U.S. Major Averages Turned Cautious Ahead of Fed Chair Powell Speech

Alexander Garcia
22 Aug, 2024
Miami

Stocks turned lower, and benchmark indexes trimmed weekly gains but advanced for the third week in a row as market sentiment recovers. 

Earlier in the day, the S&P500 index and the Nasdaq Composite edged higher, and investors confirmed the rate-cut expectations after the latest policy meeting minutes showed policymakers are ready to cut rates if ongoing economic data and inflation trends are supportive. 

However, market sentiment turned cautious ahead of Fed Chair Jerome Powell's speech on Friday at the annual economic symposium in Jackson Hole, Wyoming. 

Inflation has fallen from a peak of nearly 9% to closer to 3% over the last eighteen months, but prices are still rising faster than the 2% target rate set by the Federal Reserve policymakers. 

Kansas City Federal Reserve President Jeffrey Schmid said that the time to lower the interest rate may be closer than expected, but inflation is still ahead of the Fed's 2% target rate. 

Schmid stressed that current interest rates are "restrictive, but they are not overly restrictive." 

“I still believe quite strongly that we really need to turn this inflation number towards 2%. It has to be sustainable. 

Having the labor market cool some is helping that, but there’s still more work to do,” Schmid told CNBC in a live interview from the Fed’s annual retreat in Jackson Hole, Wyoming. 

 

Weekly Jobless Claims Advanced to a 3-week High

Initial jobless claims for the week ending on August 17 increased to 232,000, an increase of 4,000 from the previous week, the Labor Department reported Thursday. 

Continuing claims advanced by 4,000 to 1.863 million in the previous week, as long-term claims data lags by one week and is at its highest level since November 27, 2021. 

 

Existing Home Sales Advanced for the First Time In Five Months

Seasonally adjusted existing home sales increased 1.3% from the previous month in July to an annual rate of 3.95 million units, the National Association of Realtors said Thursday. 

Home sales increased for the first time in five months but declined 2.5% from a year ago. 

The supply of available homes edged higher in July with more sellers emerging. 

Homes available for sale at the end of July increased by 0.8% from June to 1.33 million and increased 19.8% from a year ago, or the equivalent of 4.0 months' supply at the current monthly sales pace.

"Despite the modest gain, home sales are still sluggish," said NAR Chief Economist Lawrence Yun. "But consumers are definitely seeing more choices, and affordability is improving due to lower interest rates."

Home prices continued to move higher; even when more homes were listed for sale, the median sale price increased 4.2% to $422,600, an annual increase in price for the 13th consecutive month. 

Sales in the Northeast increased the most by 4.3% and were flat in the Midwest; they rose 1.4% in the West and 1.1% in the South. 

Median price increased the most in the Northeast, rising 8.3% to $505,100, in the West by 3.4% to $629,500, in the South by 2.3% to $372,500, and in the Midwest by 4.5% to $321,500. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.5% to 5,590.23, the Nasdaq Composite fell 0.1% to 17,909.30, and the Russell 2000 index fell 0.4% to 2,161.25. 

The yield on 2-year Treasury notes edged higher to 4.02%, 10-year Treasury notes increased to 3.86%, and 30-year Treasury bonds inched higher to 4.14%.

WTI crude oil increased $1.52 to $73.44 a barrel, and natural gas prices edged down 13 cents to $2.03 a thermal unit.

Gold fell by $28.19 to $2,484.76 an ounce, and silver decreased by $0.41 to $28.48.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 101.31.

 

U.S. Stock Movers

Agilent Technologies jumped 1.8% to $142.28, and the laboratory supply company reported higher-than-expected fiscal third quarter results. 

Revenue in the quarter increased to $1.58 billion, and adjusted earnings per share rose to $1.32, ahead of expectations of at least $1.25. 

Nordson Corp. gained 0.4% to $248.67, and the adhesive company reported better-than-expected fiscal third quarter results. 

Advance Auto Parts dropped 16.7% to $51.53, and the auto parts retailer reported weaker-than-expected second-quarter earnings. 

