Wall Street on track for weaker opening after Christmas surge

Wall Street’s whipsaw run was set to continue on Thursday with futures trading indicating a weaker opening for US shares after a record-breaking surge that cut bruising losses from a turbulent run-up to Christmas.

Futures contracts suggest the S&P 500 will open about 1.5 per cent lower, with the Dow Jones set for a 1.6 per cent fall. European stock markets reflect the renewed weakness, with the regional Stoxx 600 index at its lowest level since November 2016, down 1.4 per cent. The UK’s FTSE 100 hit its lowest level since July 2016, dropping 1.5 per cent.

Asian markets were mixed in Thursday’s trading, with some settling back after early advances. Japan’s benchmark Topix closed up 4.9 per cent, but Hong Kong’s Hang Seng index fell 0.7 per cent and China’s CSI 300 lost 0.4 per cent.

Thursday’s dip resumed Wall Street’s punishing pre-Christmas four-session losing streak, eroding some of the gains that had been made on Wall Street in an extraordinary Boxing Day session.

US stock market benchmarks jumped the highest amount in almost 10 years in percentage terms on Wednesday, while the Dow Jones Industrial Average rose 1,000 points for the first time. The 5 per cent gain in the S&P 500 index reduced the benchmark’s December losses to 10.6 per cent, after having fallen as much as 15 per cent.

“There is still a lot of uncertainty. You don’t want to try to call a bottom in a market that is this edgy,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. “If you are wrong, it can be costly. It is better to see more fundamental signs of breadth and economic and geopolitical rationale for a rally before jumping back in.”

Investors and Trump administration officials pointed to unusually large year-end rebalancing from pension funds as a catalyst.

Wells Fargo analysts previously estimated about $60bn of stock buying had been expected from pension funds over the year-end period, with US administration officials saying that it had amounted to $100bn on Wednesday. Amid thin seasonal trading volumes, the buying activity is thought to have had an outsized impact on prices.

Investors had pulled money from investment funds focused on US equities in what had been an unusually bruising December for them, exacerbated in recent days by the partial shutdown of the US government, reports that US president Donald Trump had considered trying to dismiss Federal Reserve chairman Jay Powell and an effort by Treasury secretary Steven Mnuchin to calm investors’ nerves that appeared to backfire.

Stock investors were also unnerved by Mr Powell’s statement when US interest rates were raised in December that he did not see the central bank changing its “autopilot” policy of reducing the size of the Fed’s balance sheet.

John Redwood, chief global strategist at investment manager Charles Stanley, said investors were concerned about the consequences of major central banks’ tightening of monetary policy.

“We have been reminded that shares are risky through some sharp falls,” he said. “The rally should have further to go, as investors remind themselves that the main governments and central banks do not have to fight rampant inflation and should wish to keep the recovery going for longer; we see no reason to panic out of shares at these levels.”

In oil markets, crude prices fell again on Thursday after rebounding almost 8 per cent in the previous session.

Crude had been under pressure before Wednesday’s sharp gain, amid concerns about weakness in the global economy that could have a knock-on effect on oil demand. The slide comes even as global producers led by Saudi Arabia and Russia are set to enact production curbs from January to bolster prices that have fallen 40 per cent since October.

Traders have yet to be convinced that the output cuts will have a meaningful impact on global supply and demand balances, particularly as US shale production swells to record levels.

Brent, the international benchmark, fell 2.1 per cent to $53.32 a barrel by mid-afternoon trading in London — after dropping as low as $52.80 earlier in the day — the lowest since September 2017. West Texas Intermediate, the US marker, slid 1.9 per cent to $45.36 a barrel, having fallen earlier in the day to $44.92 a barrel, the lowest since July 2017.

Gold prices are holding below their recent highs. The metal is up 0.65 per cent at $1,275 on Thursday afternoon, below the $1,279 it reached before Christmas.