Market Analysis

Beyond the Numbers

Fed Announcement May Remain In Focus On Wall Street
9/21/2017 8:56 AM

The major U.S. index futures are pointing to a modestly lower opening on Thursday following the mixed performance seen in the previous session. Traders continue to digest the Federal Reserve’s monetary policy announcement on Wednesday.

Stocks saw considerable volatility late in the trading day on Wednesday following the Fed announcement. The major averages eventually ended the session mixed, with the Dow and the S&P 500 rising to new record closing highs.

While the Nasdaq edged down 5.28 points or 0.1 percent to 6,456.04, the Dow rose 41.79 points or 0.2 percent to 22,412.59 and the S&P 500 inched up 1.59 points or 0.1 percent to 2,508.24.

The mixed close on Wall Street came after the Fed left interest rates unchanged as widely expected but signaled another rate hike is likely this year.

The Fed's projections pointed to a quarter basis point rate increase later this year, with the rate hike widely expected to come at the December meeting.

"We had suspected that the recent softness of core inflation could persuade officials to hold off on the next rate hike until next year," said Andrew Hunter, U.S. economist at Capital Economics.

He added, "Given these latest projections and the broadly unchanged language on inflation in today's policy statement, we now expect the Fed to push on and raise rates again in December."

The Fed also revealed that it will begin shrinking its $4.5 trillion balance sheet in October, initially allowing $10 billion in bonds to roll off each month.

In her subsequent press conference, Fed Chair Janet Yellen said the process of winding down the balance sheet would be gradual and predictable.

With the focus on the Fed, traders shrugged off a report from the National Association of Realtors showing an unexpected decrease in existing home sales in the month of August.

NAR said existing home sales slumped by 1.7 percent to an annual rate of 5.35 million in August after tumbling by 1.3 percent to a rate of 5.44 million in July.

The continued decrease surprised economists, who had expected existing home sales to edge up to an annual rate of 5.46 million.

With the unexpected decrease, existing home sales fell to their lowest annual rate since hitting 5.34 million last August.

Oil service stocks moved sharply higher over the course of the trading day, driving the Philadelphia Oil Service Index up by 1.8 percent. The index reached its best closing level in two months. The strength in the sector came amid a notable increase by the price of crude oil.

Significant strength was also visible among biotechnology stocks, as reflected by the 1.6 percent gain posted by the NYSE Arca Biotechnology Index.

Alnylam Pharmaceuticals (ALNY) posted a standout gain after the biopharmaceutical company reported positive trial results for its treatment of a rare genetic disease.

Transportation stocks also showed a notable move to the upside on the day, resulting in a 1.6 percent advance by the Dow Jones Transportation Average. With the gain, the average reached a two-month closing high.

On the other hand, gold stocks fell sharply following the Fed announcement, dragging the NYSE Arca Gold Bugs Index down by 1.9 percent. The weakness in the sector came as the price of gold came under pressure in electronic trading.

Semiconductor and computer hardware stocks also saw notable weakness, contributing to the modest drop by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are falling $0.45 to $50.24 a barrel after jumping $0.93 to $50.41 a barrel on Wednesday. An ounce of gold is trading at $1,292.70, down $23.70 compared to the previous session’s close of $1,316.40. On Wednesday, gold rose $5.80.

On the currency front, the U.S. dollar is trading at 112.38 yen compared to the 112.22 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1919 compared to yesterday’s $1.1892.


Asian stocks ended mostly lower on Thursday, as the dollar strengthened after the U.S. Federal Reserve struck a hawkish tone by signaling another rate hike this year.

The dollar hit a two-month high versus the yen as Fed officials projected one more 25 basis point rate hike by the end of the year and the Bank of Japan maintained the status quo in line with market expectations.

Meanwhile the Organization for Economic Cooperation and Development said in an interim update that global growth momentum has improved and is more broad-based, but a self-sustained recovery is far from secured as inflation remains subdued and there exists an unmet need for structural reforms.

Chinese shares ended a tad lower as losses in the realty and material sectors overshadowed gains by financial stocks. The benchmark Shanghai Composite Index eased 7.80 points or 0.2 percent to 3,358.19, while Hong Kong's Hang Seng Index edged down 17.47 points or 0.1 percent to 28,110.33.

