The major U.S. index futures are currently pointing to a modestly lower open on Tuesday, with stocks likely to see further downside following the sharp pullback seen in the previous session.
Concerns about the impact of new restrictions imposed in response to surging coronavirus cases and new strains of the virus may weigh on Wall Street.
The U.K. is set to return to a national lockdown amid concerns about a more contagious variant of Covid-19, with Prime Minister Boris Johnson warning the coming weeks would be the “hardest yet.”
Japan is also considering declaring a state of emergency in the greater Tokyo area, while Germany is considering extending lockdown measures beyond January 10th.
Trading activity may be somewhat subdued, however, as traders await the results of two key Senate runoffs in Georgia.
The outcome of the runoff elections will determine which party controls the Senate and could have a major impact on what President-elect Joe Biden is able to accomplish.
Traders are also likely to keep an eye on developments in Washington, as a number of Republican lawmakers plan to oppose certifying the presidential election results on Wednesday.
President Donald Trump has repeatedly claimed Biden’s victory is illegitimate because of widespread vote fraud and declared during a rally in Georgia on Monday that Democrats are “not taking this White House.”
After failing to sustain an initial move to the upside, stocks moved sharply lower over the course of the first trading day of the New Year on Monday. With the pullback, the major averages partly offset the strong gains posted during a turbulent 2020.
The major averages climbed well off their worst levels in afternoon trading but remained firmly negative. The Dow slumped 382.59 points or 1.3 percent to 30,223.89, the Nasdaq plunged 189.84 points or 1.5 percent to 12,698.45 and the S&P 500 tumbled 55.42 points or 1.5 percent to 3,700.65.
Upward momentum to start the New Year contributed to the initial strength on Wall Street, although buying interest waned shortly after the open.
The subsequent pullback partly reflected profit taking after the Dow and the S&P 500 reached new record intraday highs.
Traders may also have been reluctant to continue pushing stocks higher amid uncertainty ahead of the two key Senate runoffs in Georgia.
The sharp pullback on Wall Street reflected concerns about the recent spike in coronavirus cases in several parts of the world, with a new strain of the virus being detected in the U.S. for the first time.
Johnson announced the country will go back into full lockdown until at least mid-February as a result of the new, more contagious variant of Covid-19.
On the U.S. economic front, the Commerce Department released a report showing a continued increase in construction spending in the month of November.
The report said construction spending climbed by 0.9 percent to an annual rate of $1.459 trillion in November after surging up by 1.6 percent to a revised rate of $1.447 trillion in October.
Economists had expected construction spending to increase by 1.0 percent compared to the 1.3 percent jump originally reported for the previous month.
Airline stocks moved sharply lower amid concerns about new coronavirus restrictions, resulting in a 5.2 percent nosedive by the NYSE Arca Airline Index.
Substantial weakness was also visible among commercial real estate stocks, as reflected by the 3.4 percent plunge by the Dow Jones U.S. Real Estate Index.
Utilities, transportation and housing stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.
Meanwhile, gold stocks skyrocketed along with the price of the precious metal, driving the NYSE Arca Gold Bugs Index up by 7.6 percent.
Commodity, Currency Markets
Crude oil futures are climbing $0.64 to $48.26 a barrel after sliding $0.90 to $47.62 a barrel on Monday. Meanwhile, after skyrocketing $51.50 to $1,946.60 an ounce in the previous session, gold futures are rising $5.60 to $1,952.20 an ounce.
On the currency front, the U.S. dollar is trading at 102.91 yen compared to the 103.13 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2264 compared to yesterday’s $1.2248.
Asian stocks turned in a mixed performance on Tuesday as caution prevailed amid a persisted surge in coronavirus cases in several parts of the world and ahead of crucial Senate election runoffs in Georgia that will determine which party controls the U.S. Senate.
China’s Shanghai Composite Index rose 25.72 points, or 0.7 percent, to 3,528.68 after the New York Stock Exchange scrapped its decision to delist three big Chinese telecommunication companies. Hong Kong’s Hang Seng Index ended up 0.6 percent at 27,649.86.
Japanese shares ended modestly lower and the yen strengthened amid reports the government will declare a state of emergency that would take effect by Friday and last about a month.
The Nikkei 225 Index slid 99.75 points, or 0.4 percent, to 27,158.63, while the broader Topix ended down 0.2 percent at 1,791.22.
