Market Analysis

Beyond the Numbers

Optimism About More Dovish Fed May Generate Buying Interest
12/19/2018 8:53 AM

The major U.S. index futures are pointing to a higher opening on Wednesday, with stocks likely to add to the gains posted in yesterday’s volatile session.

Traders may once again look to pick up stocks at reduced levels after the markets were unable to sustain the initial upward move in the previous session.

The major averages managed to end Tuesday’s trading in positive territory, although many sectors extended recent sell-offs.

The markets may also benefit from optimism the Federal Reserve will strike a more dovish tone in its announcement of its latest monetary policy decision this afternoon.

The Fed is widely expected to raise interest rates by a quarter point, but traders will closely scrutinize the central bank’s accompanying statement and forecasts for clues about future rate hikes.

Ahead of the announcement, President Donald Trump has been urging the Fed to refrain from its gradual pace of raising rates.

“Don’t let the market become any more illiquid than it already is,” Trump told the Fed in a post on Twitter on Tuesday. “Stop with the 50 B's. Feel the market, don't just go by meaningless numbers. Good luck!”

While the Fed will not want to be seen as bowing to political pressure, the central bank may still signal a slower pace of rate hikes due to recent disappointing economic data, low inflation, and concerns about the ongoing trade dispute between the U.S. and China.

After failing to sustain an early move to the upside, stocks continued to experience substantial volatility over the course of the trading day on Tuesday. The major averages fluctuated wildly as the day progressed before closing in positive territory.

The S&P 500 hit its lowest intraday level in over a year but ended the up just 0.22 points or less than a tenth of a percent at 2,546.16. The Dow rose 82.66 points or 0.4 percent to 23,675.64 and the Nasdaq climbed 30.18 points or 0.5 percent to 6,783.91.

The initial strength on Wall Street was partly due to bargain hunting, with traders picking up stocks at reduced levels on the heels of the sharp drop seen over the two previous sessions.

The pullback seen Monday afternoon pulled the Dow down to its lowest closing level in over eight months, while the Nasdaq and the S&P 500 dropped to their lowest closing levels in over a year.

The subsequent volatility came as traders remained on edge ahead of the Federal Reserve's monetary policy announcement.

On the U.S. economic front, the Commerce Department released a report showing a substantial increase in U.S. housing starts in November, as a spike in multi-family starts more than offset a continued drop in single-family starts.

The Commerce Department said housing starts jumped by 3.2 percent to an annual rate of 1.256 million in November from the revised October estimate of 1.217 million.

Economists had expected housing starts to edge down to a rate of 1.225 million from the 1.228 million originally reported for the previous month.

The report also said building permits surged up by 5.0 percent to an annual rate of 1.328 million in November from the revised October rate of 1.265 million.

Building permits, an indicator of future housing demand, had been expected to dip to a rate of 1.259 million from the 1.263 million originally reported for October.

Gold stocks showed a substantial move to the upside over the course of the session, driving the NYSE Arca Gold Bugs Index up by 2.3 percent. With the jump, the index reached a four-month closing high.

The rally by gold stocks came amid a modest increase by the price of the precious metal, with gold for February delivery rising $1.80 to $1,253.60 an ounce.

Housing stocks also saw considerable strength on the heels of the housing starts data, moving notably higher along with computer hardware and semiconductor stocks.

On the other hand, energy stocks moved sharply lower amid a steep drop by the price of crude oil. Crude for January delivery plunged $3.64 to a fifteen-month closing low of $46.24 a barrel amid concerns about oversupply.

Oil service stocks turned in some of the energy sector's worst performances, dragging the Philadelphia Oil Service Index down by 2.7 percent to its lowest closing level in fifteen years.

Tobacco stocks also extended a recent sell-off, while considerable weakness also emerged among biotechnology and banking stocks.

Commodity, Currency Markets

Crude oil futures are edging up $0.18 to $46.42 a barrel after plummeting $3.64 to $46.24 a barrel on Tuesday. Meanwhile, after rising $1.80 to $1,253.60 an ounce in the previous session, gold futures are slipping $1.70 to $1,251.90 an ounce.

On the currency front, the U.S. dollar is trading at 112.34 yen compared to the 112.52 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1403 compared to yesterday’s $1.1361.


Asian stocks ended mixed on Wednesday as investors monitored oil price movements and looked ahead to the U.S. Federal Reserve's monetary policy decision later in the day. The Fed is expected to sound a bit more dovish after raising rates by 25 basis points.

China's Shanghai Composite Index tumbled 27.09 points or 1.1 percent to 2,549.56, while Hong Kong's Hang Seng Index rose 51.14 points or 0.2 percent to 25,865.39.

Trade remained in focus after U.S. Treasury Secretary Steven Mnuchin said U.S.-China trade talks to expand a tariff truce are planned for January.

Japanese shares fell as trade data disappointed and caution set in ahead of the Bank of Japan's monetary policy decision on Thursday.

Japan posted a merchandise trade deficit of 737.3 billion yen in November, the Ministry of Finance said. That missed forecasts for a deficit of 630.0 billion yen following the 450.1 billion yen shortfall in October.

