Futures Pointing To Extended Pullback On Wall Street

The major U.S. index futures are currently pointing to a modestly lower open on Monday, with stocks likely to extend the sharp pullback seen to close out the previous week.

Lingering concerns about higher interest rates and the impact on the global economy are likely to continue to weigh on Wall Street.

Trading activity may be somewhat subdued, however, as banks and the bond markets are closed for the Columbus Day holiday.

With worries about higher interest rates continuing to weigh on Wall Street, stocks moved sharply lower during trading on Friday. The major averages added to the losses posted on Wednesday and Thursday, further offsetting the substantial recovery rally seen to start the week.

The major averages climbed off their lows of the session going into the close but still posted steep losses. The Dow tumbled 630.15 points or 2.1 percent to 29,296.79, the Nasdaq plummeted 420.91 points or 3.8 percent to 10,652.40 and the S&P 500 plunged 104.86 points or 2.8 percent to 3,639.66.

Despite closing lower for three straight sessions, the major averages closed higher for the week due to the sharp gains on Monday and Tuesday. The Dow surged by 2.0 percent, the S&P 500 jumped by 1.5 percent and the Nasdaq climbed by 0.7 percent.

The sell-off on Wall Street came following the release of the Labor Department’s closely watched monthly jobs report, which failed to ease concerns about the outlook for interest rates.

The report showed U.S. job growth slowed in the month of September but still came in slightly stronger than economists had anticipated.

The report showed non-farm payroll employment jumped by 263,000 jobs in September after surging by an unrevised 315,000 jobs in August and spiking by an upwardly revised 537,000 jobs in July. Economists had expected employment to leap by 250,000 jobs.

The slightly stronger than expected job growth reflected notable increases in employment in the leisure and hospitality and healthcare sectors, which added 83,000 jobs and 75,400 jobs, respectively.

Economists noted the job growth was even stronger excluding a drop in state and local government education payrolls, which reflected shifting seasonal patterns in teacher hiring.

The Labor Department also said the unemployment rate dipped to 3.5 percent in September from 3.7 percent in August, while economists expected the unemployment rate to come in unchanged.

The unemployment rate matched its lowest level since just before Covid-19 lockdowns began to take effect in February of 2020, which was also matched in July. Unemployment has not been lower in over fifty years.

“The drop in the unemployment rate back to a cycle low underscores that the labor market remains extremely tight,” said Kathy Bostjancic, Chief U.S. Economist at Oxford Economics. “The Fed will view the jobs report as a reason to continue its aggressive pace of tightening.”

Treasury yields advanced following the release of the report, with the yield on the benchmark ten-year note moving higher for the third straight session.

A sales warning from Advanced Micro Devices (AMD) also weighed on the markets, with the chipmaker plummeting by 13.9 percent.

AMD warned of third quarter revenue well below its previous guidance due to a weaker than expected PC market and significant inventory correction actions across the PC supply chain.

Semiconductor stocks helped lead the markets lower following the warning from AMD, dragging the Philadelphia Semiconductor Index down by 6.1 percent.

The warning also contributed to considerable weakness among computer hardware stocks, resulting in a 4.2 percent plunge by the NYSE Arca Computer Hardware Index.

Substantial weakness was also visible among gold stocks, as reflected by the 4.6 percent nosedive by the NYSE Arca Gold Bugs Index.

The sell-off by gold stocks came amid a decrease by the price of the precious metal, with gold for December delivery falling $11.50 to $1,709.30 an ounce.

Networking, airline, retail and biotechnology stocks also showed notable moves to the downside amid broad based weakness on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.54 to $92.10 a barrel after soaring $4.19 to 92.64 a barrel last Friday. Meanwhile, after falling $11.50 to $1,709.30 an ounce in the previous session, gold futures are slumping $26.40 to $1,682.90 an ounce.

On the currency front, the U.S. dollar is trading at 145.56 yen versus the 145.25 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $0.9702 compared to last Friday’s $0.9744.

Asia

Asian stocks fell on Monday as better-than-expected U.S. jobs data released on Friday cemented bets of more large Federal Reserve rate hikes.

Lingering worries surrounding the Russia-Ukraine war and the U.S.-China chip war also dented sentiment.

Japanese and South Korean markets were closed for holidays.

Chinese shares tumbled, dragged down by Chinese chipmakers after the Biden administration published a sweeping set of export controls targeting Chinese companies, threatening to worsen trade ties between the world’s two largest economies.

Signs of fresh COVID outbreaks in the country and weak service sector data released over the weekend also weighed on markets.

China’s Shanghai Composite Index tumbled 1.7 percent to 2,974.15 ahead of a pivotal Communist Party congress while Hong Kong’s Hang Seng Index plunged 3.0 percent to close at 17,216.66.

Australian markets fell sharply, with financials and gold miners pacing the decliners. The benchmark S&P ASX 200 Index closed 1.4 percent lower at 6,667.80, while the broader All Ordinaries Index slid 1.5 percent to end at 6,872.

The big four banks fell between 1.4 percent and 1.7 percent, while gold miner Northern Star Resources gave up 4.4 percent and Newcrest shed 4 percent.

Across the Tasman Sea, New Zealand’s benchmark S&P/NZX 50 Index ended down 1.7 percent at 10,918.48.

Pushpay Holdings shares rallied 3.5 percent after the mobile donations firm confirmed it had received a revised, indicative, and non-binding buyout proposal.

Europe

European stocks fell for a fourth straight session on Monday amid heightened geopolitical tensions and expectations that the Federal Reserve will move ahead with further interest rate hikes.

Russian President Vladimir Putin is prepared to hold a meeting of his security council amid calls for reprisals following a massive explosion on a key strategic bridge linking Crimea and Russia.

The dollar gained ground and yields on U.S. Treasury notes rose, as a strong U.S. jobs report bolstered the case for the Fed to raise interest rates by 75 bps for a fourth consecutive meeting in November.

U.S. CPI inflation data for September due later this week is likely to show that inflation remained hot through last month.

Meanwhile, the Eurozone Sentix Investor Confidence index deteriorated to -38.3 in October from -31.8 in September, providing little reason for hope.

The pan European Stoxx 600 dropped 0.8 percent 388.45 after falling 1.2 percent on Friday.

The German DAX slipped 0.4 percent, France’s CAC 40 index fell 1.2 percent and the U.K.’s FTSE 100 was down 0.9 percent.

Chipmakers fell, with Infineon and BE Semiconductor both falling around 2 percent after the U.S. announced new export controls targeting Chinese companies.

Capgemini SE, a French IT services and consulting company, dropped about 1 percent after announcing the acquisition of UK-based Quorsus.

Solvay S.A., a Belgian-French chemical firm, added 1.8 percent. The company said that it now fully owns Solvay Special Chem Japan joint venture after acquiring 33 percent shares from Santoku Corp.

Sirius Real Estate rose 1.3 percent. The operator of branded business and industrial parks in Germany and U.K., reported that its first-half trading was in line with expectations.

British packing firm DS Smith soared 10.6 percent. In an update, the company said its trading continues to be good and consistent, and that it is looking forward to the remainder of the year with a positive note.

IQE, a semiconductor firm, gained 2.1 percent after it has inked a collaboration deal with SK siltron, to develop and commercialize compound semiconductor products with a focus on Asian markets.

U.S. Economic Reports

Chicago Federal Reserve Bank President Charles Evans is scheduled to speak on current economic conditions and monetary policy before the National Association for Business Economics’ 64th Annual Meeting at 9 am ET.