Airlines and train operators were among the worst hit amid the prospects of fresh curbs to contain the health crisis. Tech shares outperformed, with Advantest surging 4.8 percent and Tokyo Electron adding 2.6 percent.
Australian markets ended on a flat note amid renewed concerns over the Sydney cluster. The benchmark S&P/ASX 200 Index finished marginally lower, while the broader All Ordinaries Index ended with a slightly positive bias.
A drop in oil prices weighed on energy stocks, with Woodside Petroleum, Santos, Oil Search and Beach Energy losing 1-3 percent.
The big four banks fell between 0.3 percent and 1 percent, while mining heavyweights BHP and Rio Tinto surged 2-3 percent on the back of soaring iron ore prices.
Gold producer Ramelius Resources jumped after providing a pre-quarterly update. Airline Qantas Airways declined 1.4 percent after announcing it has commenced the sale of seats on international flights across its network.
Seoul stocks hit another record high amid an upbeat outlook for the chip industry and hopes of economic recovery. The benchmark Kospi jumped 46.12 points, or 1.6 percent, to finish just short of the 3,000-point milestone.
Market bellwether Samsung Electronics rose 1.1 percent to reach a fresh record high, while No. 2 chipmaker SK Hynix advanced 3.6 percent.
European stocks are broadly lower on Tuesday as concerns about a new coronavirus variant and new lockdowns cast a shadow on the economic outlook.
Schools have closed to most pupils in England, Scotland and Wales, while Northern Ireland will have an “extended period of remote learning.”
British Prime Minister Boris Johnson warned the coming weeks would be the “hardest yet,” while Germany is considering extending lockdown measures beyond January 10.
The German DAX Index and the French CAC 40 Index are both down by 0.8 percent, although the U.K.’s FTSE 100 Index is just above the unchanged line.
Ryanair Holdings shares have moved to the downside. The low-cost airline announced that Group traffic declined 83 percent year-on-year to 1.9 million guests for the month of December.
Meanwhile, chipmaker Dialog Semiconductor has surged after giving an upbeat fourth-quarter revenue forecast due to stronger-than-expected consumer demand for 5G phones and tablets.
Saint-Gobain shares have also risen. The company has entered into exclusive negotiations with Building Materials Europe in preparation for the sale of Saint-Gobain Building Distribution the Netherlands.
Fashion retailer Next has also moved sharply higher after announcing better-than-expected Christmas revenues.
In economic news, German unemployment unexpectedly declined in December, the Federal Labor Agency reported.
The number of people out of work decreased by 37,000 from November, in contrast to the expected increase of 10,000. Unemployment had decreased by 40,000 in November. The unemployment rate remained unchanged at 6.1 percent in December, as expected.
German retail sales grew more than expected in November, driven by non-food retailing, data from Destatis revealed.
In November, retail turnover climbed by a real 5.6 percent from the previous year, which was faster than the expected growth of 3.9 percent but slower than the 8.6 percent increase logged in October.
On a monthly basis, retail sales unexpectedly grew by 1.9 percent. Economists had forecast a month-on-month drop of 2 percent after a 2.6 percent rise in October.
U.S. Economic Reports
The Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of December at 10 am ET.
The ISM’s manufacturing PMI is expected to edge down to 56.6 in December from 57.5 in November, although a reading above 50 would still indicate growth.
At 3:45 pm ET, New York Federal Reserve President John Williams is scheduled to chair a paper session, “The Monetary-Fiscal Nexus with Ultra Low Interest Rates,” before the ASSA virtual annual meeting.
Chicago Federal Reserve President Charles Evans is also due to speak on current economic conditions and monetary policy before a virtual American Economic Association Annual Meeting at 3:45 pm ET.
Stocks In Focus
China Telecom (CHA), China Unicom (CHU), China Mobile (CHL) are moving sharply higher in pre-market trading after the New York Stock Exchange reversed an earlier decision to delist the three Chinese telecom giants.
Chipmaker Micron Technology (MU) is also likely to see initial strength after Citi upgraded its rating on the company’s stock to Buy from Sell.
Shares of Jefferies (JEF) may also move to the upside after the investment firm reported better than expected quarterly results and raised its dividend.
On the other hand, shares of First Solar (FSLR) may come under pressure after Goldman Sachs downgrade its rating on the solar power company to Sell from Buy.
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