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Beyond the Numbers

Futures Pointing To Slightly Higher Open As Fed Meeting Looms
6/17/2019 9:00 AM

The major U.S. index futures are currently pointing to a modestly higher opening on Monday, although trading activity is likely to be somewhat subdued ahead of this week’s Federal Reserve meeting.

Traders may be reluctant to make more significant moves ahead of the Fed’s announcement of its monetary policy decision on Wednesday.

While a majority of economists expect the Fed to leave interest rates unchanged, the central bank is widely expected to signal an openness to cutting rates in the near future.

CME Group’s FedWatch tool currently indicates just a 22.5 percent chance the Fed will cut rates this week but a 65.7 percent chance for a rate cut next month.

Recent indications the U.S.-China trade dispute is contributing to a slowdown in U.S. economic growth has led to speculation the Fed may cut rates, with Fed Chairman Jerome Powell pledging to act “as appropriate” to sustain the expansion.

Stocks staged a late-day recovery attempt but still ended Friday's trading mostly lower following an early move to the downside. The major averages gave back some ground after ending Thursday’s trading in positive territory.

The tech-heavy Nasdaq underperformed its counterparts, ending the session down 40.47 points or 0.5 percent at 7,796.66. The Dow edged down 17.16 points or 0.1 percent to 26,089.61 and the S&P 500 dipped 4.66 points or 0.2 percent to 2,886.98.

Despite the pullback on the day, the major averages all moved higher for the week. The Nasdaq advanced by 0.7 percent, while the Dow and the S&P 500 rose by 0.4 percent and 0.5 percent, respectively.

Tech stocks came under pressure after Broadcom (AVGO) reported better than expected fiscal second quarter earnings but lowered its full-year revenue guidance.

Broadcom President and CEO Hock Tan said the chip maker sees a "broad-based slowdown in the demand environment" due to continued geopolitical uncertainties and the effects of export restrictions on Chinese tech giant Huawei.

The comments from Tan led to renewed concerns about the impact of the U.S.-China trade dispute on the broader tech sector.

Traders were also digesting a Commerce Department report showing a substantial upward revision to retail sales data for April.

The Commerce Department said retail sales climbed by 0.5 percent in May after rising by an upwardly revised 0.3 percent in April.

Economists had expected retail sales to increase by 0.6 percent compared to the 0.2 percent drop originally reported for the previous month.

Closely watched core retail sales, which exclude autos, gasoline, building materials and food services, climbed by 0.5 percent in May. The April reading was upwardly revised from no change to a 0.4 percent gain.

FTN Financial chief economist Chris Low called the April revisions the "real story" of the report, noting the "trajectory of second quarter consumption just transformed from ho-hum to solid."

"Needless to say, this is important," Low said. "The collapse of consumption in Q1 and failure of consumption to recover in April was one of the most compelling reasons justifying an interest rate cut."

"There are still other reasons, of course. Business confidence has tumbled. Business investment has slowed. Manufacturing is in trouble," he added. "But consumers, it seems, are alright, which means the risk of recession is diminished."

The Federal Reserve also released a report showing a bigger than expected increase in industrial production in May, although the University of Michigan said its reading on consumer sentiment dropped in June amid concerns about higher tariffs.

Despite the late-day recovery attempt by the broader markets, substantial weakness remained visible among oil service stocks. After spiking by 3.7 percent on Thursday, the Philadelphia Oil Service Index plunged by 3.7 percent.

Semiconductor stocks also moved sharply on the day, dragging the Philadelphia Semiconductor Index down by 2.6 percent. Broadcom led the sector lower, tumbling by 5.6 percent.

Steel, tobacco and networking stocks also saw considerable weakness on the day, while gold stocks showed a notable move to the upside.

Commodity, Currency Markets

Crude oil futures are falling $0.39 to $52.12 a barrel after rising $0.23 to $52.51 a barrel last Friday. Meanwhile, after inching up $0.80 to $1,344.50 an ounce in the previous session, gold futures are slipping $1.40 to $1,343.10 an ounce.

On the currency front, the U.S. dollar is trading at 108.60 yen compared to the 108.56 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1238 compared to last Friday’s $1.208.

Asia

Asian stocks ended mixed on Monday as investors awaited the outcome of the U.S. Federal Reserve and the Bank of Japan meetings due this week. Political tensions in the Middle East and Hong Kong also kept risk appetite in check.

Chinese shares ended on a firm note as investors looked ahead to the U.S. Trade Representative's public hearings on the Trump administration's plans to impose fresh tariffs on Chinese-made goods.

The benchmark Shanghai Composite Index rose 5.65 points or 0.2 percent to 2,887.62. Hong Kong's Hang Seng Index gained 108.81 points or 0.4 percent to finish at 27,227.16 after the territory's leader Carrie Lam backed down on a bill that would have allowed extradition to China.

