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Beyond the Numbers

Powell’s Prepared Remarks May Generate Early Buying Interest
7/10/2019 9:01 AM

The major U.S. index futures are currently pointing to a higher opening on Wednesday following the release of Federal Reserve Chairman Jerome Powell’s prepared remarks before the House Financial Services Committee.

Early buying interest may be generated in reaction to Powell’s prepared remarks as the Fed chief is set to begin two days of testimony on Capitol Hill.

Powell says in his prepared remarks that economic data received since the Fed’s June meeting suggests trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.

The Fed Chairman notes the Fed pledged after the June meeting to “act as appropriate” to sustain the economic expansion, pointing out many participants saw the case for a somewhat more accommodative monetary policy had strengthened.

Powell’s prepared remarks seem to have renewed optimism that the Fed could cut interest rates as soon as its next meeting later this month.

Strong jobs data released last Friday had dented hopes for a near-term rate cut, leading the major averages to pull back off record highs.

Nonetheless, some traders may wait for the question-and-answer portion of Powell’s testimony as they look for more solid clues about the outlook for rates.

The Fed is also scheduled to release the minutes of its June meeting later today, with the minutes potentially providing some additional insight.

After coming under pressure early in the session, stocks turned mixed over the course of the trading session on Tuesday. Traders largely seemed reluctant to make significant moves ahead of Congressional testimony by Federal Reserve Chairman Jerome Powell.

The major averages showed significant moves to the upside going into the close, with the S&P 500 joining the tech-heavy Nasdaq in positive territory.

Partly offsetting the losses posted in the two previous sessions, the Nasdaq climbed 43.35 points or 0.5 percent to 8,141.73 and the S&P 500 inched up 3.68 points or 0.1 percent to 2,979.63.

Meanwhile, the Dow briefly peeked above the unchanged line but ended the session down 22.65 points or 0.1 percent at 26,783.49.

A notable drop by 3M (MMM) weighed on the Dow, with the diversified manufacturer sliding by 2.1 percent after RBC Capital Markets downgraded its rating on the company's stock to Sector Perform from Outperform.

Overall trading activity was subdued, as traders looked ahead to Powell's testimony, hoping for signs of a near-term interest rate cut.

Biotechnology stocks showed a significant move back the upside following the sharp drop seen over the course of the previous session.

Reflecting the rebound by the biotech sector, the NYSE Arca Biotechnology Index surged up by 1.6 percent following the 1.8 percent sump on Monday.

Considerable strength was also visible among networking stocks, as reflected by the 1.3 percent gain posted by the NYSE Arca Networking Index.

Acacia Communications (ACIA) led the sector higher after the networking company agreed to be acquired by Cisco Systems (CSCO) for $70 per share in cash.

Gold stocks also moved notably higher amid an uptick by the price of the precious metal, while chemical and tobacco stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are jumping $1.45 to $59.28 a barrel after rising $0.17 to $57.83 a barrel on Tuesday. Meanwhile, after inching up $0.50 to $1,400.50 an ounce in the previous session, gold futures are climbing $9.40 to $1,409.90 an ounce.

On the currency front, the U.S. dollar is trading at 108.61 yen compared to the 108.85 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1247 compared to yesterday’s $1.1208.

Asia

Asian stocks ended mixed in cautious trading on Wednesday as investors awaited Federal Reserve Chairman Jerome Powell's congressional testimony later in the day for clues about whether the U.S. central bank will meet dovish expectations in light of strong U.S. jobs data released last week.

Powell is due to testify before the House Financial Services Committee later today and before the Senate Banking Committee on Thursday.

China's Shanghai Composite Index dropped 12.93 points or 0.4 percent to 2,915.30, while Hong Kong's Hang Seng Index rose 88.41 points or 0.3 percent to 28,204.69 as investors digested Chinese inflation data.

Consumer prices in China were up 2.7 percent year-over-year in June, the National Bureau of Statistics said, in line with expectations and unchanged from the May reading.

On a monthly basis, consumer prices were down 0.1 percent following the flat reading a month earlier.

Producer prices were flat on year in June. That was shy of expectations for an increase of 0.2 percent and down from 0.6 percent in the previous month.

