Thursday August 19th

19-08-2021

Dow futures drop 300 points, commodities retreat on concern about the Fed removing stimulus

U.S. stock index futures retreated sharply Thursday as concern grew that the Federal Reserve could remove stimulus this year, slowing an economy hurt by the spread of the Covid delta variant. Futures on the Dow Jones Industrial Average dropped around 295 points or 0.9%. The Dow tanked by 380 points on Wednesday for its worst performance in a month as meeting minutes from the Fed’s gathering in July showed the central bank has started eyeing tapering its $120 billion in monthly bond purchases before the year-end. S&P 500 futures shed 0.7% and Nasdaq-100 futures lost 0.6%. “The minutes reflect a Fed that is prepared to accelerate its taper timeline to perhaps the next few months,” said Sean Bandazian, investment analyst at Cornerstone Wealth. “Both the Fed and market participants learned lessons from the Taper Tantrum. While we expect less of a surprise this time around there is still reason to believe we will see volatility throughout areas of the market with high sensitivity to interest rates.” WTI crude oil dropped more than 3%, falling to around $63, and copper lost more than 2% on concern about global growth without the Fed bond-buying support. The 10-year Treasury yield fell more than 3 basis points to 1.245%. (1 basis point equals 0.01%.) Goldman Sachs cut its economic growth forecast for the current quarter to 5.5% from 9% Wednesday night, adding to the negative sentiment. The firm also sees higher inflation than expected for the rest of the year. “The impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,” wrote Jan Hatzius, chief economist at Goldman Sachs, in the note. “Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief. Production is still suffering from supply chain disruptions, especially in the auto industry, and this is likely to mean less inventory rebuild in Q3.” Mixed economic data released Thursday did not appear to stem the market slide. First-time jobless claims last week hit a new pandemic-era low at 348,000, declining more than expected from the week prior. The Philadelphia Fed Index, a gauge of growth in the region, still indicated expansion but at a level worse than expected. The August reading was 19.4, below the 22 consensus of economists polled by Dow Jones. Stocks closely linked to the economy led losses in the premarket. Steelmaker Nucor lost about 3%. Oil companies Devon Energy and Occidental Petroleum shed roughly 4% each. Miner Freeport-McMoRan fell around 4%. General Motors fell about 2%. Reopening plays like airlines and hotels were also lower. Robinhood shares tumbled 9% in premarket trading after its first earnings report as a public company. The app warned investors that its third-quarter results could be affected by a slowdown in trading. “For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release. Nvidia’s stock bucked the trend, rising more than 1% in premarket trading after the chip giant’s quarterly earnings and revenue beat Wall Street estimates amid strong graphics cards sales. For the week through Wednesday, the Dow and S&P 500 are each down 1.5%. The Nasdaq Composite is lower by 2%. Shares in Asia-Pacific fell on Thursday, with Chinese tech stocks slipping again as regulatory fears continue to weigh on investor sentiment. Shares of Alibaba in Hong Kong fell to a record low of 160.30 Hong Kong dollars on Thursday, but pared losses before the close. The stock still closed 5.54% lower. Other Chinese tech giants listed in Hong Kong also saw heavy losses, with Tencent slipping 3.44% while Meituan dropped 7.15%. The Hang Seng Tech index slipped 2.93% to 6,044.03. Hong Kong’s broader Hang Seng index closed 2.13% lower at 25,316.33. The broader Nikkei 225 in Japan declined 1.1% to close at 27,281.17 while the Topix index shed 1.39% to 1,897.19. The Taiex in Taiwan led losses among the region’s major markets on Thursday, falling 2.68% to 16,375.40. Mainland Chinese stocks were mixed on the day, with the Shanghai composite slipping 0.57% to 3,465.55 while the Shenzhen component advanced 0.23% to 14,487.36. South Korea’s Kospi dipped 1.93% to close at 3,097.83. Oil dropped for a sixth-straight session on Thursday, falling to the lowest level since May as demand fears and comments from the Federal Reserve that it will suspend its bond-buying program sent prices tumbling. Crude came under pressure amid weakness in the commodities market and equities more generally. West Texas Intermediate crude futures, the U.S. oil benchmark, slid $2.38, or 3.6%, to trade at $63.08. For the week the contract is down more than 8%, on track for a second consecutive week of losses. International benchmark Brent crude declined 3.2% to $66.02 per barrel. Gold prices fell on Thursday as a jump in the U.S. dollar made bullion more expensive for other currency holders after minutes from Federal Reserve’s July meeting showed tapering of its massive stimulus is possible this year. Spot gold was down 0.5% at $1,778.66 per ounce by 0832 GMT. U.S. gold futures eased 0.2% to $1,780.70.