U.S. index futures are indicating a lower opening this Friday, with equities poised to extend their descent following the exertion of pressure late in Thursday's session. Wall Street's apprehension surrounding future interest rate movements is likely to persist in light of Federal Reserve Chair Jerome Powell's remarks suggesting no urgency to reduce rates.
Highlighting the U.S. economy's robust performance, Powell articulated that the Federal Reserve could adopt a measured stance on future monetary policy decisions. This perspective contributed to the futures market maintaining a negative trajectory, even after the release of the latest U.S. economic indicators. According to the Commerce Department, retail sales rose slightly more than anticipated in October, increasing by 0.4% following a 0.8% revision upward in September.
Excluding the surge in motor vehicle and parts dealers' sales, retail activity saw a marginal uptick of 0.1% in October after a substantial 1.0% rise in the previous month; expectations were set at a 0.3% increase. Separately, the Labor Department reported an unexpected rise in U.S. import prices for October, likely intensifying inflation concerns, as import prices increased by 0.3% after a 0.4% decline in September, contrary to a projected 0.1% decrease. Concurrently, export prices rose by 0.8% in October subsequent to a revised 0.6% decrease in September, surpassing the expected 0.1% dip.
On Thursday, the stock market, after a day of fluctuating between gains and losses, succumbed to pressure in the latter part of the trading session, with the major indices closing near their session lows. The Dow Jones Industrial Average fell by 207.33 points, or 0.5%, to 43,750.86; the Nasdaq Composite shed 123.07 points, or 0.6%, to 19,107.65; and the S&P 500 declined by 36.21 points, or 0.6%, to end at 5,949.17.
The late-session downturn coincided with Powell's statement asserting that the Fed is not in a rush to reduce rates given the economy's robust health. During an event in Dallas, Texas, Powell noted, "The economy is not signalling a need for haste in lowering rates. The current economic strength allows us to navigate our decisions with care."
Describing the U.S. economic performance as "remarkably good," Powell observed a strong labor market that no longer represents a primary source of inflationary pressure. He emphasized that the Fed remains vigilant regarding risks to its employment and inflation objectives, cautioning against premature rate cuts that could derail inflation control efforts, while delayed cuts could dampen economic growth and employment.
"We are gradually steering policy towards a more neutral stance. However, the path is not predetermined," Powell stated, adding, "Ultimately, the course of policy will be shaped by evolving economic data and outlook."
Earlier economic data releases had contributed to uncertainty regarding the rate trajectory. The Labor Department reported an unexpected drop in initial claims for U.S. unemployment benefits for the week ending November 9th, with claims declining to 217,000 from the prior week's unchanged level of 221,000, contrary to expectations of a rise to 223,000. This unexpected decline took initial claims to their lowest since the week ending May 18th.
In harmony with consumer price inflation data aligning with forecasts, the Labor Department also disclosed that U.S. producer prices rose in October consistent with economists' predictions, as the producer price index for final demand increased by 0.2% following a 0.1% upward revision for September. The annual growth rate for producer prices accelerated to 2.4% in October from the previously revised 1.9% in September, in line with expectations for 2.3%.Economic developments continue to fuel uncertainty regarding the future trajectory of interest rates, prompted by stronger-than-anticipated annual price increases and robust jobless claims figures. Although market consensus still leans towards the Federal Reserve decreasing interest rates by 25 basis points next month, some apprehension persists that persistent inflation may slow the Fed's pace of rate reductions in early 2025.
In the equities market, biotechnology stocks faced significant declines, with the NYSE Arca Biotechnology Index dropping by 2.8%. Healthcare and pharmaceutical sectors also exhibited notable weakness, marked by the Dow Jones U.S. Health Care Index and the NYSE Arca Pharmaceutical Index falling by 1.6% and 1.5%, respectively. Meanwhile, sectors such as networking, steel, and commercial real estate experienced downturns, in contrast to the airline stocks, which enjoyed considerable strength. Reflecting a positive momentum in the aviation sector, the NYSE Arca Airline Index rebounded by 1.8% after a previous sharp drop of 7.3%.
**Commodity and Currency Markets**
Crude oil futures experienced a decline, down by $0.39 to $68.31 per barrel following a $0.27 increase to $68.70 per barrel the previous day. Gold futures continued their downward trend, edging lower by $1 to $2,571.90 an ounce after a $13.60 drop to $2,572.90 an ounce in the last session. In currency exchanges, the U.S. dollar weakened slightly against the yen, trading at 155.33 yen compared to 156.27 yen at the New York close. Against the euro, the dollar appreciated somewhat, valued at $1.0565 from $1.0530 the previous day.
**Asian Markets**
Asian stock markets showed mixed results on Friday. Remarks from Federal Reserve Chair Jerome Powell dampened enthusiasm for potential rate cuts, compounded by diverse economic data reflecting China's uneven recovery. Gold remained stable near $2,560 per ounce, while the dollar gained weekly strength in anticipation of U.S. retail sales figures. Oil prices faced weekly declines amid concerns of reduced demand from China, the leading crude importer.
China's Shanghai Composite Index fell by 1.5% to 3,330.73 due to slowed economic growth concerns. The Hang Seng Index in Hong Kong ended the day barely down at 19,426.34 amid volatile trading. Chinese industrial production increased 5.3% in October, trailing expectations, contrasted by a robust 4.8% rise in retail sales encouraged by holiday shopping events. Property investment fell by 10.3% annually over the first ten months and fixed asset investment growth lagged forecasts, fueling demands for further stimulus from Beijing.
