Markets begin the second half cautiously
US stock futures traded lower on Wednesday ahead of the first session of the second half of the year, with investors preparing for comments from Federal Reserve Chair Kevin Warsh, fresh US manufacturing data and ongoing geopolitical developments in the Middle East.
By 03:16 ET, Dow Jones futures were down 202 points, or 0.4%, while S&P 500 futures fell 33 points and Nasdaq 100 futures lost 195 points, both declining 0.4% and 0.6% respectively.
Wall Street ended Tuesday’s session higher, capping a volatile second quarter with gains led by technology stocks. The Philadelphia Semiconductor Index also recorded another strong advance, delivering its best quarterly performance since the benchmark was launched in the early 1990s.
Strong jobs data strengthens rate expectations
Investor sentiment was tempered by mixed US economic data.
May job openings exceeded expectations, while housing and consumer confidence figures disappointed. Together with hawkish remarks from Cleveland Federal Reserve President Beth Hammack, the stronger labour market data reinforced expectations that the Federal Reserve could consider raising interest rates as early as July.
All eyes on Kevin Warsh at Sintra
Attention now turns to Federal Reserve Chair Kevin Warsh, who is due to speak later today during a panel discussion at the European Central Bank’s annual forum in Sintra, Portugal.
Warsh, who succeeded Jerome Powell as Fed Chair, has indicated that he may adopt a different approach to forward guidance by reducing the amount of policy direction provided to financial markets.
Earlier this month, following his first interest rate decision as Fed Chair, Warsh announced plans to establish a task force to review the Federal Reserve’s communication strategy and broader policy framework.
Investors will also be looking for any comments on the outlook for inflation and economic growth. Although energy prices became a major concern following the outbreak of the Iran conflict earlier this year, the interim agreement reached between Washington and Tehran in June has helped oil prices return to levels seen before the conflict.
Qatar talks remain in focus
Brent crude traded broadly unchanged at around $73 a barrel as markets monitored separate diplomatic meetings involving US and Iranian representatives in Qatar.
Although both countries are participating in discussions with international mediators, officials from Iran and Qatar have confirmed that no direct high-level negotiations between Washington and Tehran are currently planned.
Tensions surrounding the Strait of Hormuz remain unresolved. While the White House maintains that shipping routes remain open, Iran continues to insist on retaining influence over maritime traffic through the strategic waterway.
Manufacturing data due before payrolls report
Economic attention later today will focus on the Institute for Supply Management’s manufacturing Purchasing Managers’ Index (PMI) for June.
Economists expect the index to ease slightly to 53.8 from 54.0 in May, although a reading above 50 would continue to indicate expansion in manufacturing activity.
Markets will also monitor the ISM prices paid component for further evidence of easing inflationary pressures, while the ADP private payrolls report is expected to provide additional clues ahead of Thursday’s closely watched US employment report.
Nike warns recovery will take longer
Nike (NYSE:NKE) shares fell in premarket trading after the sportswear group warned that its turnaround will take longer than previously anticipated.
Although fourth-quarter revenue exceeded market expectations, the company continued to report significant weakness in China, where sales declined by double digits.
Chief Executive Elliott Hill acknowledged that further work remains to restore growth, telling investors after the earnings release: “aren’t there yet,” adding that the company is not “living up to our full potential.”