Japanese shares ended fractionally higher ahead of key central bank meetings this week. The Nikkei 225 Index inched up 7.11 points to 21,124, while the broader Topix ended 0.5 percent lower at 1,539.74. Heavyweight Fast Retailing advanced 1.3 percent and SoftBank Group added 1.9 percent.

Chip-linked shares came under selling pressure, with Advantest losing 2.9 percent and Tokyo Electron ending down 2.5 percent.

Shares of Japan Display plunged 7 percent. Taiwanese electronics component maker TPK Holding, a member of the Taiwan-China consortium that planned to offer bailout funds to Japan Display, has notified that it will pull out of the consortium and forgo providing the funds.

Meanwhile, Australian shares edged lower as miners succumbed to profit taking after strong gains last week. The benchmark S&P/ASX 200 Index dropped 23.10 points or 0.4 percent to 6,530.90, while the broader All Ordinaries Index ended down 24.20 points or 0.4 percent at 6,609.40.

Mining giant BHP fell from an over 8-year high to close 0.4 percent lower, while Rio Tinto declined 1.4 percent and Fortescue Metals Group tumbled 3.8 percent. South32 slumped 4.2 percent after it lowered the estimated coal reserves at its Illawarra Metallurgical project.

Energy stocks closed broadly lower amid volatility in oil prices and concerns about slowing demand. Santos fell 1.4 percent and Origin Energy lost 1.6 percent.

Vocus Group plummeted 24.5 percent after AGL Energy dropped its takeover bid for the country's fourth-largest internet provider.

Banks ANZ, Commonwealth and Westpac rose between 0.2 percent and half a percent, while wealth manager AMP fell 1 percent to extend losses on concerns of increased regulatory scrutiny. Fund manager Challenger gave up 2.6 percent.

Seoul stocks ended lower for the fourth straight session as investors awaited cues from this week's Federal Reserve meeting and the G20 summit later this month.

The Kospi slipped 4.68 points or 0.2 percent to 2,090.73, with steelmakers and airline bearing the brunt of the selling. Posco fell 1.7 percent, Korean Airlines lost 2.8 percent and Asiana Airlines shed 2.3 percent.

Europe

European stocks are flat to slightly higher on Monday as banks gain ground on expectations for a dovish Fed meeting, offsetting losses among airline stocks.

The U.S. Federal Reserve meets Tuesday and Wednesday, with investors expecting a dovish shift in the central bank’s outlook for U.S. monetary policy.

The Bank of Japan is likely to maintain its massive stimulus program on June 20 and signal its readiness to ramp up monetary support if necessary.

The latest decision on U.K. interest rates will be unveiled on Thursday, with officials expected to keep policy unchanged.

Dutch bank ABN Amro has moved to the upside on news that CEO Kees van Dijkhuizen will leave when his term expires in April.

Serco has edged higher on reports it has twice approached rival defense contractor Babcock over a potential £4 billion deal. Babcock International Group shares have soared.

Royal Bank of Scotland Group has also jumped after saying it would make around £400 million from its Saudi bank merger.

Deutsche Bank has also moved notably higher. The German bank plans to create a 50 billion euro 'bad bank' that would house or sell assets valued at up to 50 billion euros, according to the Financial Times.

On the other hand, construction, services and property group Kier Group has plunged on news it plans to cut around 1,200 jobs and sell non-core activities.

German airline Lufthansa has also nosedived after lowering its profit forecast for 2019, citing market-wide overcapacities amid growing competition.

U.S. Economic Reports

Manufacturing activity in New York took a sharp downward turn in the month of June, according to a report released by the Federal Reserve Bank of New York, with the index of activity in the sector showing a record monthly decline.

The New York Fed said its general business conditions index plunged to a negative 8.6 in June from a positive 17.8 in May, with a negative reading indicating a contraction in manufacturing activity. Economists had expected the index to drop to a positive 10.0.

With the much bigger than expected decrease, the general business conditions index recorded its first negative reading in over two years.

At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of June. The housing market index is expected to come inch up to 67 in June after climbing to 66 in May.

Stocks In Focus

Shares of Array BioPharma (ARRY) are soaring in pre-market trading after the biopharmaceutical company agreed to be acquired by drug giant Pfizer (PFE) in a deal valued at $11.4 billion.

Farm equipment maker Deere & Co. (DE) may also see initial strength after R.W. Baird upgraded its rating on the company’s stock to Outperform from Neutral.

On the other hand, shares of Disney (DIS) may move to the downside after Imperial Capital downgraded its rating on the entertainment giant’s stock to In-Line from Outperform.
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