Market Analysis

The major U.S. index futures are currently pointing to a sharply lower open on Wednesday, with stocks likely to give back ground following the rally seen in the previous session.

Lingering concerns about inflation, interest rates and a possible recession may inspire traders to cash in on yesterday’s strong gains.

In a research note, Citigroup put the odds of a global recession at 50 percent, citing signs of consumers pulling back on spending.

“The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” said Citigroup.

Traders are also likely to keep a close eye on remarks by Federal Reserve Chair Jerome Powell, who is due to testify before the Senate Banking Committee this morning.

Powell’s testimony comes after the Fed raised interest rates by 75 basis points last week and indicated further rate hikes are likely in the coming months.

Ahead of Powell’s remarks, CME Group’s FedWatch tool is currently pointing to 90.9 percent chance of another 75 basis point rate hike next month.

With traders returning to their desks following the long holiday weekend, stocks moved sharply higher during trading on Tuesday. The major averages all showed strong moves to the upside after ending last Friday's volatile session mixed.

The major averages pulled back off their best levels going into the close but still posted substantial gains. The Dow jumped 641.47 points or 2.2 percent to 30,530.25, the Nasdaq surged 270.95 points or 2.5 percent to 11,069.30 and the S&P 500 spiked 89.95 points or 2.5 percent to 3,764.79.

The rally on Wall Street came as traders picked up stocks at relatively reduced levels following recent weakness in the markets.

While the Nasdaq and S&P 500 regained some ground last Friday, the Dow ended the session at its lowest closing level in well over a year.

Bargain hunting also contributed to strength in the overseas markets that carried over onto Wall Street early in the session.

Among individual stocks, shares of Valneva (VALN) skyrocketed after drug giant Pfizer (PFE) agreed to acquire an 8.1 percent stake in the French vaccine maker for $95 million.

Shares of Spirit Airlines (SAVE) also soared after JetBlue (JBLU) increased its takeover offer for the discount airline to $33.50 per share.

Electric car maker Tesla (TSLA) also showed a strong 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.

Meanwhile, traders largely shrugged off a report from the National Association of Realtors showing another steep drop in U.S. existing home sales in the month of May.

NAR said existing home sales plunged by 3.4 percent to an annual rate of 5.41 million in May after slumping by 2.6 percent to a revised rate of 5.60 million in April.

Economists had expected existing home sales to tumble by 3.7 percent to a rate of 5.40 million from the 5.61 million originally reported for the previous month.

Energy stocks turned in some of the best performances on the day, benefiting from a rebound by the price of crude oil.

Reflecting the strength in the energy sector, the NYSE Arca Oil Index soared by 5 percent, the Philadelphia Oil Service Index surged by 4.8 percent, and the NYSE Arca Natural Gas Index shot up by 3.5 percent.

Telecom stocks also saw substantial strength, resulting in a 3.2 percent jump by the NYSE Arca North American Telecom Index.

Significant strength was also visible among semiconductor stocks, as reflected by the 2.8 percent surge by the Philadelphia Semiconductor Index. The index continued to regain ground after hitting its lowest intraday level in over a year last Friday.

Healthcare, pharmaceutical, financial and chemical stocks also showed notable moves to the upside amid broad based buying interest.

Commodity, Currency Markets

Crude oil futures are plunging $6.05 to $103.47 a barrel after jumping $1.53 to $109.52 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,842.90, up $4.10 compared to the previous session’s close of $1,838.80. On Tuesday, gold slipped $1.80.

On the currency front, the U.S. dollar is trading at 135.89 yen compared to the 136.57 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0517 compared to yesterday’s $1.0533.

Asia

Asian stocks fell broadly on Wednesday despite a jump in U.S. equities overnight. Inflation and interest rate concerns took center stage ahead of congressional testimony by Federal Reserve Chair Jerome Powell.

Investors looked for further clues about whether there would be another 75-basis-point rate hike at the Fed's next meeting in July.

Chinese shares fell sharply, with healthcare stocks succumbing to selling pressure after reports emerged that Beijing is mulling a ban on sales of medicines on third-party e-commerce platforms.

The benchmark Shanghai Composite Index slumped 1.2 percent to 3,267.20, while Hong Kong's Hang Seng Index plunged 2.6 percent to close at 21,008.34.

Japanese shares ended modestly lower and the yen hit a fresh 24-year low against the dollar after minutes from the Bank of Japan's April policy meeting showed many board members stressed the need to maintain the central bank's massive stimulus program to support a still-fragile economy.

Finance Minister Shunichi Suzuki said on Tuesday he was concerned about the rapid yen weakening and would respond appropriately if necessary.

The Nikkei 225 Index fell 0.4 percent to 26,149.55 on recession worries, while the broader Topix ended 0.2 percent lower at 1,852.65. Tech stocks led the losses, with Tokyo Electron tumbling 3.9 percent. Automakers saw broad-based gains, with Mitsubishi Motors climbing 7.1 percent.