The company also lowered its annual earnings per share outlook to between $2.0 and $2.50 from the previous estimate of between $3.75 and $4.25. 

Zoom Video Communications soared 11.7%, and the company reported better-than-expected second-quarter earnings and lifted its annual outlook. 

Revenue increased to $1.16 billion, and earnings per share rose to $1.39. 

Looking ahead, for the third quarter, the company anticipates adjusted earnings per share between $1.29 and $1.31, ahead of the consensus of $1.24. 

The company estimated full-year adjusted earnings per share between $5.29 and $5.32, ahead of market expectations of $5.05.

 

Euro Area Business Activities Unexpectedly Expanded Despite Weaknesses In Germany 

European markets inched higher on Thursday as private sector activities expanded for the sixth month in a row in August. 

Benchmark indexes in London, Paris, and Frankfurt edged higher after the strength in the service sector overshadowed the continued weakness in manufacturing. 

Private sector business activities showed surprising strength after a four-month high increase in the service sector to offset the two-year decline in manufacturing. 

The HCOB Eurozone Composite PMI increased to 51.2 in August from 50.2 in July, and private sector activities expanded for the sixth month in a row, S&P Global reported Thursday. 

The index for service activities rose to 53.3 from 51.9, and the index for manufacturing activities decreased to 45.6 from 45.8 in the previous month. 

Any reading above 50 indicates expansion, and any reading below 50 shows contraction. 

However, Germany's private sector economy remained in contraction, according to a separate report released by S&P Global. 

HCOB Flash Composite PMI decreased to 48.5 in August from 49.1 in July after manufacturing activities continued to shrink and service sector activity growth slowed. 

Negotiated wage growth slowed to 3.55% in the second quarter following the 4.74% increase in the first quarter, primarily because of the weakness in Germany, according to the data released by the European Central Bank. 

The slowdown of wage growth in the largest economy in the eurozone could prompt policymakers to lower rates in September, alleviating concerns that rising labor costs would fuel inflation. 

 

Europe Indexes and Yields

The DAX index increased by 0.2% to 18,493.39; the CAC-40 index rose by 0.002% to 7,524.11; and the FTSE 100 index advanced by 0.1% to 8,288.0. 

The yield on 10-year German bonds edged higher to 2.23%, French bonds inched down to 2.93%, the UK gilts edged higher to 3.94%, and Italian bonds inched up to 3.59%.

The euro edged down to $1.12; the British pound inched higher to $1.31; and the U.S. dollar weakened to 85.15 Swiss cents.

Brent crude increased $1.57 to $77.62 a barrel, and the Dutch TTF natural gas rose by €0.46 to €36.73 per MWh.

 

Europe Stock Movers

Swiss Re rose 3.5% to CHF 114.75, and the reinsurance company reported an increase in earnings in the first half and confirmed its annual outlook. 

Aegon decreased 5.8% to €5.47, and the Dutch insurance company reported a drop in its key operating profits and cash flow metrics. 

CTS Eventim AG added 7.5% to €88.70 after the German ticketing company lifted its annual outlook. 

Deutsche Bank gained 3.2% to €14.45 after the German bank settled with over 80% of plaintiffs in Postbank AG litigation. 

JD Sports Fashion PLC jumped 7.6% to 139.20 pence after the UK-based athleticwear retailer reported organic second quarter sales improved because of the strength in the U.S. and Europe. 

Oil exploration companies fell after crude oil prices fell for the fifth session in a row amid China's demand growth worries. 

BP plc decreased 1% to 425.88 pence, Shell PLC dropped 0.9% to 2,693.50, and TotalEnergies fell 0.7% to €61.71. 

 

Japan Stocks Rebounded After Service Sector Expanded Seventh Consecutive Month 

Stocks in Tokyo advanced as investors latest update on private sector activities, and the yen retained its upward bias. 

The Nikkei 225 stock average gained 0.5%, the Topix inched higher by 0.1%, and the yen traded at 145.35 against the U.S. dollar. 

