Market Analysis

Beyond the Numbers

Powell’s Congressional Testimony In Focus On Wall Street
2/27/2018 8:58 AM

The major U.S. index futures are pointing to a modestly lower opening on Tuesday, with stocks likely to give back some ground following the rally seen over the two previous sessions.

The downward momentum on Wall Street comes following the release of new Federal Reserve Chairman Jerome Powell’s prepared remarks before the House Financial Services Committee.

Powell reiterated the Fed’s view that further gradual increases in interest rates will best promote attainment of both of the central bank’s dual objectives.

“While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds,” Powell says in his prepared remarks.

He added, “In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory.”

Powell also said financial conditions remain accommodative despite recent volatility and highlighted strong consumer spending and job growth.

Extending the rally seen last Friday, stocks moved sharply higher over the course of the trading session on Monday. With the continued strength on the day, the major averages further offset the sell-off seen earlier this month.

The major averages finished the session firmly in positive territory. The Dow soared 399.28 points or 1.6 percent to 25,709.27, the Nasdaq jumped 84.07 points or 1.2 percent to 7,421.46 and the S&P 500 surged up 32.30 points or 1.2 percent to 2,779.60.

A continued drop by treasury yields contributed to the strength on Wall Street, as the ten-year yield pulled back further off the ten-year closing high set last Wednesday.

The decrease by treasury yields was partly in reaction to dovish comments by St. Louis Federal Reserve President James Bullard.

Bullard, who is not a voting member of the Fed's policy committee this year, warned against aggressive interest rate hikes that are not supported by incoming data.

"If the Committee raises the policy rate substantially from here without other changes in the data, the policy setting could become restrictive," Bullard said at a National Association of Business Economics conference.

The rally on Wall Street came even as traders looked ahead to congressional testimony by new Federal Reserve Chairman Jerome Powell.

Powell is scheduled to testify before the House Financial Services Committee on the Fed's Semiannual Monetary Policy Report on Tuesday.

On the U.S. economic front, the Commerce Department released a report unexpectedly showing a steep drop in new home sales in January.

The report said new home sales plunged by 7.8 percent to an annual rate of 593,000 in January after slumping by 7.6 percent to an upwardly revised 643,000 in December.

The continued decrease surprised economists, who had expected new home sales to jump by 3.2 percent to a rate of 645,000 from the 625,000 originally reported for the previous month.

Telecom stocks showed a substantial move to the upside on the day, resulting in a 4 percent jump by the NYSE Arca Telecom Index. With the sharp increase on the day, the index reached its best closing level in over a year.

Arista Networks (ANET), Acacia Communications (ACIA) and Cincinnati Bell (CBB) turned in some of the telecom sector's best performances.

Significant strength was also visible among semiconductor stocks, as reflected by the 2.2 percent gain posted by the Philadelphia Semiconductor Index. The gain lifted the index to a one-month closing high.

Computer hardware stocks also saw considerable strength, with the NYSE Arca Computer Hardware Index surging up by 1.9 percent.

HP Inc. (HPQ) extended the upward move seen last Friday after JPMorgan Chase upgraded its rating on the computer and printer maker's stock to Overweight from Neutral.

Transportation, brokerage and pharmaceutical stocks also moved notably higher, reflecting another day of broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are falling $0.25 to $63.66 a barrel after climbing $0.36 to $63.91 a barrel on Monday. Meanwhile, after rising $2.50 to $1,332.80 an ounce in the previous session, gold futures are slipping $2.50 to $1,330.30 an ounce.

On the currency front, the U.S. dollar is trading at 107.07 yen compared to the 106.93 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2307 compared to yesterday’s $1.2297.


Asian stocks ended mixed on Tuesday as investors awaited Congressional testimony later in the day by new Federal Reserve Chairman Jerome Powell for further insights into the central bank's views on inflation and interest rates.

Chinese shares snapped a six-session winning streak as investors locked in some profits. The benchmark Shanghai Composite Index tumbled 38.05 points or 1.1 percent to 3,292.07, while Hong Kong's Hang Seng Index slid 229.24 points or 0.7 percent to 31,268.66.

Meanwhile, Japanese shares rallied after U.S. stocks hit their highest level in over three weeks overnight amid declining Treasury yields. The Nikkei 225 Index jumped 236.23 points or 1.1 percent to 22,389.86, a three-week high, while the broader Topix index closed 0.9 percent higher at 1,790.34.