Japan's markets enjoyed slight gains, aided by a weaker yen's boost to export-driven stocks. The Nikkei 225 Index modestly rose by 0.3% to 38,642.91, breaking away from a three-day losing streak, while the Topix Index increased by 0.4% to 2,711.64. Notable performances included Honda Motor (up 2.2%), Toyota (up 1.4%), and Nissan (up 4.5%).
Seoul's market ended relatively unchanged, with the Kospi marginally lower at 2,416.86. Declines in LG Energy Solution (down 12.1%) and Samsung SDI (down 6.8%) followed reports that incoming U.S. President Donald Trump's transition team would eliminate the $7,500 tax credit for electric vehicle purchases as part of new tax reforms.
Australia's stock market recorded gains but concluded the week slightly weaker due to disappointment over China's $1.40 trillion stimulus announcement. The S&P/ASX 200 Index increased by 0.7% to 8,285.20, buoyed by banking stocks, while the All Ordinaries Index similarly climbed 0.7% to close at 8,539. In New Zealand, the S&P/NZX-50 Index ended slightly lower at 12,684.88 following data indicating a record 20-month contraction in the nation's manufacturing activity.
**European Markets**
European stocks fell on Friday, pressured by cautious tones from Federal Reserve Chair Powell about interest rate cuts and mixed data from China raising alarm about decreasing demand. Powell emphasized the Federal Reserve's deliberative approach to rate adjustments, citing ongoing inflationary challenges.
Data reaffirming China's industrial output growth at a slower-than-expected 5.3% in October, coupled with a better-than-anticipated 4.8% rise in retail sales, underscores the need for vigilance in adapting economic strategies.Property investment has seen a 10.3% decline year-on-year from January to October, while growth in fixed asset investment during the first ten months of 2024 fell short of expectations. This has spurred ongoing calls for Beijing to introduce further stimulus measures.
Domestically, Destatis reported that German wholesale prices continued their downward trend in October, albeit at a slower rate. The decrease was recorded at 0.8% year-on-year, an improvement from the 1.1% reduction seen in September, marking the mildest decline in three months since the downward trend began in May 2023.
The British pound remained near a four-month low following data revealing an unexpected contraction in the UK's economy for September. GDP growth slowed substantially in the third quarter, expanding by just 0.1% after a 0.5% increase in the prior quarter, falling short of the 0.2% growth forecast. The GDP registered a slight dip of 0.1% in September, contrasting with the 0.2% expansion in August.
Across Europe, the pan-European STOXX 600 Index has decreased by 0.6%, continuing its decline for the fourth consecutive week. The French CAC 40 Index slid by 0.4%, Germany's DAX Index dropped by 0.3%, and the UK’s FTSE 100 Index fell by 0.1%.
In the pharmaceutical sector, vaccine manufacturers experienced selling pressure, notably GSK and Sanofi, following the announcement of anti-vaccine activist Robert F. Kennedy as President-elect Donald Trump’s choice for Secretary of Health. Danish biotech firm Bavarian Nordic also saw a sharp decline after releasing its interim results for the first nine months of 2024.
The chipmaker ASML's shares tumbled in response to U.S.-based Applied Materials reporting fourth-quarter earnings that failed to meet analysts' predictions. Meanwhile, Dutch insurer Aegon saw a significant rise in its shares after initiating a 150 million euro share buyback.
Italian insurer Generali Group's shares rose after it exceeded profit expectations for the first nine months, despite incurring a 930 million euro ($980.22 million) loss due to natural disasters. Additionally, shares in Evotec SE surged following a non-binding proposal from Halozyme Therapeutics to acquire the German drug developer for about 2 billion euros ($2.10 billion).
In U.S. Economic Updates, the Commerce Department reported a slightly stronger-than-expected rise in retail sales for October, driven partly by increased sales in motor vehicles and parts. Retail sales rose 0.4% in October, building on a revised 0.8% growth in September. Analysts had anticipated a 0.3% increase.
Excluding motor vehicle and parts dealers, retail sales showed a modest rise of 0.1% following a substantial 1.0% rise in September, although a 0.3% rise was expected.
The Labor Department disclosed an unexpected rise in U.S. import prices in October, climbing by 0.3% after a 0.4% drop in September, whereas a decrease of 0.1% was anticipated. Furthermore, export prices increased by 0.8% in October, recovering from a revised decline of 0.6% in September. A 0.1% decrease was expected.
A report from the Federal Reserve Bank of New York indicated a significant recovery in regional manufacturing activity in November. The general business conditions index soared to 31.2 from a negative 11.9 in October, indicating growth and surpassing the forecast of a negative 0.7. This marked the index's highest level since December 2021, with firms optimistic about future conditions improving.
Looking ahead, Boston Federal Reserve President Susan Collins is set to deliver introductory remarks at the Federal Reserve Bank of Boston's 68th economic conference focused on finance innovations.
Additionally, the Federal Reserve is due to release its October industrial production report, with expectations of a 0.3% decline, mirroring September’s decrease.The Commerce Department is set to unveil its report on September's business inventories at 10 am ET. Anticipations suggest a 0.2 percent increase, following a 0.3 percent rise recorded in August. Additionally, the Federal Reserve Bank of New York will publish President John Williams' opening remarks for a private event, "New York Fed Alumni: Celebrating 100 Years of Making Our Mission Possible," at 1:15 pm ET.
