Positive Reaction To Fed May Generate Continued Buying Interest

Add as your preferred news source on Google

Add Now

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks poised to extend the rally that was seen over the course of the previous session. A positive reaction to the Federal Reserve's monetary policy announcement may general continued buying interest as traders digest the day's batch of U.S. economic data.

U.S. stocks advanced notably on Wednesday, as the Fed decision to hold off on a rate hike brought cheer to the markets.

The major averages opened higher and moved roughly sideways but lost some momentum ahead of the Fed announcement. Following the announcement, however, the indexes picked up steam and rose sharply over the remainder of the session, ending notably higher.

The Dow Industrials added 163.74 points or 0.90 percent before ending at 18,294, the highest level since September 12th, the S&P 500 Index rallied 23.26 points or 1.09 percent higher to 2,163 and the Nasdaq Composite ended at a record high of 5,295, up 53.83 points or 1.03 percent.

Among the sectors, gold stocks soared on dollar weakness. Other resource, utility, transportation and computer hardware stocks also saw notable gains.

Twenty-seven of the thirty Dow components advanced, while only three stocks retreated. Boeing (BA), Caterpillar (CAT), Chevron (CVX), UnitedHealth (UNH), United Technologies (UTX) and Microsoft (MSFT) were among the biggest gainers of the session.

On the economic front, the Federal Reserve's monetary policy arm, the Federal Open Market Committee, left its key interest rate unchanged at 0.25-0.50 percent, belying expectations from some quarters that the central bank may hike rates. The decision was not unanimous, with three Fed officials calling for a hike. The central bank did say the case for tightening has strengthened but it would wait for further evidence of continued progress towards its objectives. This does not preclude a December hike.

In its commentary on the economy, the Fed noted that growth has picked up from the modest pace seen in the first half of the year. Job gains were also termed as solid. The rest of the commentary on household spending, business fixed investment, inflation and inflation expectations was unchanged.

The updated FOMC forecasts revealed that the median GDP forecast for 2016 was trimmed to 1.8 percent from the 2 percent estimated in June. The 2017 outlook was left unchanged at 2 percent. The unemployment rate forecast for 2016 was nudged up to 4.8 percent from 4.7 percent, but in 2017, the metric is expected to slip back to 4.6 percent, unchanged from its previous projection. The core PCE inflation estimate for 2017 was left unchanged at 1.7 percent.

However, the dot plot forecast of the Fed revealed that unlike in June no Fed official expected an unchanged stance through the year, three currently expect a status quo stance in 2016. The dot plot also supports the case for gradual tightening, with 10 expecting rates between 0.5%-0.75%, while in June only 6 expected a similar rate.

Commodity, Currency Markets

Crude oil futures for November delivery are climbing $0.85 to $46.19 a barrel after jumping $1.29 to $45.34 a barrel on Wednesday.

The gain seen in the previous session came following the FOMC decision and the release of the weekly petroleum status report for the week ended September 16th, which showed that crude oil stockpiles fell by 6.2 million barrels to 504.6 million barrels. Stockpiles were still at historically high levels for this time of year.

Gasoline inventories declined by 3.2 million barrels but were well above the upper limit of the average range. Meanwhile, distillate inventories rose by 2.2 million barrels, rising to well above the upper limit of the average range for this time of the year.

Refinery capacity utilization averaged 92.9 percent over the four weeks ended September 16th compared to 93 percent for the four weeks ended September 9th.

Gold futures are currently trading at $1,340.70 an ounce, up $9.30 from the previous session's close of $1,331.40 an ounce. On Wednesday, gold gained $8.10.

On the currency front, the U.S. dollar is trading at 100.61 yen compared to the 100.32 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1247 compared to yesterday's $1.1189.

Asia

The major Asian markets ended higher, as the Fed's positive assessment of the economy and an unchanged stance that set in motion a strong rally in the U.S. spread optimism into to Asia too. The Japanese markets were closed for a public holiday.

Australia's All Ordinaries Index rose for the third straight session, as the Fed decision and the rally in commodity prices in the wake of the resultant risk appetite supported the upside. The index opened higher and hovered above the unchanged line throughout the session before ending up 36.90 points or 0.68 percent at a 2-week high of 5,466.

The market witnessed another day of broad based strength, with material and energy stocks leading the way higher. However, consumer discretionary stocks were little changed.

