Market Analysis

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to see initial strength after ending yesterday’s choppy session modestly lower. The major index futures are currently pointing to a higher open for the markets, with the S&P 500 futures up by 0.4 percent.

Traders may once again look to go bargain hunting, picking up stocks at relatively reduced levels following recent weakness in the markets.

While the major averages are positive for the week following a rally on Tuesday, they are not far off their worst levels in over a year.

Trading may once again be impacted by reaction to congressional testimony by Federal Reserve Chair Jerome Powell, who is due to appear before the House Financial Services Committee.

Powell’s prepared remarks are likely to mirror those he delivered to the Senate Banking Committee on Wednesday, although traders will be keeping an eye on the question-and-answer segment of his testimony.

In U.S. economic news, the Labor Department released a report showing first-time claims for U.S. unemployment benefits edged slightly lower in the week ended June 18th.

After recovering from an early move to the downside, stocks fluctuated over the course of the trading session on Wednesday. The major averages bounced back and forth across the unchanged line before closing modestly lower.

The major averages finished the session well off their early lows but still in negative territory. The Dow dipped 47.12 points or 0.2 percent to 30,483.13, the Nasdaq slipped 16.22 points or 0.2 percent to 11,053.08 and the S&P 500 edged down 4.90 points or 0.1 percent to 3,759.89.

The choppy trading on Wall Street came as traders reacted to Federal Reserve Chair Jerome Powell's testimony before the Senate Banking Committee.

In prepared remarks, Powell indicated the Fed plans to continue moving expeditiously to combat inflation but argued the U.S. economy is strong enough to handle tighter monetary policy.

However, Powell later acknowledged that achieving a "soft landing" will be "very challenging" due in part to factors outside of the Fed's control and noted a recession is "certainly a possibility."

"It's not our intended outcome at all, but it's certainly a possibility, and frankly the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and still a strong labor market," Powell said.

Powell said the pace of future interest rate hikes will be dependent on incoming data and the evolving outlook for the economy and suggested the Fed will need to see "compelling evidence" that inflation is slowing before it begins to scale back its monetary policy tightening plans.

"We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible," Powell said. "Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored."

The Fed Chief said the central bank will still strive to "avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time."

"Fading stock market bounces will still remain the go-to trade on Wall Street until the economic data dramatically weakens and the Fed pivots so that they may ease up their tightening of policy strategy," said Edward Moya, senior market analyst at OANDA.

He added, "The Fed is starting to become a little more pessimistic as they are finally acknowledging it will be 'very challenging' to achieve a soft landing, but nowhere near enough for traders to expect a pivot over tightening anytime soon."

Energy stocks showed a substantial move to the downside on the day, moving sharply lower along with the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 5.2 percent and the NYSE Arca Oil Index plunged by 4.5 percent.

Significant weakness also emerged among steel stocks, as reflected by the 3.9 percent nosedive by the NYSE Arca Steel Index. The index ended the session at its lowest closing level in over six months.

Tobacco, gold and computer hardware stocks also saw notable weakness, while considerable strength was visible among biotechnology, healthcare and pharmaceutical stocks.

Commodity, Currency Markets

Crude oil futures are slipping $0.10 to $106.09 a barrel after tumbling $3.33 to $106.19 a barrel a barrel on Wednesday. Meanwhile, after edging down $0.40 to $1,847.40 an ounce in the previous session, gold futures are falling $4.70 to $1,833.70 an ounce.

On the currency front, the U.S. dollar is trading at 135.04 yen versus the 136.26 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0517 compared to yesterday’s $1.0566.

Asia

Asian stocks ended mixed on Thursday after Federal Reserve Chair Jerome Powell said he believed the U.S. economy is strong enough to handle coming interest rate hikes but acknowledged that a recession could happen.

Chinese shares posted strong gains as electric vehicle stocks advanced on reports that Beijing is considering extending tax exemptions. Additionally, a top-level meeting on Wednesday approved a plan for the healthy development of China's large payment firms and fintech sector.

The benchmark Shanghai Composite Index surged 1.6 percent to 3,320.15 while Hong Kong's Hang Seng Index jumped 1.3 percent to 21,273.87.

