The major U.S. index futures are pointing to a higher open on Thursday, with stocks likely to move to the upside following the lackluster performance seen in the previous session.
Early buying interest is likely to be generated in reaction to positive developments on the stimulus front, with lawmakers signaling progress toward an agreement on a new relief package.
Following a meeting with other congressional leaders, Senate Majority Leader Mitch McConnell, R-Ken., said the talks have made “major headway toward hammering out a targeted pandemic relief package that would be able to pass both chambers with bipartisan majorities.”
Senate Minority Leader Chuck Schumer, D-N.Y., agreed that the two sides are “close to an agreement” but cautioned that it’s “not a done deal yet.”
Meanwhile, House Speaker Nancy Pelosi’s Deputy Chief of Staff Drew Hammill said the Speaker, Schumer and Treasury Secretary Steven Mnuchin spoke Wednesday night as part of a series of phone conversations to complete the relief negotiations.
“All three emphasized the urgency to reaching an immediate agreement and will exchange additional paper and resume conversations in the morning,” Hammill said in a post on Twitter.
However, the positive sentiment may be partly offset by a report from the Labor Department showing an unexpected increase in first-time claims for U.S. unemployment benefits in the week ended December 12th.
The data may raise concerns about the outlook for the labor market but could also put further pressure on lawmakers to reach an agreement on a stimulus bill.
After ending Tuesday’s trading sharply higher, stocks showed a lack of direction over the course of the trading session on Wednesday. Despite the choppy trading, the tech-heavy Nasdaq reached a new record closing high.
The major averages eventually ended the session mixed for the third time in four sessions. While the Dow dipped 44.77 points or 0.2 percent to 30,154.54, the Nasdaq climbed 63.13 points or 0.5 percent to 12,658.19 and the S&P 500 rose 6.55 points or 0.2 percent to 3,701.17.
The mixed close on Wall Street came after the Fed announced its widely expected decision to leave interest rates unchanged while also revealing plans to continue its asset purchase program until the economy shows substantial progressed towards the central bank’s goals of maximum employment and price stability.
The Fed said it decided to keep the target range for the federal funds rate at 0 to 1/4 percent, which is where the target range has remained since an emergency rate cut in March.
The accompanying statement reiterated that the Fed plans to keep rates at near-zero levels until labor market conditions have reached levels consistent with maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
In one of the few changes to the November statement, the Fed also said it plans to continue purchasing bonds at a rate of at least $120 billion per month until “substantial further progress” has been made toward its policy goals.
“The Fed tweaked the guidance for its asset purchases in the statement issued after the conclusion of today’s FOMC meeting, with the new language implying those purchases could continue for longer than previously believed,” said Michael Pearce, Senior U.S. Economist at Capital Economics.
He added, “Nevertheless, with yields already at unusually low levels across the curve, additional asset purchases would provide only very limited benefit to the real economy.”
In addition to announcing its latest monetary policy decision, the central bank also provided updated economic projections.
The latest projections show the Fed now expects the economy to shrink by less than expected in 2020 and grow by slightly more than expected in 2021 and 2022.
Earlier in the day, traders seemed reluctant to make significant moves as they weighed optimism about a new fiscal stimulus bill against disappointing retail sales data.
After a meeting of congressional leaders on Tuesday, both Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer expressed optimism that an agreement can be reached “soon.”
Traders have remained optimistic that lawmakers will eventually reach an agreement even though a deal on a new relief package has remained beyond their grasp for months.
However, the Commerce Department released a report before the start of trading showing retail sales slumped by much more than expected in the month of November.
The Commerce Department said retail sales tumbled by 1.1 percent in November following a revised 0.1 percent dip in October.
Economists had expected retail sales to slip by 0.3 percent compared to the 0.3 percent increase originally reported for the previous month.
Excluding a decrease in sales by motor vehicle and parts dealers, retail sales still fell by 0.9 percent in November. Ex-auto sales were expected to inch up by 0.1 percent.
