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Stocks Likely To Move Sharply Lower In Early Trading - U.S. Commentary

With traders continuing to express disappointment with the minutes of the latest Federal Reserve meeting, stocks are likely to come under pressure in early trading on Wednesday. The major index futures are pointing to a sharply lower open for the markets, with the Dow futures down by 112 points.

The downward momentum for the markets comes as the minutes of the Fed's last monetary policy meeting in March were interpreted as a sign that the central bank is not likely to engage in any further quantitative easing.

The latest minutes said only "a couple of members" indicated that additional stimulus could become necessary, while the minutes of the January meeting said "a few members" believed that conditions could warrant additional securities purchases.

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted that some traders were clinging to the possibility that a third round of quantitative easing was coming due in part to the dovish tone of Fed chairman Ben Bernanke's recent speech on the labor market.

As a result of the focus on the Fed, traders have largely shrugged off the release of a report from payroll processor Automatic Data Processing (ADP) showing continued growth in the U.S. private sector.

ADP said employment increased by 209,000 jobs in March following an upwardly revised increase of 230,000 jobs in February. Economists had expected an increase of about 208,000 jobs compared to the addition of 216,000 jobs originally reported for the previous month.

"After allowing for another modest dip in public sector employment, there is nothing in this ADP report to change our view that the official non-farm payroll figures will show a 200,000 increase," Ashworth said.

Not long after the open, the Institute for Supply Management is scheduled to release its monthly report on activity in the U.S. service sector. Economists expect the index of activity in the sector to edge down to 57.0 in March from 57.3 in February.

In other news, the European Central Bank kept eurozone interest rates unchanged at a record low for the fourth month in a row, as the region's economy is likely to have entered a recession in the first quarter amid lingering concerns over the sovereign debt crisis.

Among individual stocks, Monsanto (MON) may be in focus after the agricultural products provider reported better than expected second quarter results and raised its full-year earnings outlook.

SanDisk (SNDK) may also attract attention after the memory chip maker lowered its first quarter revenue guidance, citing weaker than expected pricing and demand. The company also lowered its total gross margin guidance.

Stocks moved mostly lower over the course of the trading day on Tuesday, with considerable selling pressure emerging in afternoon trading following the release of the minutes of the Fed meeting.

The major averages climbed well off their worst levels going into the close but still ended the day in the red. The Dow fell 64.94 points or 0.5 percent to 13,199.55, the Nasdaq edged down 6.13 points or 0.2 percent to 3,113.57 and the S&P 500 slid 5.73 points or 0.4 percent to 1,413.31.

In overseas trading, stock markets across the Asia-Pacific region came under pressure on Wednesday. Japan's Nikkei 225 Index tumbled by 2.2 percent, while Australia's All Ordinaries Index edged down by 0.1 percent. The markets in Hong Kong and mainland China were closed for public holidays.

The major European markets have also shown significant moves to the downside on the day. While the U.K.'s FTSE 100 Index is down by 1.3 percent, the French CAC 40 Index and the German DAX Index are both down by 1.9 percent.

In commodities trading, crude oil futures are sliding $1.45 to $102.56 a barrel after retreating $1.22 to $104.01 a barrel on Tuesday. An ounce of gold is currently fetching $1,621, down $51 from the previous session's close of $1,672. On Tuesday, gold fell $7.70.

On the current front, the U.S. dollar is trading at 82.28 yen compared to the 82.81 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3117 compared to yesterday's $1.3233.

by RTT Staff Writer

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