Stocks May See Initial Weakness On Interest Rate Worries – U.S. Commentary

Reflecting renewed concerns about the outlook for interest rates, stocks may extend the pullback seen Wednesday afternoon in early trading on Thursday. The major index futures are currently pointing to a lower open for the markets, with the Dow futures down by 98 points.

A jump in U.S. treasury yields sapped buying interest in the previous session, and the major averages subsequently pulled back well off their best levels but managed to end the day in positive territory.

The ten-year yield spiked to its highest level in over seven years following the release of upbeat employment and service sector data, leading to concerns about aggressive rate hikes by the Federal Reserve.

In remarks at the Atlantic Festival in Washington, D.C. after the close of trading, Fed Chairman Jerome Powell told Judy Woodruff of PBS that interest rates are “a long way from neutral” even after recent increases.

“The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore,” Powell said.

“Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral,” he added. “We may go past neutral, but we’re a long way from neutral at this point.”

On the U.S. economic front, the Labor Department recently released a report showing a bigger than expected drop in initial jobless claims in the week ended September 29th.

The Labor Department said initial jobless claims fell to 207,000, a decrease of 8,000 from the previous week’s revised level of 215,000.

Economists had expected jobless claims to edge down to 213,000 from the 214,000 originally reported for the previous week.

Shortly after the start of trading, the Commerce Department is scheduled to release its report on new orders for manufactured goods in the month of August. Factory orders are expected to jump by 2.1 percent.

Overall trading activity may be somewhat subdued, however, as traders may be reluctant to make significant moves ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

Stocks saw notable strength in morning trading on Wednesday before giving back some ground in the afternoon. Despite the pullback by the major averages, the Dow still ended the session at a new record closing high.

The major averages closed in positive territory but well off their best levels of the day. The Dow rose 54.45 points or 0.2 percent to 26,828.39, the Nasdaq climbed 25.54 points or 0.3 percent to 8,025.08 and the S&P 500 inched up 2.08 points or 0.1 percent to 2,925.51.

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan’s Nikkei 225 Index fell by 0.6 percent, while Hong Kong’s Hang Seng Index plunged by 1.7 percent.

European stocks have also moved to the downside on the day, although the German DAX Index is bucking the downtrend and edging up by 0.1 percent. The French CAC 40 Index and the U.K.’s FTSE 100 Index are slumping by 1.1 percent and 1 percent, respectively.

In commodities trading, crude oil futures are sliding $0.49 to $75.92 a barrel after spiking $1.18 to $76.41 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,204.60, up $1.70 compared to the previous session’s close of $1,202.90. On Wednesday, gold fell $4.10.

On the currency front, the U.S. dollar is trading at 114.07 yen compared to the 114.53 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1509 compared to yesterday’s $1.1478.

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