US stocks open slightly higher amid volatile trading after big sell-off

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9.50am: Proactive North America headlines:

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Kazia Therapeutics secures orphan drug designation for treatment of AT/RT tumours with paxalisib

European Lithium’s partner sets exploration strategy in motion for Eastern Alps Lithium Project

Alkaline Fuel Cell Power appoints energy sector veteran Carmine Marcello as advisor

9.35am: US stocks edge higher after steep decline

US stocks opened slightly higher on Friday following a major sell-off during the previous day’s trading.

At the open, the Dow Jones Industrial Average was up 24 points at 29,951 points.

The S&P 500 was up 10 points at 3,676 points and the Nasdaq Composite had gained 74 points at 10,720 points.

OANDA senior market analyst Craig Erlam said investors have earned a weekend break in the sun after quite an extraordinary week in the markets that saw plenty of central bank action, even from those not scheduled to meet.

“Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control,” he said.

“It is better than the alternative though; stagflation. A term that’s been thrown around way too much in recent months which perhaps highlights the trepidation around it. We are not in a stagflationary environment, nor will we be later this year. But the risk of one is rising which is why central banks are becoming increasingly accepting of their actions tipping the economy into recession.”

6.30am: Friday recovery predicted

US markets are expected to open higher on Friday, recovering some of Thursday’s sharp losses when all three major indexes closed at their lowest levels since 2020 as investors fretted over Federal Reserve interest rate policy following Wednesday’s 75 basis point hike.

Analysts are expecting trading to remain volatile after further weak data as strong inflationary headwinds have become a mainstay and energy prices remain elevated.

Futures for the Dow Jones Industrial Average gained 0.8% in pre-market trading, while those for the broader S&P 500 index added 0.9%, and contracts for the Nasdaq-100 were up 1.1%.

“US stocks were battered on Thursday as the soft US data in the wake of a 75 basis points hike from the Federal Reserve fueled recession fears and triggered a heavy risk sell-off,” Swissquote Bank senior analyst Ipek Ozkardeskaya said, summing up sentiment in the market after yesterday’s unexpectedly weak economic reports.

The Philadelphia Federal Reserve said Thursday its gauge of regional manufacturing activity fell sharply to 2.6 in May from 17.6 in April, the lowest level of activity since the spring of 2020, while the US weekly jobless claims rose more than expected to 229,000 for the week ended June 11, suggesting that the labor market is cooling and amplifying fears of a recession.

Elsewhere, a report from the Commerce Department showed housing starts declined 14.4% to a seasonally-adjusted annual rate of 1.549 million units last month, the lowest level since April 2021, while permits for future homebuilding fell 7.0% to 1.695 million units, both of which Ozkardeskaya described as disappointing.

On the other hand, the firmer US dollar is an indication that “the upsetting data could hardly cheer up the Fed doves who know that the Fed won’t do much to help before inflation softens,” she said: “And unfortunately, inflation won’t soften until energy prices ease significantly.”  

Oil prices rebounded aggressively on Friday after hitting the $112 per barrel yesterday on expectations that China’s economic recovery, the global travel boom and a tight supply will combine to keep the market bullish in the medium term.

News that the US is stepping up production, and a forecast that the Permian oil and gas output will hit record high in June have not helped, Ozkardeskaya said, forecasting that oil’s rally will lose pace nearing $120 per barrel as recession fears dent the global demand outlook. 

In energy markets, WTI crude oil futures gained 0.8% to $118.57 a barrel and Brent crude futures added 0.9% to $120.89.

Contact the author at jon.hopkins@proactiveinvestors.com

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