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Expectations Of Dovish Fed May Generate Early Buying Interest

The major U.S. index futures are pointing to a higher open on Wednesday, with stocks likely to extend the rebound seen over the two previous sessions.

The upward momentum on Wall Street comes ahead of the Federal Reserve's monetary policy announcement this afternoon.

The Fed is widely expected to leave interest rates unchanged, but investors are likely to pay close attention to any tweaks to the accompanying statement.

The central bank's latest economic projections may also attract attention, with many economists expecting the Fed to forecast near-zero rates for years to come.

However, the positive sentiment may be partly offset by a report from the Commerce Department showing much weaker than expected retail sales growth in the month of August.

Stocks moved mostly higher during trading on Tuesday, although the Dow gave back early gains to end the session nearly unchanged. The broader Nasdaq and S&P 500 both closed firmly in positive territory.

The tech-heavy Nasdaq jumped 133.67 points or 1.2 percent to 11,190.32 and the S&P 500 climbed 17.66 points or 0.5 percent to 3,401.20, while the Dow inched up just 2.27 points or less than a tenth of a percent to 27,995.60 after rising by nearly 240 points in early trading.

A continued rebound by technology stocks contributed to higher close on Wall Street, with big-name companies like Tesla (TSLA), Netflix (NFLX), Oracle (ORCL) and Facebook (FB) posting standout gains.

The tech sector extended yesterday's rebound after seeing considerable weakness last week, although the Nasdaq remains well off its recent record highs.

Meanwhile, shares of Apple (AAPL) pulled back well off their early highs, edging up by just 0.2 percent after jumping by as much as 3 percent.

The pullback by Apple weighed on the Dow along with notable weakness among shares of Caterpillar (CAT), JPMorgan Chase (JPM) and Travelers (TRV).

Meanwhile, traders largely shrugged off a report from the Fed showing growth in U.S. industrial production slowed by much more than expected in the month of August.

The Fed said industrial production climbed by 0.4 percent in August after soaring by an upwardly revised 3.5 percent in July.

Economists had expected production to jump by 1.0 percent compared to the 3.0 percent spike originally reported for the previous month.

Production increased for the fourth consecutive month but remains 7.3 percent below its pre-pandemic February level.

"We are vigilant that future progress toward a full recovery in the industrial sector will be slow and uneven as a health solution remains out of reach and fiscal relief fades," said Oren Klachkin, Lead U.S. Economist at Oxford Economics.

"While the travails are comparatively less severe than in certain services sectors, industrial production risks remain heavily tilted to the downside," he added.

A separate report from the Labor Department showed another notable increase in U.S. import prices in the month of August, with prices jumping by much more than expected.

Software stocks showed a strong move to the upside on the day, driving the Dow Jones U.S. Software Index up by 1.8 percent.

Significant strength was also visible among semiconductor stocks, as reflected by the 1.7 percent gain posted by the Philadelphia Semiconductor Index.

Retail, steel and commercial real estate stocks also saw notable strength, contributing to the higher close by the broader markets.

On the other hand, financial stocks came under pressure on the day, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index falling by 2.1 percent and 1.4 percent, respectively.

Considerable weakness also emerged among housing stocks, resulting in a 1.2 percent drop by the Philadelphia Housing Sector Index.

Commodity, Currency Markets

Crude oil futures are advancing $0.86 to $39.14 a barrel after jumping $1.02 to $38.28 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,976.70, up $10.50 compared to the previous session's close of $1,966.20. On Tuesday, gold rose $2.50.

On the currency front, the U.S. dollar is trading at 104.87 yen compared to the 105.44 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1859 compared to yesterday's $1.1847.

Asia

Asian stocks ended mixed on Wednesday, with investors turning cautious ahead of the U.S. Federal Reserve's monetary policy decision due later in the day. This is the Fed's first meeting since adopting a more relaxed approach on inflation and pledging to keep interest rates low for longer.

While the Fed is widely expected to leave interest rates unchanged, investors are likely to pay close attention to any tweaks to the accompanying statement. The central bank's latest economic projections may also attract attention.

Shares in China and Hong Kong ended lower after three straight sessions of gains, as investors turned cautious ahead of the Federal Reserve's monetary policy announcement.

China's Shanghai Composite Index lost 11.76 points, or 0.4 percent, to close at 3,283.92, while Hong Kong's Hang Seng Index edged down 7.13 points to 24,725.63.

Japanese shares edged higher as Yoshihide Suga was elected Japan's prime minister in a parliamentary vote, succeeding Shinzo Abe. Meanwhile, the Japanese yen rose against the dollar ahead of the U. S. Federal Reserve's monetary policy decision.

The benchmark Nikkei 225 Index added 20.64 points, 0.1 percent, to settle at 23,475.53, and the broader Topix rose 3.51 points, or 0.2 percent, to 1,644.35.

Market heavyweight SoftBank Group gained 4.6 percent, while Fast Retailing dropped 0.6 percent.