Japanese shares ended lower as traders took a wait-and-see approach ahead of key U.S. congressional testimony by Fed chief Powell. The Nikkei 225 Index eased 31.67 points or 0.2 percent to 21,533.48, while the broader Topix closed 0.2 percent lower at 1,571.32.

Canon rose 0.7 percent and Sony added 1.1 percent as the dollar rose against the yen. Tech stocks such as Advantest and Tokyo Electron ended on a mixed note.

Nintendo dropped 1.3 percent on reports that it is exploring partially relocating the production of its Nintendo Switch video game console to Vietnam from China this summer amid the ongoing U.S.-China trade war.

Mitsubishi Motors declined 1.7 percent after saying it would invest in Indonesian ride-hailing giant Gojek along with trading house Mitsubishi Corp.

Australian markets eked out modest gains, with financials rising after S&P Global Ratings upgraded its outlook on the country's major banks.

The benchmark S&P/ASX 200 Index rose 24.10 points or 0.4 percent to 6,689.80, while the broader All Ordinaries Index ended up 27.60 points or 0.4 percent at 6,777.70.

Banks Commonwealth and NAB rose 0.3 percent and 0.7 percent, respectively. Energy stocks ended on a subdued note despite oil prices rising more than 1 percent.

Mining heavyweights BHP and Rio Tinto declined 0.2 percent and 0.7 percent, respectively ahead of quarterly production figures due next week.

Retail Food Group rallied 2.3 percent after the troubled Gloria Jeans and Donut King franchisor confirmed it is in advanced talks with a Hong Kong-owned investment firm Soliton Capital Partners over a deal to reduce its debt by A$160 million.

Seoul stocks rose as chipmakers climbed amid bets on production cuts in the wake of curbs on the export of key materials from Japan. The Kospi gained 6.75 points or 0.3 percent to end at 2,058.78. Shares of Samsung Electronics and SK Hynix jumped 1 percent and 4.4 percent, respectively.

South Korea's president said today that Japan's export curbs on key materials used by South Korean technology firms could be prolonged and his government would increase spending to reduce reliance on Japanese components.

Europe

European stocks have turned mixed after moving to the downside early in the session as traders react to Powell’s prepared remarks

While the German DAX Index is down by 0.2 percent, the U.K.’s FTSE 100 Index is up by 0.1 percent and the French CAC 40 Index is up by 0.3 percent.

British recruitment firm PageGroup has slumped after a warning that it expects profits this year to come in at the lower end of expectations due to slower hiring caused by Brexit uncertainties.

On the other hand, CropEnergies AG, a member of the Südzucker Group, has rallied after its operating profit for the first-quarter significantly increased to 15.2 million euros from the previous year's 4.6 million euros.

Airbus has also advanced on news the airplane maker is on track to overtake Boeing in commercial plane deliveries for 2019.

U.S. Economic Reports

At 10 am ET, Federal Reserve Chairman Jerome Powell is scheduled to begin his testimony before the House Financial Services Committee.

The Commerce Department is also due to release its report on wholesale inventories in the month of May at 10 am ET. Wholesale inventories are expected to rise by 0.4 percent.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 5th.

Crude oil inventories are expected to drop by 3.6 million barrels after falling by 1.1 million barrels in the previous week.

The Treasury Department is scheduled to announce the results of its auction of $24 billion worth of ten-year notes at 1 pm ET.

At 1:30 pm ET, St. Louis Fed President James Bullardis due to participate in a moderated Q&A on monetary policy at the OMFIF Foundation Main Meeting in Saint Louis, Missouri.

The Fed is scheduled to release the minutes of its June monetary policy meeting at 2 pm ET. The central bank left interest rates unchanged at the meeting but made notable changes to its accompanying statement.

Stocks In Focus

Shares of Levi Strauss (LEVI) are moving sharply lower in pre-market trading after the jeans maker reported better than expected second quarter earnings but forecast slower second half sales growth.

Deere & Co. (DE) may also see initial weakness after UBS downgraded its rating on the farm equipment maker to Neutral from Buy.

On the other hand, shares of Helen of Troy (HELE) are seeing significant pre-market strength after the home and beauty products company reported better than expected fiscal first quarter results and raised its full-year guidance.
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