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Beyond the Numbers

Fed Decision Remains In Focus On Wall Street
9/18/2019 8:54 AM

The major U.S. index futures are pointing to a slightly lower opening on Wednesday, with stocks likely to give back ground after ending the previous session modestly higher.

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

Economists widely expect the Fed to cut interest rates by another 25 basis points, with CME Group’s FedWatch Tool currently indicating a 61.2 percent chance of a quarter point rate cut.

Traders are likely to pay closer attention to the Fed’s accompanying statement, looking for clues about the likelihood of future rate cuts.

Ahead of the Fed announcement, the Commerce Department released a report showing a substantial rebound in new residential construction in the U.S. in the month of August.

Stocks showed a lack of direction throughout much of the trading day on Tuesday as traders looked ahead to the Federal Reserve's monetary policy announcement. The major averages spent most of the session bouncing back and forth across the unchanged line.

The major averages moved to the upside going into the close, ending the day in positive territory. The Dow inched up 33.98 points or 0.1 percent to 27,110.80, the Nasdaq climbed 32.47 points or 0.4 percent to 8,186.02 and the S&P 500 rose 7.74 points or 0.3 percent to 3,005.70.

The choppy trading seen for most of the session came as traders seemed reluctant to make significant moves ahead of the Fed’s monetary policy decision.

The Fed is widely expected to lower interest rates by another 25 basis points, with traders likely to pay closer attention to the accompanying statement for clues about the long-term outlook for rates.

Uncertainty about the U.S. response to the recent attacks on Saudi Arabian oil facilities also kept some traders on the sidelines.

President Donald Trump has indicated the U.S. is prepared to respond militarily but has stopped short of definitively blaming Iran for the attacks.

Trump told reporters diplomacy has not been exhausted when it comes to Iran and would not rule out meeting with Iranian President Hassan Rouhani on the sidelines of the United Nations General Assembly next week.

On the U.S. economic front, the Fed released a report showing industrial production rebounded by much more than anticipated in the month of August.

The report said industrial production climbed by 0.6 percent in August after edging down by a revised 0.1 percent in August.

Economists had expected industrial production to rise by 0.2 percent compared to the 0.2 percent dip originally reported for the previous month.

A separate report from the National Association of Home Builders showed an unexpected improvement in U.S. homebuilder confidence in the month of September.

The report said the NAHB/Wells Fargo Housing Market Index inched up to 68 in September from an upwardly revised August reading of 67.

Economists had expected the index to come in unchanged compared to the 66 originally reported for the previous month.

Most of the major sectors ended the day showing only modest moves, although considerable strength was visible among gold stocks.

The NYSE Arca Gold Bugs Index surged up by 3 percent, continuing to recover after ending last Friday's trading at its lowest closing level in over a month. The jump by gold stocks came amid a modest increase by the price of the precious metal.

On the other hand, energy stocks pulled back sharply after yesterday's rally, moving back to the downside along with the price of crude oil.

Oil prices came under pressure after a report from Reuters said Saudi oil production will be restored faster than initially expected.

Reflecting the sell-off by energy stocks, the Philadelphia Oil Service Index plummeted by 5 percent, the NYSE Arca Natural Gas Index tumbled by 3.6 percent and the NYSE Arca Oil Index slumped by 1.7 percent.

Commodity, Currency Markets

Crude oil futures are slumping $1 to $58.34 a barrel after plunging $3.56 to $59.34 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,511.80, down $1.60 compared to the previous session’s close of $1,513.40. On Tuesday, gold rose $1.90.

On the currency front, the U.S. dollar is trading at 108.18 yen compared to the 108.13 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1055 compared to yesterday’s $1.1073.

Asia

Asian stocks turned in a mixed performance on Wednesday as investors awaited the outcome of a Federal Reserve meeting later in the day and looked for progress in U.S.-China trade talks.

Energy stocks followed oil prices lower after Saudi Arabia said it would be able to meet oil customers' demand from its ample storage.

Chinese shares rose ahead of deputy-level U.S.-China trade talks scheduled to start in Washington on Thursday. The benchmark Shanghai Composite Index ended up 7.54 points, or 0.3 percent, at 2,985.66, although Hong Kong's Hang Seng Index edged down 36.12 points, or 0.1 percent, to 26,754.12.

Japanese shares fell slightly to snap a ten-day winning streak as investors awaited the outcome of central bank meetings in the U.S. and Japan.

The Bank of Japan is expected to leave its monetary policy unchanged at the end of its two-day meeting on Thursday, but some analysts expect the policy board to add monetary stimulus in some form either this week or at its meeting in October.

The Nikkei 225 Index dipped 40.61 points, or 0.2 percent, to 21,960.71, while the broader Topix closed 0.5 percent lower at 1,606.62.

Oil and gas-related companies paced the decliners, with Inpex losing 4.2 percent and Japan Petroleum declining 1 percent. Sony Corp gave up 2.2 percent after the electronics company rejected a call by activist investor Daniel Loeb to spin off its chips business.