The National Association of Home Builders also released a report showing homebuilder confidence pulled back by more than expected in December after reaching a record high in November.
Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.
Software stocks showed a strong move to the upside, however, with the Dow Jones U.S. Software Index surging up by 2 percent to its best closing level in three months.
Considerable strength was also visible among gold stocks, as reflected by the 1.8 percent gain posted by the NYSE Arca Gold Bugs Index. The strength in the sector came as the price of gold moved notably higher in electronic trading.
On the other hand, natural gas stocks came under pressure over the course of the session, dragging the NYSE Arca Natural Gas Index down by 1.6 percent.
Significant weakness also emerged among utilities stocks, resulting in a 1.4 percent drop by the Dow Jones Utility Average.
Commodity, Currency Markets
Crude oil futures are rising $0.30 to $48.12 a barrel after edging up $0.20 to $47.82 a barrel on Wednesday. Meanwhile, after climbing $3.80 to $1,859.10 an ounce in the previous session, gold futures are spiking $33.50 to $1,892.60 an ounce.
On the currency front, the U.S. dollar is trading at 102.99 yen versus the 103.47 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2241 compared to yesterday’s $1.2200.
Asian shares ended Thursday’s session mostly higher amid continued optimism concerning U.S. stimulus and vaccine rollouts.
Underlying sentiment was underpinned after the U.S. Federal Reserve signaled that it would keep very easy policy in place until it sees “substantial further progress” in employment and inflation.
Chinese shares rose amid optimism over a swift economic recovery. The benchmark Shanghai Composite Index rallied 37.89 points, or 1.1 percent, to 3,404.87, while Hong Kong’s Hang Seng Index ended up 218.09 points, or 0.8 percent, at 26,678.38.
Japanese shares ended slightly higher, with U.S. stimulus hopes and a pledge of support from the Federal Reserve boosting sentiment. The Nikkei 225 Index reversed an early slide to end up 49.27 points, or 0.2 percent, at 26,806.67, while the broader Topix closed 0.3 percent higher at 1,792.58.
Nintendo jumped 6.6 percent and Keyence Corp. surged 5.3 percent, while Daiichi Sankyo lost 4.4 percent. Japan Post Insurance soared 10 percent on reports that it plans to buy back $2.9 billion of its own shares from its parent Japan Post Holdings. Shares of the latter gained 3.6 percent.
Australian markets rallied after data from the statistics bureau showed employment in the country jumped by 90,000 in November versus an expected 40,000 gain. The jobless rate dropped last month to 6.8 percent from 7.0 percent.
The benchmark S&P/ASX 200 Index climbed 77.50 points, or 1.2 percent, to 6,756.70, while the broader All Ordinaries Index ended up 83.40 points, or 1.2 percent, at 7,000.10.
The big four banks rose between 0.6 percent and 1.3 percent, while mining heavyweights BHP and Rio Tinto surged about 2 percent. Crown Resorts edged up slightly after saying it will go ahead with the December opening of its new Sydney complex.
Seoul stocks ended largely unchanged with a negative bias as investors remained wary of spiking Covid-19 cases and looming virus restrictions.
Health authorities are considering stricter measures as the country battles a third wave of coronavirus infections. There were 1,014 new coronavirus cases today, marking the third-largest daily virus caseload.
Market bellwether Samsung Electronics gave up 0.7 percent, while No. 2 chipmaker SK Hynix advanced 1.7 percent and leading chemical firm LG Chem added 1.3 percent.
New Zealand shares advanced as official data showed the country’s economy grew a record 14 percent in the third quarter, beating the Reserve Bank of New Zealand’s November forecast for quarterly growth. The benchmark NZX-50 Index rose 59.78 points, or 0.5 percent, to 12,888.77.
European stocks are moving higher for the fourth straight day to hover near 10-month highs on Thursday, as U.S. stimulus hopes and optimism over the rollout of coronavirus vaccines strengthened the case for a global economic recovery.
