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Stocks May See Further Downside In Early Trading - U.S. Commentary


Following the sell-off seen last Friday, stocks may see some further downside in early trading on Monday. The major index futures are currently pointing to a modestly lower open for the markets, with the Dow futures down by 15 points.

Lingering concerns about the outlook for the economy may continue to weigh on the markets after dragging stocks sharply lower in the previous session.

An inversion of the yield curve may generate additional selling pressure, with the yield on the benchmark ten-year note falling below the yield on three-month bills.

The inverted yield curve has not occurred since 2007 and is seen by many as an indication that a recession is on the way.

The U.S. has thus far held up relatively well amid a global economic slowdown, although Federal Reserve Chairman Jerome Powell has warned about the negative impact slowing growth in Europe and China will have on the U.S.

Powell's comments came after the Fed revealed that it no longer expects to raise interest rates this year, which some analysts described as an effort to keep the stock markets afloat amid an expected contraction in first quarter earnings.

Overall trading activity may be somewhat subdued, however, as a lack of major U.S. economic data may keep some traders on the sidelines.

Reports on housing starts, consumer confidence, pending home sales, personal income and spending and new home sales are likely to attract attention in the coming days.

Traders are also likely to keep an eye on the latest round of high-level trade talks between the U.S. and China set to take place in Beijing this week.

Stocks moved sharply lower over the course of the trading session on Friday, more than offsetting the rally seen last Thursday. The Nasdaq and the S&P 500 pulled back well off Thursday's five-month closing highs.

The major averages saw further downside going into the close, ending the session at their worst levels of the day. The Dow tumbled 460.19 points or 1.8 percent to 25,502.32, the Nasdaq plummeted 196.29 points or 2.5 percent to 7,642.67 and the S&P 500 plunged 54.17 points or 1.9 percent to 2,800.71.

With the steep losses on the day, the major averages also moved lower for the week. The Dow slumped by 1.3 percent, while the Nasdaq and the S&P 500 slid by 0.6 percent and 0.8 percent, respectively.

In overseas trading, stock markets across the Asia-Pacific region moved sharply lower during trading on Monday. Japan's Nikkei 225 Index nosedived by 3 percent, while Hong Kong's Hang Seng Index slumped by 2 percent.

The major European markets have shown more modest moves to the downside on the day. While the U.K.'s FTSE 100 Index has slid by 0.7 percent, the French CAC 40 Index and the German DAX Index are down by 0.2 percent and 0.1 percent, respectively.

In commodities trading, crude oil futures are slipping $0.13 to $58.91 a barrel after tumbling $0.94 to $59.04 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,318.50, up $6.20 from the previous session's close of $1,312.30. On Friday, gold rose $5.

On the currency front, the U.S. dollar is trading at 110.03 yen compared to the 109.92 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1322 compared to last Friday's $1.1302.

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