In economic news, Japan had a merchandise trade surplus of 248.299 billion yen in August. That was well above expectations for a deficit of 37.5 billion yen following the 11.6 billion yen surplus in July.

Exports were down 14.8 percent on year to 5.232 trillion yen, beating forecasts for a fall of 16.1 percent. Imports tumbled an annual 20.8 percent to 4.984 trillion yen versus expectations for a fall of 18.0 percent.

Australian stocks closed notably higher, with tech and oil stocks among the leading gainers. The benchmark S&P/ASX 200 Index gained 61.30 points, or 1.0 percent, to close at 5,956.10, and the broader All Ordinaries Index surged up 67.60 points, or 1.1 percent, to 6,146.90.

In the tech space, Afterpay gained 4.0 percent, WiseTech Global added 1.3 percent and Appen advanced 0.9 percent.

Among oil stocks, Santos climbed 1.8 percent, Woodside Petroleum rose 1.2 percent and Oil Search advanced 1.1 percent.

New Zealand shares rebounded from the previous session's losses to close higher. The benchmark NZX 50 Index ended up 43.96 points, or 0.4 percent, at 11,814.71. Fisher & Paykel Healthcare rose 1.1 percent and Spark added 1.0 percent.

Seoul stocks snapped a four-day winning streak on profit taking. The benchmark Kospi dipped 7.66 points, or 0.3 percent, to finish at 2,435.92.

Market bellwether Samsung Electronics closed unchanged, while chipmaker SK Hynix slipped 0.5 percent and internet portal giant Naver declined 1.6 percent.

Europe

After a sluggish start, European stocks are turning in a mixed performance on Wednesday, with investors largely making cautious moves ahead of the Federal Reserve's monetary policy announcement.

The Federal Reserve is widely expected to keep interest rates near zero for a prolonged period. The central bank's views on inflation, unemployment and overall economic growth are in focus.

Two other central banks, the Bank of Japan and the Bank of England, are scheduled to announce their policies on Thursday.

Concerns about the likely impact of a no-Brexit deal and worries about coronavirus pandemic continue to weigh on sentiment.

While the German DAX Index has inched up by 0.1%, the French CAC 40 Index is down by 0.1% and the U.K.'s FTSE 100 Index is down by 0.2%.

On the economic front, the euro area trade surplus increased for the third straight month in July to reach pre-pandemic levels, data published by Eurostat showed.

Exports grew by a seasonally adjusted 6.5% and imports advanced 4.2% on a monthly basis in July. As a result, the trade surplus increased to 20.3 billion euros from 16.0 billion euros in June.

Exports of goods decreased 10.4% annually and imports dropped 14.3%. Consequently, the trade surplus climbed to an unadjusted 27.9 billion euros in July from 23.2 euros billion in the same period last year.

According to a report from the Office for National Statistics, U.K. inflation slowed in August, easing to 0.2% from 1% in July. Prices were forecast to climb 0.1%.

Month-on-month, consumer prices dropped 0.4%, offsetting a 0.4% rise in July. Economists had forecast a 0.6% fall.

Falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution to the annual inflation, the ONS reported.

Meanwhile, upward contributions came from games, toys and hobbies, accommodation services and road transport services.

Excluding energy, food, alcoholic beverages and tobacco, core inflation halved to 0.9% from 1.8%. This was also below economists' forecast of 0.6%.

Another report from the ONS showed that output prices fell 0.9% annually in August, falling for the third straight month. Prices were expected to fall 0.7%.

Compared to July, output prices remained flat, while economists' had forecast prices to grow 0.2% after climbing 0.3% in July.

U.S. Economic Reports

Retail sales in the U.S. continued to increase in the month of August, according to a report released by the Commerce Department on Wednesday, although the pace of growth fell well short of economist estimates.

The Commerce Department said retail sales rose by 0.6 percent in August after climbing by a downwardly revised 0.9 percent in July.

Economists had expected retail sales to surge up by 1.0 percent compared to the 1.2 percent jump originally reported for the previous month.

Excluding sales by motor vehicles and parts retailers, retail sales climbed by 0.7 percent in August after leaping by a downwardly revised 1.3 percent in July.

Ex-auto sales were expected to increase by 0.9 percent compared to the 1.9 percent spike originally reported for the previous month.

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of September. The housing market index is expected to come in unchanged after jumping to 78 in August.

The Commerce Department is also due to release its report on business inventories in the month of July at 10 am ET. Business inventories are expected to inch up by 0.1 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended September 11th.

Crude oil inventories are expected to rise by 2.0 million barrels, matching the increase seen in the previous week.

The Federal Reserve is due to announce its latest monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell's post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of Eastman Kodak (KODK) are spiking in pre-market trading after a law firm hired by the photography equipment maker found the company did not violate the law by awarding stock options to CEO Jim Continenza just before receiving a $765 million government loan.

Delivery giant FedEx (FDX) is also seeing significant pre-market strength after reporting fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.

Shares of Adobe (ADBE) may also move to the upside after the software company reported better than expected fiscal third quarter results.

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