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Beyond the Numbers

Looming Fed Meeting May Lead To Choppy Trading
3/18/2019 8:58 AM

The major U.S. index futures are pointing to a mixed opening on Monday, with stocks likely to show a lack of direction following the strong upward move seen last week.

Traders may be reluctant to make significant moves ahead of the Federal Reserve’s monetary policy announcement later this week.

The Fed is widely expected to leave interest rates unchanged, although traders are likely to keep a close eye on the accompanying statement for clues about the outlook for rates.

The central bank’s economic projections and Fed Chairman Jerome Powell’s subsequent press conference are also likely to be in focus.

Nonetheless, a notable drop by Boeing (BA) is likely to weigh on the Dow, with the aerospace giant sliding by 2.4 percent in pre-market trading.

The slump by Boeing comes after a Wall Street Journal report said federal prosecutors and Transportation Department officials are scrutinizing the development of the company’s 737 MAX jetliners.

Stocks fluctuated early in the session but moved mostly higher over the course of the trading day on Friday. With the upward move on the day, the Nasdaq and the S&P 500 reached their best closing levels in five months.

The major averages ended the day well off their highs of the session but still firmly in positive territory. The Dow climbed 138.93 points or 0.5 percent to 25,848.87, the Nasdaq advanced 57.62 points or 0.8 percent to 7,688.53 and the S&P 500 rose 14.00 points or 0.5 percent to 2,822.48.

With the gains on the day, the major averages moved notably higher for the week. The Dow jumped by 1.6 percent, while the S&P 500 surged up by 2.9 percent and the tech-heavy Nasdaq soared by 3.8 percent.

The strength on Wall Street came amid optimism about U.S.-China trade talks as well as indications of more Chinese economic stimulus.

Chinese Premier Li Keqiang pledged support for the slowing economy during his annual news conference at the end of the National People's Congress.

Li said the country could use reserve requirements and interest rates to prevent a sharper deceleration in the world's second-largest economy.

Traders largely shrugged off the release of some disappointing U.S. economic data, including a Federal Reserve report showing industrial production rose by much less than expected in the month of February.

The Fed said industrial production inched up by 0.1 percent in February after falling by a revised 0.4 percent in January.

Economists had expected production to climb by 0.4 percent compared to the 0.6 percent drop originally reported for the previous month.

The uptick in production came as a spike in utilities output and an increase in mining output was largely offset by a continued drop in manufacturing output.

"The further decline in manufacturing output in February confirms that the global industrial slowdown is now weighing more heavily on U.S. producers," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "With tighter fiscal and monetary policy constraining domestic demand, the weaker external environment is another reason to expect a sustained slowdown in economic growth this year."

A separate report from the New York Fed showed an unexpected slowdown in regional manufacturing growth in the month of March.

The New York Fed said its headline general business conditions index fell to 3.7 in March after climbing to 8.8 in February.

While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to rise to 10.0.

The index remained below 10 for the third straight month, which the New York Fed said suggests growth has remained quite a bit slower so far this year than it was for most of 2018.

Meanwhile, preliminary data released by the University of Michigan on Friday showed a significant improvement in U.S. consumer sentiment in the month of March.

The report said the consumer sentiment index jumped to 97.8 in March from the final February reading of 93.8. Economists had expected the index to rise to 95.3.

The bigger than expected increase by the index came as more positive assessments from lower income households more than offset a drop in sentiment among households with incomes in the top third.

"Since households with incomes in the top third account for more than half of all consumer expenditures, cautious observers will conclude that the latest data are another indication that the end of the expansion is on the distant horizon," said Surveys of Consumers chief economist Richard Curtin.

He added, "While that may well be true, the current level of consumer sentiment at 97.8 hardly indicates an emerging downturn."

Semiconductor stocks showed a substantial move to the upside on the day, driving the Philadelphia Semiconductor Index up by 2.9 percent to a six-month closing high.

Broadcom (AVGO) led the sector higher after the chipmaker reported fiscal first quarter earnings that exceeded analyst estimates.

Considerable strength also emerged among computer hardware stocks, as reflected by the 1.4 percent gain posted by the NYSE Arca Computer Hardware Index.

Biotechnology and tobacco stocks also saw significant strength on the day, while natural gas and oil service stocks showed notable moves to the downside.

Commodity, Currency Markets

Crude oil futures are rising $0.15 to $58.67 a barrel after slipping $0.09 to $58.52 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,305.50, up $2.60 from the previous session’s close of $1,302.90. On Friday, gold climbed $7.80.

On the currency front, the U.S. dollar is trading at 111.54 yen compared to the 111.48 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1351 compared to last Friday’s $1.1326.

Asia

Asian stocks rose on Monday as weak U.S. data released on Friday cemented expectations the Federal Reserve could strike a dovish stance this week.