Stocks opened higher in Tokyo after the latest minutes of the meeting from the U.S. Federal Reserve showed policymakers are open to a rate cut at the next meeting if economic data support such a move. 

The dovish minutes supported the broader market sentiment in New York, and positive earnings from leading retailers Target Corp., TJX, and Macy's also contributed to the market's strength. 

Closer to home, Japan's service sector expanded for the seventh month in a row in August, indicating a strong demand for private sector business services, and the manufacturing sector contracted for the sixth month in a row. 

The au Jibun Service Purchasing Managers' Index increased to 54.0 in August from the revised 53.7 in July, and the au Jibun Manufacturing PMI edged higher to 49.5 from a four-month low of 49.1 in July. 

The monthly surveys were released by S&P Global on Thursday. 

 

Japan Stock Movers 

The Nikkei 225 stock average added 0.5% to 38,145.86, and the Topix index rose 0.1% to 2,668.61. 

Technology stocks, financial stocks, retailers, and diversified conglomerates were among the most actively traded stocks on Thursday. 

Advantest, Tokyo Electron, Shin-Etsu Chemical, Lasertec, and SoftBank advanced between 1% and 4%. 

Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho Financial fell between 1% and 2%, but China Bank declined more than 3%. 

Mitsubishi Corp. increased 0.3% to ¥3,027.0, Marubeni decreased 0.3% to ¥2,456.0, and Itochu Corp. jumped 0.5% to ¥7,127.0. 

Mercari jumped 7.5% to ¥2,377.0, IHI Corp. added 5.9% to ¥5,891.0, Chugai Pharmaceutical gained 3.9% to ¥7,114.0, and Sumitomo Pharma jumped 6.7% to ¥652.0. 

 

Hong Kong Stocks Rebound After Positive Earnings from AIA and Xiaomi 

Stocks in Shanghai and Hong Kong advanced in subdued trading as investors reacted to positive earnings from leading companies. 

The Hang Seng index added 0.5%, and the CSI 300 index edged up a fraction. 

Market sentiment was positive after AIA and Xiaomi reported earnings ahead of market expectations. but residential property developers turned lower after Kaisa Group Holding reported weak results. 

Investors also took note of the Federal Reserve policymakers supporting a rate cut at the next meeting in September if economic data support such a move, as the latest minutes of the meeting showed on Wednesday. 

Despite the rebound in the Hang Seng index after a two-day sell-off, investor enthusiasm was muted amid a weakening macroeconomic backdrop. 

 

China Stock Movers 

The Hang Seng index increased 0.5% to 17,488.74, and the CSI 300 index inched up 0.05% to 3,323.36. 

Xiaomi jumped 8.1% to HK $18.94, and the smartphone and electric vehicle maker reported that second-quarter revenue soared 32% to 88.9 billion yuan, or $12.4 billion, and net income jumped 38.3% to 5.1 billion yuan. 

Smart handset unit sales soared 28% to 42.2 million units, and the business division's revenue increased 27.1% to 46.5 billion yuan. 

The company' delivered 27,307 SU7 electric vehicles, with the EV unit generating revenue of 6.4 billion yuan and a net loss of 1.8 billion yuan. 

The company lost an average of 65,900 yuan per car sold in the June quarter, and the company said it plans to sell 100,000 vehicles by November and expand its retail store network to 100 from the current 87 in 30 cities. 

AIA Group gained 4.9% to HK$53.95, and the insurance company sold more insurance policies in mainland China. 

The value of new business, a measure of revenue, increased 25% to $2.46 billion, and net income soared 52% to $3.31 billion, or 29.53 U.S. cents. 

The value of new business in mainland China rose 36% to $782 million, and in Hong Kong, it advanced 26% to $858 million. 

Mainland residents continued to buy insurance policies issued in Hong Kong to take advantage of stable currency and diversify investment returns amid a weak outlook for the yuan. 

The Chinese yuan has lost about 12% of its value against the U.S. dollar over the last two years. 

The company also increased its interim dividend by 5.2% to 44.50 HK cents.