Australian shares fell sharply after the Fed indicated that a rate hike might be on the table in December. The benchmark S&P/ASX 200 Index fell by 53.70 points or 0.94 percent to 5,655.40, extending losses for the third straight session and closing at its lowest level in over seven months. The broader All Ordinaries Index ended down 53 points or 0.92 percent at 5,716.70.

Miners BHP Billiton, Rio Tinto and Fortescue Metals Group dropped 1-3 percent as Chinese iron ore futures succumbed to selling pressure for a fifth consecutive session.

Gold miners Newcrest, Evolution, Regis Resources and Northern Star lost 3-6 percent as gold prices hit a three-week low. The big four banks slid between 0.3 percent and 0.9 percent.

Meanwhile, Japanese shares inched higher as the yen eased. Investors also breathed a sigh of relief as the Bank of Japan kept its monetary policy steady and maintained its upbeat view of the economy, saying that exports have been on an increasing trend.

The Nikkei 225 Index rose 37.02 points or 0.2 percent to 20,347.48, while the broader Topix index closed marginally higher at 1,668.74.

Banks Mizuho Financial and Mitsubishi UFJ Financial climbed 1-2 percent on expectations that they would benefit from higher bond yields.

On the other hand, Toshiba shed 1.6 percent after it agreed to sell its memory chip unit to a consortium backed by U.S. private equity giant Bain Capital for $18 billion.

Apple supplier Murata Manufacturing tumbled 2.4 percent amid reports that Apple's new Series 3 smartwatch has connectivity issues.


European stocks have risen on Thursday as higher bond yields following resolutely hawkish signals from the U.S. Federal Reserve and media reports of a possible merger of Commerzbank with Italy's UniCredit helped fuel a rally in banks.

The pan-European Stoxx Europe 600 Index has risen by 0.2 percent after ending Wednesday's session little changed.

The French CAC 40 Index is up by 0.6 percent and the German DAX Index is up by 0.3 percent, although the U.K.’s FTSE 100 Index has edged down by 0.1 percent.

Commerzbank has rallied after Reuters reported that Italy's UniCredit had made early approaches to authorities in Germany in order to sound-out support for a merger with the state-backed lender.

French pharmaceutical company Abivax has also advanced after its first-half net loss narrowed from last year.

Johnson Matthey shares have soared in London after the chemicals company confirmed its guidance for the current financial year ending March 31, 2018.

Irish building materials firm CRH has also risen after the company said it would buy U.S. cement maker Ash Grove Cement in a $3.5 billion deal to expand business in North America.

Meanwhile, troubled outsourcer Capita has moved sharply lower after reporting a drop in first-half underlying revenue.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly decreased in the week ended September 16th, according to a report released by the Labor Department, with initial jobless claims pulling back further off a recent two-year high.

The report said initial jobless claims fell to 259,000, a decrease of 23,000 from the previous week's revised level of 282,000.

The continued decrease surprised economists, who had expected jobless claims to climb to 300,000 from the 284,000 originally reported for the previous week.

A separate report released by the Philadelphia Federal Reserve showed an unexpected improvement in regional manufacturing conditions in the month of September.

The Philly Fed said its index for current manufacturing activity rose to 23.8 in September from 18.9 in August, with a positive reading indicating growth. Economists had expected the index to drop to 17.2.

At 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of August. The leading economic index is expected to rise by 0.2 percent.

The Treasury Department is due to announce the details of next week’s auctions of two-year, five-year, and seven-year notes at 11 am ET.

Stocks In Focus

Shares of Herman Miller (MLHR) may be in focus after the furniture maker reported adjusted fiscal first quarter earnings that matched economist estimates.

Soccer club Manchester United (MANU) may also attract attention after reporting a fiscal fourth quarter net profit compared to a year-ago loss.

Shares of Scholastic (SCHL) are moving notably lower in pre-market trading after the children's publishing, education and media company reported a fiscal first quarter loss that widened year-over-year.

Meanwhile, shares of BioCryst Pharmaceuticals (BCRX) are seeing pre-market strength after the biotechnology company announced its influenza treatment RAPIVAB has received FDA approval for a pediatric indication.
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