Investors also remained hopeful for a U.S.-China trade deal after Xinhua news agency reported the U.S. and China have made further "concrete progress" on the text of the trade agreement between the two sides.

Chinese shares hit a 6-1/2-month high on expectations there is scope to ease monetary policy to support economic growth this year.

The benchmark Shanghai Composite index soared 74.67 points or 2.5 percent to 3,096.42, while Hong Kong's Hang Seng Index jumped 396.75 points or 1.4 percent to 29,409.01.

Japanese shares moved higher despite weak February export data. The country's exports fell for a third month in February amid waning external demand, putting pressure on the Bank of Japan to offer more stimulus.

Exports fell an annual 1.2 percent in February due to declines in shipments of semiconductor production equipment and cars, official data showed.

The Nikkei 225 Index climbed 133.65 points or 0.6 percent to 21,584.50, driven by chip-related stocks. The broader Topix closed 0.7 percent higher at 1,613.68.

Advantest, Tokyo Electron and Sumco Corp jumped 2-3 percent after tech shares led the Nasdaq to its best weekly rise this year on Friday. Index heavyweights Fast Retailing, SoftBank and Fanuc rose between half a percent and 1.6 percent.

Australian markets ended higher as stronger commodity prices amid reports of progress in U.S.-China- trade talks boosted mining stocks.

The benchmark S&P/ASX 200 Index rose 15.30 points or 0.3 percent to 6,190.50, while the broader All Ordinaries Index ended up 18.50 points or 0.3 percent at 6,283.60.

Mining heavyweights BHP and Rio Tinto climbed 1.4 percent and 1.7 percent, respectively. Smaller rival Fortescue Metals Group surged up 5.4 percent.

Lithium miner Pilbara Minerals ended on a flat note after exercising an option to enter into a joint venture with steel-maker Posco for manufacturing battery-making materials.

Construction and mining services group CIMIC Group advanced 1.7 percent on winning a A$1.7 billion ($1.20 billion) mining contract in Botswana.

Bubs Australia soared 4.8 percent on news it will expand its range of children's snacks by launching eight new organic-labeled snacks.

Meanwhile, Commonwealth Bank of Australia shed 0.7 percent after it settled a dispute with the Australian Taxation Office (ATO) over research and development claims. The other three big banks ended narrowly mixed.

Seoul stocks ended a choppy session higher as institutions went on a massive buying spree despite global uncertainties.

The benchmark Kospi edged up 3.38 points or 0.2 percent to 2,179.49. Automakers paced the gainers, with Hyundai Motor, Kia Motors and Hyundai Mobis rallying 2-3 percent.

Europe

European stocks are turning in a mixed performance on Monday as traders look ahead the Fed and Bank of England policy meetings this week, although expectations for any shift in policy are low.

Notable strength is visible among banking stocks after German lenders Deutsche Bank and Commerzbank said they were in talks to merge.

While the German DAX Index has fallen by 0.3 percent, the French CAC 40 Index is just above the unchanged line and the U.K.’s FTSE 100 Index is up by 0.6 percent.

The advance by U.K. stocks comes amid a weaker pound ahead of another meaningful vote on Prime Minister Theresa May's Brexit deal on Tuesday.

The U.K. government has warned that it might not hold the planned Brexit vote unless it feels it can secure a win that avoids a lengthy delay to pulling out of the EU.

Deutsche Bank and Commerzbank have moved sharply higher after the banks confirmed they are in discussions over a potential merger.

Thyssenkrupp has also rallied after its plant engineering business won a major order from the Egyptian chemical and fertilizer manufacturer NCIC.

Norwegian aluminum company Norsk Hydro ASA has also advanced after it appointed Hilde Merete Aasheim as its new President and CEO.

On the other hand, automotive cable and wiring system specialist Leoni has plunged after scrapping its 2019 profit target and unveiling job cuts.

Novartis has also moved to the downside. Alcon, the global leader in eye care and a division of Novartis, has acquired PowerVision, Inc., a privately-held, U.S.-based medical device development company focused on creating fluid-based intraocular lens implants.

U.S. Economic Reports

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of March.

Economists expect the NAHB/Wells Fargo Housing Market Index to inch up to 63 in March after climbing to 62 in February.

Stocks In Focus

Shares of Worldpay (WP) are moving significantly higher in pre-market trading after the eCommerce company agreed to be acquired by Fidelity National Information Services (FIS) for about $35 billion.

Medical equipment maker Edwards Lifesciences (EW) may also see initial strength after its non-invasive heart valve replacement system demonstrated superiority over outcomes with surgery.

Meanwhile, shares of Lumber Liquidators (LL) are seeing notable pre-market weakness after the hardwood flooring retailer reported weaker than expected fourth quarter revenues.
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