strong gains on Tuesday as bargain hunting emerged at lower levels after a recent sell-off. Trading was quiet in the absence of any cues from Wall Street.

Chinese shares fluctuated before ending slightly lower, with the benchmark Shanghai Composite closing down 0.3 percent at 3,306.72. Hong Kong's Hang Seng Index jumped 1.9 percent to 21,559.59, with tech shares leading the surge.

Japanese shares bounced back from a three-month low as investors scooped up beaten-down cyclical and tech shares. The Nikkei 225 Index rallied 1.8 percent to 26,246.31, while the broader Topix closed 2.1 percent higher at 1,856.20.

Advantest, Tokyo Electron, ANA Holdings, Japan Airlines and SoftBank Group climbed 2-3 percent. Automakers Honda, Toyota and Nissan rose 1-3 percent as the yen remained confined in a range after hitting its lowest level in more than two decades.

Australian markets rose sharply after Reserve Bank of Australia Governor Philip Lowe said inflation is rising, but he doesn't see a recession on the horizon. He also indicated that interest rates are likely to rise by 50 basis points at most in July.

The benchmark S&P/ASX 200 Index gained 1.4 percent to close at 6,523.80, while the broader All Ordinaries Index ended 1.4 percent higher at 6,700.80.

The big four banks rose between 2.4 percent and 3.8 percent, while energy stocks such as Woodside Petroleum and Origin Energy jumped 3-4 percent.

Global miner BHP advanced 1.7 percent after the Queensland government introduced new upper tiers to its coal royalty regime.

Across the Tasman Sea, New Zealand's benchmark S&P/NZX 50 Index rose 1.1 percent to 10,701.59.

Seoul stocks rebounded from a 19-month low hit in the previous session. The Kospi ended a choppy session 0.8 percent higher at 2,408.93, led by automakers and internet portal giants. Hyundai Motor, Kia Corp and Naver surged 1-2 percent.

Earlier in the day, Bank of Korea Governor Rhee Chang-yong voiced concerns over risks for a further build-up in inflation and hinted at larger-than-usual interest-rate hikes.

Europe

European stocks have moved sharply higher on Tuesday, as investors continue to pick up stocks at reduced levels following recent weakness.

While the French CAC 40 Index has jumped by 1 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.

Dublin-headquartered building materials group Kingspan has rallied after saying it expects to report record trading profits for the first half of 2022.

Italian defense company Leonardo has also soared after it agreed to merge its U.S. unit with Israel's RADA Electronic Industries.

Packaging group DS Smith has also moved to the upside after it reported strong growth in profits and sales for the year to the end of April.

French industrial gas company Air Liquide has also jumped. The company has signed its largest power purchase deal with Swedish utility Vattenfall.

Airbus shares has also risen after British airline EasyJet said it has exercised options to purchase 56 fuel-efficient single-aisle A320neo aircraft from the European aerospace giant.

Mercedes-Benz Group AG has also advanced after it appointed Paul Gao to the newly created position of Chief Strategy Officer, effective July 1, 2022.

On the other hand, online supermarket Ocado has slumped after raising £575 million in a share placing to fund its expansion.

Nordex AG, a wind turbine maker, has also plunged after its first-quarter consolidated net loss stood at 150.5 million euros, wider than prior year's loss of 54.7 million euros.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales in the month of May at 10 am ET. Existing home sales are expected to edge down by 0.2 percent in May after tumbling by 2.4 percent in April.

At 11 am ET, Richmond Federal Reserve President Thomas Barkin is due to participate in a virtual fireside-chat-style conversation for the National Association for Business Economics Policy and Inflation Webinar series.

Barkin is also scheduled to speak before the Risk Management Association at 3:30 pm ET.

Stocks In Focus

Shares of Valneva (VALN) are skyrocketing in pre-market trading after drug giant Pfizer (PFE) agreed to acquire an 8.1 percent stake in the French vaccine maker for $95 million.

Food company Kellogg (K) is also likely to see initial strength after announcing plans to separate into three independent companies by spinning off its U.S., Canadian, and Caribbean cereal and plant-based businesses.

Shares of Spirit Airlines (SAVE) are also soaring in pre-market trading after JetBlue (JBLU) increased its takeover offer for the discount airline to $33.50 per share.

Electric car maker Tesla (TSLA) may also move to the upside after CEO Elon Musk told Bloomberg the company’s salaried workforce would be cut by about 10 percent over the next three months.