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Beyond the Numbers

Traders May Be Reluctant To Make Significant Moves Ahead Of Fed
3/20/2019 9:00 AM

The major U.S. index futures are pointing to a roughly flat opening on Wednesday, with stocks likely to turn in another lackluster performance after ending the previous session roughly flat.

Traders may remain reluctant to make any significant moves ahead of the Federal Reserve’s monetary policy announcement this afternoon.

The Fed is widely expected to leave interest rates unchanged, although the accompanying statement as well as the central bank’s economic projections may impact the outlook for rates.

With the Fed announcement not scheduled until late in the trading day, trading activity may remain subdued throughout much of the session.

The Fed is scheduled to announce its monetary policy decision and release its latest economic projections at 2 pm ET, followed by Fed Chairman Jerome Powell’s post-meeting press conference at 2:30 pm ET.

After showing a notable move to the upside in morning trading on Tuesday, stocks gave back ground over the course of the afternoon. The major averages pulled back well off their highs of the session before ending the day roughly flat.

The major averages finished the session on opposite sides of the unchanged line. While the Nasdaq inched up 9.47 points or 0.1 percent to 7,723.95, the Dow slipped 26.72 points or 0.1 percent to 25,887.38 and the S&P 500 edged down 0.37 point or less than a tenth of a percent to 2,832.57.

The early strength on Wall Street partly reflected continued optimism about U.S.-China trade talks, which has contributed to a recent upward trend on Wall Street.

However, the positive sentiment was partly offset after a report from Bloomberg said U.S. negotiators are concerned that China is pushing back against American demands.

Two people familiar with the negotiations told Bloomberg that Chinese officials have shifted their stance because they haven't received assurances from the Trump administration that tariffs on Chinese exports will be lifted.

The Bloomberg report seems in conflict with a separate Dow Jones report that the trade talks are in the final stages, with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin set to fly to Beijing next week.

Traders largely shrugged off a report from the Commerce Department showing new orders for U.S. manufactured goods edged only slightly higher in the month of January.

The Commerce Department said factory orders inched up by 0.1 percent in January, matching the 0.1 percent uptick in December. Economists had expected orders to rise by 0.3 percent.

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

Transportation stocks showed a significant move to the downside, however, with the Dow Jones Transportation Average falling by 1.3 percent.

Considerable weakness also emerged among financial stocks, dragging the KBW Bank Index and the NYSE Arca Broker/Dealer Index down by 1.3 percent and 1 percent, respectively.

On the other hand, semiconductor stocks turned in a strong performance on the day, driving the Philadelphia Semiconductor Index up by 1.3 percent to a six-month closing high.

Commodity, Currency Markets

Crude oil futures are falling $0.60 to $58.43 a barrel after slipping $0.06 to $59.03 a barrel on Tuesday. Meanwhile, after climbing $5 to $1,306.50 an ounce in the previous session, gold futures are rising $1.30 to $1,307.80 an ounce.

On the currency front, the U.S. dollar is trading at 111.47 yen compared to the 111.39 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1358 compared to yesterday's $1.1352.

Asia

Asian stocks ended broadly lower on Wednesday as investors fretted about U.S.-China trade relations and looked ahead to the Fed's policy decision later in the day, with many expecting the central bank to reaffirm its dovish stance.

Chinese shares closed lower in light of uncertainty over progress in the U.S.-China trade talks. The benchmark Shanghai Composite Index finished marginally lower at 3,090.64, while Hong Kong's Hang Seng Index dropped 0.5 percent to 29,320.97.

Meanwhile, Japanese shares ended modestly higher ahead of the Fed's policy decision later in the day and a public holiday on Thursday. The Nikkei 225 Index rose 42.07 points or 0.2 percent to 21,608.92 and the broader Topix closed up 0.3 percent at 1,614.39.

Sumco Corp. gained 0.6 percent and Screen Holdings advanced 1.9 percent after the Philadelphia Semiconductor index rose over 1 percent to hit a six-month high.

On the other hand, Sony Corp. tumbled 3.4 percent and Nintendo slumped 3.2 percent after Google announced a video game streaming service dubbed Stadia.

In economic news, minutes from the Bank of Japan's January monetary policy meeting revealed that the central bank expects annual inflation to continue to increase gradually towards 2 percent.

Australian markets finished modestly lower as trade tensions resurfaced and caution set in ahead of the Fed's interest-rate decision.

The benchmark S&P/ASX 200 Index dropped 19.50 points or 0.3 percent to 6,165.30, while the broader All Ordinaries Index ended down 24.80 points or 0.4 percent at 6,251.80.

Mining heavyweight BHP dropped 1 percent, Rio Tinto declined 2.8 percent and smaller rival Fortescue Metals Group plunged 6.8 percent after a Brazilian court cleared the way for Vale SA to resume operations at its Brucutu mine.

The big four banks ended on a mixed note, while energy stocks finished broadly higher. Financial services company Eclipx Group lost 56 percent after the company warned its financial performance had deteriorated markedly in February.

Crop protection company Nufarm gave up almost 24 percent after it posted a half-year loss and cut its fiscal 2019 outlook due to dry weather.

Seoul stocks recouped early losses to end largely unchanged after Samsung Electronics said its new Galaxy flagship smartphones were selling well in China. While Samsung shares rose 0.3 percent, the benchmark Kospi finished marginally lower at 2,177.10. Chipmaker SK Hynix jumped 3.7 percent.

Europe

European stocks are pulling back from nearly six-month highs on Wednesday as investors monitor fresh developments in U.S.-China trade talks and the Brexit saga.

Amid conflicting reports over the progress of U.S.-China trade negotiations, it appears that a trade deal will not be completed this month.

On the Brexit front, media reports suggest that British Prime Minister Theresa May will request a short delay to Brexit in a letter to European Union leaders today, ahead of a summit of EU leaders on Thursday and Friday.

Traders are also looking ahead to the Fed meeting later today and Thursday's Bank of England rate decision for directional cues.

German chemicals producer Bayer has moved sharply after a unanimous verdict by a San Francisco jury against the company.

Reinsurer Munich Re has also shown a notable move to the downside after issuing a cautious profit outlook.

Kier Group has also dropped after reporting a first-half loss before tax of 35.5 million pounds, compared to last year's profit of 34.3 million pounds.

On the other hand, satellite operator Inmarsat has soared after it received a cash takeover offer from a private equity-led consortium.

In economic news, German producer prices rose 2.6 percent year-on-year in February, unchanged from January, official data showed. Economists had expected a higher rate of 2.9 percent.

U.K. inflation edged up to 1.9 percent in February from 1.8 percent in January, while house prices rose at the weakest annual pace in five-and-a-half years, separate reports showed.

U.S. Economic Reports

The Energy Information Administration is due to release its report on oil inventories in the week ended March 15th at 10:30 am ET.

Crude oil inventories are expected to dip by 0.8 million barrels after slumping by 3.9 million barrels in the previous week.

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

Fed Chairman Jerome Powell is due to hold his subsequent post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of FedEx (FDX) are moving significantly lower in pre-market trading after the delivery giant reported weaker than expected fiscal third quarter results and cut its full-year profit forecast.

Tencent Music (TME) is also seeing pre-market weakness after the Chinese music streaming company’s first earnings report as a public company showed better than expected results but also soaring license and content production costs.

On the other hand, shares of General Mills (GIS) are likely to see initial strength after the packaged foods giant reported fiscal third quarter results that beat expectations and raised its full-year guidance.

Office furniture maker Steelcase (SCS) may also move to the upside after reporting fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.
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