Investors believe that large amounts of liquidity provided by central banks will continue to remain abundant to support the nascent recovery.
The U.S. Congress is getting close to a $900 billion coronavirus relief deal, while the Federal Reserve vowed to keep pouring cash into financial markets until the economy recovers.
European Union lawmakers approved the bloc’s 1.8 trillion-euro ($2.2 trillion) stimulus package on Wednesday, clearing the path for a much-needed injection of funds.
While the U.K.’s FTSE 100 Index is just above the unchanged line, the French CAC 40 Index is up by 0.4 percent and the German DAX Index is up by 0.8 percent.
The British pound has pushed higher against the dollar and euro on optimism about the possibility of a Brexit trade deal. As trade talks reach a climax, officials cautiously predicted a deal within days.
Novartis has risen after the pharmaceutical company agreed to buy all of the outstanding capital stock of Cadent Therapeutics.
Serco Group has also jumped. The provider of services to governments said that it expects fiscal 2020 underlying trading profit to grow by around 35 percent, consistent with previous guidance.
WPP has also moved notably higher. The world’s biggest advertising firm said it expects to return to 2019 levels of revenue less pass-through costs by 2022.
Shares of TalkTalk Telecom Group have also jumped. The telecoms group has agreed a £1.1bn takeover offer by Tosca IOM. Cairn Energy has also advanced after announcing a special dividend.
Electric utility EDF has also moved to the upside. The company revised its EBITDA target for 2020 to 16 billion euros or slightly above, compared to the prior outlook for EBITDA of 15.2 billion euros – 15.7 billion euros.
Automakers are broadly higher even as industry data showed that Europe’s new car registrations logged a double-digit decline in November. Daimler, Renault and Peugeot all rose about 1 percent.
Evotec SE has also jumped. The drug discovery alliance and development partnership company said it has achieved key milestones in its partnership with Bristol Myers Squibb (BMY) on targeted protein degradation.
U.S. Economic Reports
After reporting a significant increase in first-time claims for U.S. unemployment benefits in the previous week, the Labor Department released a report on Thursday showing initial jobless claims unexpectedly saw further upside in the week ended December 12th.
The report said initial jobless claims rose to 885,000, an increase of 23,000 from the previous week’s revised level of 862,000.
The continued increase surprised economist, who had expected jobless claims to drop to 800,000 from the 853,000 originally reported for the previous week.
With the unexpected increase, jobless claims climbed to their highest level since hitting 893,000 in the week ended September 5th.
Meanwhile, a separate report released by the Commerce Department showed new residential construction in the U.S. unexpectedly increased in the month of November.
The Commerce Department said housing starts jumped by 1.2 percent to an annual rate of 1.547 million in November from a revised October rate of 1.528 million.
Economists had expected housing starts to come in unchanged compared to the 1.530 million originally reported for the previous month.
The report also said building permits spiked by 6.2 percent to an annual rate of 1.639 million in November from 1.544 million in October.
Building permits, an indicator of future housing demand, had been expected to rise by 0.4 percent to a rate of 1.550 million.
The Federal Reserve Bank of Philadelphia also released a report showing the pace of growth in regional manufacturing activity slowed by much more than anticipated in the month of December.
The report said the Philly Fed Index tumbled to 11.1 in December after falling to 26.3 in November. While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 20.0.
Looking ahead, the Philly Fed said changes in future indexes were mixed this month but suggest that overall growth is expected to continue over the next six months.
At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auction of twenty-year bonds.
Stocks In Focus
Shares of Rite Aid (RAD) are soaring in pre-market trading after the drugstore chain reported better than expected fiscal third quarter results and raised its full-year guidance.
Consulting firm Accenture (ACN) is also likely to see initial strength after reporting fiscal fourth quarter results that exceeded analyst estimates and boosting its outlook for fiscal 2021.
Shares of Lennar (LEN) may also move to the upside after the homebuilder reported first fourth quarter results that beat expectations on both the top and bottom lines.
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