On the economic front, a government report showed that Japan posted a merchandise trade deficit of 136.329 billion yen in August. That beat forecasts for a shortfall of 365.4 billion yen following the 250.7 billion yen deficit in July.

Australian markets ended modestly lower, with energy stocks pacing the decliners as oil extended overnight losses on news that Saudi Arabia would restore lost oil production by the end of the month.

The benchmark S&P/ASX 200 Index dropped 13.70 points, or 0.2 percent, to 6,681.60 as investors awaited August employment data due on Thursday for further clues as to whether the RBA will loosen monetary policy in the coming months. The broader All Ordinaries Index ended down 10.50 points, or 0.2 percent, at 6,791.20.

Energy stocks such as Woodside Petroleum, Oil Search, Origin Energy and Santos declined 2-3 percent. Mining heavyweight BHP slid 0.3 percent, while Rio Tinto gained 0.3 percent and smaller rival Fortescue Metals Group advanced 1.2 percent.

The big four banks fell between 0.2 percent and 0.6 percent. Tech stocks gained ground, with WiseTech Global rising 1.1 percent.

Seoul stocks extended gains for the ninth straight session after Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said that more than half of the country's daily crude oil production that was knocked out by an attack had been recovered and that production capacity at its targeted plants would be fully restored by the end of the month. The benchmark Kospi gained 8.40 points, or 0.4 percent, to finish at 2,070.73.

Europe

European stocks have inched higher on Wednesday as oil prices pull back and investors turn their attention to a slew of central bank meetings this week for policy cues. Upcoming U.S.-China trade talks also remain on investors' radar.

The Federal Reserve is expected to announce a rate cut of at least 25 basis point to prop up slowing economic growth at the end of a two-day policy meeting later in the day.

In economic news, Eurozone inflation held stable in August at its lowest level in nearly three years, the latest data from the Eurostat showed, confirming the preliminary estimates released on August 30.

Headline inflation was 1 percent in August, the same as in July. The rate was the lowest since November 2016.

U.K. consumer price inflation eased to a 32-month low in August as computer games and clothing turned cheaper, data from the Office for National Statistics showed.

Consumer price inflation eased to 1.7 percent from 2.1 percent in July. The rate was forecast to ease moderately to 1.9 percent.

While the U.K.’s FTSE 100 Index is just above the unchanged line, the French CAC 40 Index and the German DAX Index are both up by 0.2 percent.

Cement giant LafargeHolcim has advanced after the company said it would invest 160 million Swiss francs into advanced equipment as well as technologies to increase the use of low-carbon fuels and recycled materials in the company's processes and products.

Automakers are also broadly higher even as industry data showed Europe's passenger car registrations declined in August on high base effect. Passenger car registrations contracted 8.4 percent year-on-year, reversing a 1.4 percent rise in July.

Shares of Wirecard have rallied after the provider of electronic payment and risk management applications announced that it has formalized strategic cooperation agreement with SoftBank Group Corp.

French utility EDF has also jumped after saying it sees no need to close any of its nuclear reactors for the moment following the discovery of problems with weldings.

On the other hand, Kingfisher shares have tumbled as the British home improvement retailer reported a 6.4 percent fall in underlying first half profit.

Swiss luxury goods group Richemont has also slumped as UBS downgraded its ratings, saying the luxury sector is nearing the end of the cycle.

U.S. Economic Reports

New residential construction in the U.S. showed a substantial rebound in the month of August, according to a report released by the Commerce Department.

The report said housing starts soared by 12.3 percent to an annual rate of 1.364 million in August after slumping by 1.5 percent to a revised rate of 1.215 million in July.

Economists had expected housing starts to surge up by 5 percent to a rate of 1.250 million from the 1.191 million originally reported for the previous month.

The Commerce Department said building permits also spiked by 7.7 percent to an annual rate of 1.419 million in August after jumping by 6.9 percent to a revised rate of 1.317 million in July.

Building permits, an indicator of future housing demand, had been expected to drop by 2.7 percent to a rate of 1.300 million from the 1.336 million originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended September 13th.

Crude oil inventories are expected to drop by 2.9 million barrels after tumbling by 6.9 million barrels in the previous week.

The Federal Reserve is due to announce its monetary policy decision at 2 pm ET, followed by Fed Chairman Jerome Powell’s 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 first quarter results and slashed its full-year guidance.

Software maker Adobe (ADBE) may also see initial weakness after reporting fiscal third quarter earnings that beat analyst estimates but on weaker than expected revenues and providing disappointing guidance.

Shares of General Mills (GIS) are also seeing pre-market weakness after the food producer reported better than expected fiscal first quarter earnings but on revenues that missed estimates.

On the other hand, shares of American Eagle Outfitters (AEO) may move to the upside after D.A. Davidson initiated coverage of the apparel retailer’s stock with a Buy rating.
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