SBI Holdings rose 2.8 percent on reports that Sumitomo Mitsui Financial Group is in final talks to buy a 10 percent stake in the financial conglomerate.

Seoul stocks plummeted deep into the red and the Korean won hit a 13-year low amid Fed rate hike fears. The Kospi tumbled 2.7 percent to 2,342.81, dragged down by tech shares. Samsung Electronics fell 1.5 percent to a yearly low of 57,600 won and SK Hynix lost 3.2 percent.

Australian markets finished slightly lower, weighed down by technology and consumer discretionary stocks. Buy now pay later firm Zip Co., which is currently facing scrutiny in the U.K., plunged 11.4 percent.

The benchmark S&P/ASX 200 Index slipped 0.2 percent to 6,508.50, while the broader All Ordinaries Index closed 0.3 percent lower at 6,682.30.

Europe

European stocks have fallen sharply on Wednesday as inflation and interest rate worries return to haunt investors.

“With inflation rising sharply, there has been good reason to expedite the normalization of monetary policy,” ECB Governing Council member Olli Rehn said on Tuesday.

He added, “The impacts of Russia's brutal war are being felt around the world, and people are having to pay higher prices for energy and food.”

Surging U.K. inflation also revived fears about aggressive monetary tightening and slowing growth.

U.K. consumer price inflation rose further in May to the fastest pace in 40 years on rising energy and food prices, deepening the cost of living crisis.

U.K. consumer price inflation rose to 9.1 percent in May, in line with expectations, from 9.0 percent in April, data from the Office for National Statistics revealed.

While the German DAX Index has tumbled by 2 percent, the French CAC 40 Index is down by 1.8 percent and the U.K.’s FTSE 100 Index is down by 1.3 percent.

Denmark-based brewer Carlsberg A/S has shown a notable move to the downside after its CFO Heine Dalsgaard resigned.

Clariant AG, a Swiss specialty chemicals firm, has also come under pressure after saying it intends to slim down the number of business units from five to three.

Biocartis Group NV, a Belgium-based molecular diagnostics company, has also declined after it entered into an agreement with British drug major AstraZeneca for the development and marketing of a companion diagnostic test for Tagrisso (osimertinib), a lung cancer therapy.

Capgemini has also fallen, while Orange has advanced. The French companies confirmed that Bleu, their future joint venture that will provide trusted cloud ("Cloud de Confiance") services to address the needs of specific French organizations is expected to start supporting clients in preparing for their migration by the end of 2022.

Banking group Crédit Agricole SA has also slumped after unveiling a new strategic roadmap. The lender said it targets one million extra retail banking customers by 2025 and a net profit of more than 6 billion euros ($6.30 billion.)

BASF has also plunged. The German chemical group's CEO said the company's business would likely face a considerable downturn early in the second half of the year.

Hugo Boss has also moved to the downside despite Frasers Group raising its stake in the German fashion brand.

On the other hand, shares of JD Sports have rallied after the sportswear retailer posted an annual profit that more than doubled.

U.S. Economic Reports

Richmond Federal Reserve President Thomas Barkin is scheduled to speak before a virtual West Virginia Chamber of Commerce event at 9 am ET.

At 9:30 am ET, Federal Reserve Chair Jerome Powell is due to deliver his semiannual monetary policy testimony before the Senate Banking Committee.

Richmond Fed President Barkin is scheduled to speak before a virtual Federal City Council's District Strong event at 12 pm ET.

At 12:55 pm ET, Chicago Federal Reserve President Charles Evans is due to speak on current economic conditions and monetary policy before the Corridor Business Journal Mid-Year Economic Review.

The Treasury Department is scheduled to announce the results of this month’s auction of $14 billion worth of twenty-year notes at 1 pm ET.

At 1:30 pm ET, Philadelphia Federal Reserve President Patrick Harker and Richmond Fed President Barkin are due to participate in a macroeconomic outlook discussion before the Macroeconomic Policy to Foster Equality: Symposium with the Philadelphia Fed and the Official Monetary and Financial Institutions Forum.

Stocks In Focus

Shares of Dow Inc. (DOW) are seeing notable pre-market weakness after Credit Suisse downgraded its rating on the chemical maker’s stock to Underperform from Neutral.

Vacation rental company Airbnb (ABNB) may also move to the downside after JMP Securities downgraded its rating on the company’s stock to Market Perform from Market Outperform.

On the other hand, shares of La-Z-Boy (LZB) are moving sharply higher in pre-market trading after the furniture maker reported better than expected fiscal fourth quarter results.

Recreational vehicle maker Winnebago (WGO) may also move to the upside after reporting fiscal third quarter results that exceeded analyst estimates.