Hong Kong's Hang Seng Index added 89.90 points or 0.38 percent before ending at 23,760, and China's Shanghai Composite ended up 16.44 points or 0.54 percent at 3,042.

On the economic front, the New Zealand central bank left the official cash rate unchanged at a record low 2.0 percent, as was widely expected. The Reserve Bank of New Zealand retained its easing bias to ensure that future inflation settles near the middle of the target range.

Europe

European stocks have moved sharply higher, as the markets in the region continue to soak up the central banks' benevolent stances. The French market is higher for the second straight session, and the German market is up for a fourth session.

In corporate news, A.P. Moller-Maersk announced that it has decided to reorganize into two independent divisions, an integrated Transport & Logistics division and an Energy division.

On the economic front, French statistical office INSEE reported that the French manufacturing confidence index rose to 103 in September from 101 in August. The score was expected to remain unchanged at 101.

U.K. car production logged its biggest increase for August in 14 years on strong demand, the Society of Motor Manufacturers and Traders reported. Car output climbed 9.1 percent year-over-year to 109,004 units in August.

U.S. Economic Reports

After reporting only slight shifts in first-time claims for U.S. unemployment benefits over the past few weeks, the Labor Department released a report this morning showing an unexpected drop in initial jobless claims in the week ended September 17th.

The report said initial jobless claims fell to 252,000, a decrease of 8,000 from the previous week's unrevised level of 260,000. The decline surprised economists, who had expected jobless claims to inch up to 262,000.

With the unexpected decrease, jobless claims fell to their lowest level since hitting a matching figure in the week ended July 16th.

The National Association of Realtors is scheduled to release its existing home sales report for August at 10 am ET. Economists expect existing home sales to come in at a seasonally adjusted annual rate of 5.440 million units, a 3.2 percent drop over the month and a 1.6 percent decline over the year.

Existing home sales fell to a seasonally adjusted annual rate of 5.39 million units in July, down 3.2 percent from the 5.570 million-unit rate in June. Economists had expected a reading of 5.520 million units. Annually, existing home sales were down 1.6 percent.

The median price of an existing home fell 1.4 percent month-over-month to $244,100, rendering the annual rate to 5.3 percent. Single-family sales were down 2 percent compared to a 12.3 percent slump in condominium sales.

Also at 10 am ET, the Conference Board is due to release its leading economic indicators index for August, with the consensus estimate calling for a 0.1 percent month-over-month gain.

The leading economic indicators index rose 0.4 percent month-over-month in July, ahead of the 0.3 percent growth expected by economists. In June, the index rose 0.3 percent. Among the positives were stock prices, unemployment claims and low interest rates.

The Treasury Department is set to make announcements concerning next week's auctions of 2-year, 5-year and 7-year notes at 11 am ET.

?Stocks in Focus

AutoZone (AZO) reported better than expected fourth quarter earnings but on weaker than expected revenues. The auto parts retailer said its same-store stores rose by 1 percent.

Drugstore chain Rite Aid (RAD) reported second quarter earnings that came in slightly above analyst estimates, although its revenues came in below expectations.

Bed Bath & Beyond (BBBY) reported second quarter earnings per share and revenues that missed estimates. However, the company's full year earnings per share guidance was in line.

Red Hat (RHT) reported above-consensus second quarter non-GAAP earnings per share and revenues, as subscription revenue growth remained strong. The company's third quarter and full year guidance was upbeat.

Jabil Circuit (JBL) reported better than expected fourth quarter results and issued positive revenue guidance for the first quarter. However, the earnings per share guidance was weak.

Herman Miller (MLHR) reported first quarter results that trailed estimates and issued downbeat guidance for the second quarter.

H.B. Fuller's (FUL) third quarter results were below estimates, and the company lowered the upper end of its 2016 adjusted earnings per share guidance.

Sarepta Therapeutics (SRPT) announced that it would offer up to $225 million of its shares in an underwritten public offering. The company said it intends to use the proceeds to fund clinical trials, both existing and new, manufacturing, business development and other general corporate purposes.

Analogic (ALOG) reported better than expected fourth quarter non-GAAP earnings, while its revenues were shy of estimates. The company's guidance for 2017 was muted.

For comments and feedback contact: editorial@rttnews.com