Exporters Canon, Toyota Motor, Panasonic and Sony rose 1-2 percent. Oil major Inpex jumped 3.1 percent and Japan Petroleum advanced 1.2 percent. Alps Electric and Yaskawa Electric climbed 5-6 percent.

Australian shares extended gains for the fifth consecutive session as rising prices for commodities and a slew of positive earnings reports helped lift mining and energy stocks.

The benchmark S&P/ASX 200 Index rose 14.70 points or 0.2 percent to 6,056.90, while the broader All Ordinaries Index ended up 13.20 points or 0.2 percent at 6,159.30.

Mining heavyweight BHP Billiton and Rio Tinto gained 0.8 percent and 1.3 percent, respectively. Mineral sands miner Iluka Resources jumped 3.6 percent after narrowing its full-year loss.

Fuel supplier Caltex Australia soared over 4 percent after it decided to buy out franchises as part of a major overhaul of its business model.

The big four banks rose between 0.2 percent and 0.9 percent, while energy majors Woodside Petroleum and Santos fell over 1 percent.

On the economic front, Australian consumer confidence improved during the week ended February 25, a weekly survey compiled by the ANZ bank and Roy Morgan Research showed. The consumer confidence index rose 2.3 percent to 117.9 from 115.3 in the preceding week.


European stocks are turning in a lackluster on Tuesday as investors digest mixed earnings reports and looked ahead to Powell’s Congressional testimony.

While the U.K.’s FTSE 100 Index is just below the unchanged line, the French CAC 40 Index is down by 0.2 percent and the German DAX Index is down by 0.5 percent.

Sky Plc shares have soared in London after Comcast (CMCSA) announced a superior cash proposal to acquire the British broadcaster.

Homebuilder Persimmon has also jumped after reporting a 25 percent increase in 2017 pre-tax profits and boosting its interim dividend.

Provident Financial has also spiked higher after the troubled subprime lender settled one of its U.K. regulatory probes and announced plans to raise 331 million pounds via a rights issue.

Insurer Swiss Life Group has rallied after its fiscal 2017 net profit increased 9 percent to 1.01 billion Swiss francs from last year's 926 million francs.

Meanwhile, BASF shares have fallen. The German chemicals giant reported lower fourth quarter earnings from its functional-materials and performance-products segments.

In economic news, French consumer confidence weakened more than expected in February after stabilizing in the previous month, survey data from the statistical office Insee showed.

The consumer sentiment index dropped to its long-term average of 100 in February from 104 in January. Economists had expected the index to dip to 103.

U.S. Economic Reports

After reporting a bigger than expected jump in orders for U.S. manufactured durable goods in the previous month, the Commerce Department released a report showing durable goods orders pulled back by more than expected in January.

The Commerce Department said durable goods orders plunged by 3.7 percent in January after surging up by a revised 2.6 percent in December.

Economists had expected durable goods orders to drop by 2.0 percent compared to the 2.8 percent jump that had been reported for the previous month.

The bigger than expected decrease in durable goods orders was primarily due to a sharp pullback in orders for transportation equipment, which plummeted by 10.0 percent in January after spiking by 6.4 percent in December.

Excluding orders for transportation equipment, durable goods orders edged down by 0.3 percent in January compared to the 0.7 percent increase in December. Ex-transportation orders had been expected to rise by 0.4 percent.

At 10 am ET, Federal Reserve Chairman Jerome Powell is scheduled to testify before the House Financial Services Committee on the Fed’s Semiannual Monetary Policy Report.

The Conference Board is also due to release its report on consumer confidence in the month of February at 10 am ET. The consumer confidence index is expected to inch up to 126.4.

Stocks In Focus

Shares of Fitbit (FIT) are moving sharply lower in pre-market trading after the wearable fitness device maker reported weaker than expected fourth quarter results and provided disappointing guidance.

Weight loss company Nutrisystem (NTRI) may also come under pressure after reporting better than expected fourth quarter results but forecasting full-year earnings below analyst estimates.

Shares of Akorn (AKRX) are also seeing significant pre-market weakness as a FDA probe of possible data breaches at the generic drugmaker has raised doubts about Fresenius’ deal to acquire the company.

On the other hand, shares of Macy’s (M) are moving sharply higher in pre-market trading after the department store operator reported fourth quarter earnings that exceeded analyst estimates.

Luxury home builder Toll Brothers (TOL) may also see early strength after reporting better than expected fiscal fourth quarter results.

Shares of Tenet Healthcare (THC) are also seeing considerable pre-market strength after reporting fourth quarter results that beat expectations and raising its full-year guidance.
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