Exports were up just 0.1 percent year-over-year, shy of expectations for a gain of 1.1 percent following the 8.2 percent spike in the previous month. Imports were up an annual 12.5 percent versus expectations for an increase of 12.0 percent and down from 19.9 percent a month earlier.

The Nikkei 225 Index fell 127.53 points or 0.6 percent to 20,987.92, while the broader Topix closed 0.4 percent lower at 1,556.15.

SoftBank Group's mobile unit SoftBank Corp. saw a poor market debut, with shares plunging 15 percent from the IPO price of 1,500 yen announced earlier this month.

Tech stocks ended mixed, with Advantest rallying 2.8 percent, while Tokyo Electron lost 4.4 percent. Oil company Inpex plummeted 7.2 percent and Japan Petroleum tumbled 5 percent.

Australian markets fell slightly amid weakness in the energy sector after U.S. oil prices fell over 7 percent overnight on fears of oversupply. Banks gained ground, helping limit the downside in the broader market.

The benchmark S&P/ASX 200 Index ended down 8.90 points or 0.2 percent at 5,580.60 after falling 1.2 percent on Tuesday. The broader All Ordinaries Index dropped 11.80 points or 0.2 percent to 5,650.

Woodside Petroleum, Santos, Oil Search and Origin Energy slumped 2-6 percent after oil prices dropped further overnight.

Graincorp also slid 1.4 percent. The bulk grain handler said it is providing its suitor Long-Term Asset Partners due diligence after it received an A$2.38 billion all-cash buyout proposal earlier in December.

On the other hand, National Australia Bank rose 0.8 percent. The bank is scrapping its overhauled executive pay structure after more than 80 percent of shareholders voted against it. Rivals ANZ and Commonwealth rose over 1 percent each.

Gold miner Evolution jumped over 4 percent and St Barbara soared 5.2 percent after gold prices extended gains overnight.


European stocks are moving higher in cautious trading on Wednesday after Italy's populist government reportedly reached an informal agreement with Brussels over its budget.

Traders are also awaiting the outcome of a two-day Federal Reserve meeting for clues on the path for future rate hikes. The U.S central bank is expected to sound a bit more dovish after raising rates by 25 basis points later in the day.

The Bank of Japan and the Bank of England are likely to maintain the status quo when they review their monetary policies on Thursday.

While the U.K.’s FTSE 100 Index has jumped by 1 percent, the German DAX Index and the French CAC 40 Index are both up by 0.6 percent.

Reinsurance company Swiss Re has risen after company estimated that natural catastrophes and man-made disasters will cost the insurance industry around $79 billion in 2018.

French drug giant Sanofi has also advanced. The company said it would transfer the listing of its American Depositary Shares from the New York Stock Exchange to The Nasdaq Global Select Market effective December 31, 2018, after market close.

Volkswagen has also moved to the upside in Frankfurt. The U.S. Justice Department said Volkswagen supplier IAV GmbH has agreed to plead guilty and pay a $35 million fine for its role in the German auto giant's emissions-cheating scheme.

GlaxoSmithKline Plc shares have soared in London after the company agreed to combine its consumer healthcare business with Pfizer (PFE).

Gambling operator GVC Holdings has also jumped. The company noted the U.K. government has enacted the cut in B2 gaming machine maximum staking levels to 2 pounds.

On the other hand, consumer electronics retailer Ceconomy has plunged after scrapping its dividend and giving downbeat guidance for 2018/19.

U.S. Economic Reports

At 10 am ET, the National Association of Realtors is scheduled to release its report on existing home sales in the month of November. Existing home sales are expected to drop by 0.6 percent in November after spiking by 1.4 percent in October.

The Energy Information Administration is due to release its report on oil inventories in the week ended December 14th at 10:30 am ET.

Crude oil inventories are expected to decrease by 2.4 million barrels after falling by 1.2 million barrels in the previous week.

At 2 pm ET, the Federal Reserve is scheduled to announce its monetary policy decision and provide its latest economic projections.

The announcement by the central bank will be followed by a press conference by Fed Chairman Jerome Powell at 2:30 pm ET.

Stocks In Focus

Shares of Winnebago (WGO) are moving sharply higher in pre-market trading after the recreational vehicle maker reported fiscal first quarter results that beat analyst estimates on both the top and bottom lines.

Packaged food giant General Mills (GIS) may also move to the upside after reporting better than expected fiscal second quarter earnings, although its revenues for the quarter came in below expectations.

Shares of Jabil (JBL) are also seeing considerable pre-market strength after the electronics manufacturer reported fiscal first quarter results that exceeded analyst estimates.

On the other hand, shares of Micron (MU) are likely to come under pressure after the chip maker reported weaker than expected fiscal first quarter revenues and provided disappointing guidance amid a glut in global semiconductor supplies.

Delivery giant FedEx (FDX) is also moving significantly lower in pre-market trading after reporting fiscal second quarter results that beat expectations but lowest its full-year earnings forecast.

Shares of Under Armour (UAA) may also see initial weakness after Atlantic Equities downgraded its rating on the athletic apparel maker to Underweight from Neutral.
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