U.S. stock index futures were lower on Thursday, adding to their losses after the release of U.S. jobless claims and retail-sales data, while the European Central Bank raised interest rates one day after the Federal Reserve opted for a pause in its rate hiking campaign.
How is the market doing?
- S&P 500 futures ES00, -0.25% dipped 23 points, or 0.5%, to 4395.
- Dow Jones Industrial Average futures YM00, -0.04% shed 99 points, or 0.3%, to 34183.
- Nasdaq 100 futures NQ00, -0.48% eased 122 points, or 0.8% to 15080.
On Wednesday, the Dow Jones Industrial Average DJIA, -0.68% fell 233 points, or 0.68%, to 33979, the S&P 500 SPX, +0.08% increased 4 points, or 0.08%, to 4373, and the Nasdaq Composite COMP, +0.39% gained 53 points, or 0.39%, to 13626.
What’s driving markets
The U.S. stock market rally was set to take a breather after the Fed left interest rates unchanged, but signaled more interest-rate increases to come. Data released early Thursday, as well as a rate hike from the ECB, added to the pressure on stocks.
The ECB lifted interest rates by a quarter of a percentage point, as expected. Back in the U.S., a weekly update on the number of Americans applying for jobless benefits showed the number of first-time applicants was unchanged at 262,000, according to data released on Thursday.
In U.S. economic data, retail sales for May were stronger than expected, rising 0.3%, besting expectations for a drop of 0.2%. Sales also came in above forecast in April, when they rose 0.4%.
Meanwhile, two regional gauges of manufacturing sentiment showed signs that they may be improving in June after a rough patch. The Philadelphia Fed’s manufacturing index slipped further to a reading of negative 13.7, from negative 10.4 in the prior month, but the New York Fed’s Empire State Index jumped to a reading of 6.6 in June from negative 31.8 in the prior month.
As investors positioned for higher short-term interest rates ahead, the yield on the 2-year Treasury note TMUBMUSD02Y, 4.646% climbed to a three-month high early Thursday, a sign that investors are bracing for more hikes after the Fed stood pat leaving its policy rate target at 5% to 5.25% this week.
The yield on the 2-year note, considered to be sensitive to changes in expectations for monetary policy, was up 1.3 basis points at 4.714%, having reversed most of a decline that was driven by the collapse of several midsize U.S. banks back in March.
The S&P 500 has jumped 13.9% so far in 2023, partly on hopes the Fed’s campaign of sharp hikes in borrowing costs might soon be over. Now, investors are adjusting to the reality that the Fed might carry its policy rate to north of 5.5% by the end of the year.
“The suggestion of another rise in addition to July took some wind from investors’ sails…The overall conclusion that the fight against inflation remains live will likely rekindle concerns over the possibility of recession should the Fed overtighten, with the central bank very much keeping its options open,” said Richard Hunter, head of markets at Interactive Investor.
More data lies ahead, with industrial production and capacity utilization numbers for May to be released at 9:15 a.m., all times Eastern.
Further damping sentiment on Thursday is news from China, where retail sales and industrial production data showed the world’s second biggest economy has continued to struggle despite hopes for a robust rebound from its COVID-19 lockdowns.
The People’s Bank of China reacted by cutting its key policy rate for first time in nearly a year, but assets sensitive to perceptions of China demand, such as oil CL.1, +1.42% and copper HG00, +0.22%, are still under pressure early Thursday.
Companies in focus
- Kroger Co. KR, +0.75% fell in premarket trading Thursday, putting them in danger of snapping a five-day win streak, after the grocery chain reported fiscal first-quarter profit that topped expectations but net sales that came up a bit shy, and affirmed its full-year outlook.
- Lennar Corp. shares LEN, -1.09% rose in premarket trade after the homebuilder reported results that topped Wall Street expectations, and hiked its delivery forecast for the year.
- Shares of leading AI plays including Nvidia NVDA, +4.81%, Advanced Micro Devices AMD, +2.25% and C3.ai AI, -0.63% slipped after strong gains.