Japanese shares fluctuated before ending on a flat note as data showed Japanese factory output grew at its slowest rate in three months.

The Nikkei 225 Index finished marginally higher at 26,171.25, while the broader Topix closed with a negative bias at 1,851.74.

Sumitomo Metal Mining led losses to close about 6 percent lower. Toshiba jumped 3.5 percent following a Reuters report that bidders are considering offering up to 7,000 yen per share to take the troubled conglomerate private.

Seoul stocks fell sharply and the Korean won reached a 13-year low as recession worries weighed on investors' minds. The Kospi tumbled 1.2 percent to 2,314.32.

Australian markets eked out modest gains as banks and technology stocks advanced, offsetting declines in the mining and energy sectors.

The benchmark S&P/ASX 200 Index rose 0.3 percent to 6,528.40, while the broader All Ordinaries Index ended 0.1 percent higher at 6,691.40. Block surged 4.7 percent to hit its highest level in a week.

Europe

European stocks have moved mostly lower on Thursday, as Federal Reserve Chair Jerome Powell acknowledged the possibility of a recession and data showed business activity in the eurozone slid to its lowest level in 16 months in June.

The flash June composite purchasing managers index, which combines data from the currency bloc's service and manufacturing sectors, slumped to 51.9 from 54.8 in May, S&P Global said.

Separate surveys showed business activity in the bloc's two largest economies, Germany and France, suffered a sharp loss of momentum at the end of the second quarter.

Elsewhere, the U.K. budget deficit exceeded the official estimate in May as higher inflation pushed up interest payments on government debt, the Office for National Statistics said.

While the German DAX Index has fallen by 0.7 percent, the U.K.’s FTSE 100 Index and the French CAC 40 Index are both down by 0.1 percent.

Polymetal is marginally higher after providing an update on its business, including the current impact of sanctions against Russia.

France's Air Liquide and Germany's Siemens Energy have both fallen after announcing a joint venture for the series production of industrial scale renewable hydrogen electrolyzers in Europe.

German real estate group Aroundtown has plunged after J.P. Morgan downgraded the stock to "underweight".

Italian insurance business Assicurazioni Generali has edged up slightly after announcing a new group organizational structure.

Spanish energy firm Gamesa is little changed after it won an order for the delivery of 60 units of its SG 14-222 DD offshore wind turbine at the Moray West offshore wind power project.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits edged slightly lower in the week ended June 18th, according to a report released by the Labor Department on Thursday.

The report showed initial jobless claims dipped to 229,000, a decrease of 2,000 from the previous week’s revised level of 231,000.

Economists had expected jobless claims to slip to 227,000 from the 229,000 originally reported for the previous week.

Meanwhile, the Labor Department said the less volatile four-week moving average crept up to 223,500, an increase of 4,500 from the previous week’s revised average of 219,000.

At 10 am ET, Federal Reserve Chair Jerome Powell is scheduled to deliver his semiannual monetary policy testimony before the House Financial Services Committee.

The Energy Information Administration is due to release its report on oil inventories in the week ended June 17 at 11 am ET. Crude oil inventories are expected to edge down by 0.6 million barrels after rising by 2.0 million barrels in the previous week.

Also at 11 am ET, the Treasury Department is schedule to announce the details of this month’s auctions of two-year, five-year and seven-year notes.

Stocks In Focus

Share of Snowflake (SNOW) are moving sharply higher in pre-market trading after J.P. Morgan Securities upgraded its rating on the could computing company’s stock to Overweight from Neutral.

Restaurant operator Darden Restaurants (DRI) is also likely to see initial strength after reporting better than expected fiscal fourth quarter results, raising its dividend and announcing a $1 billion share repurchase program.

Shares of Occidental Petroleum (OXY) may also move to the upside on news Warren Buffett’s Berkshire Hathaway (BRK.B) has increased its stake in the energy producer to 16.3 percent.

On the other hand, shares of Accenture (ACN) may come under pressure after the consulting firm reported mixed fiscal third quarter results and provided disappointing guidance.