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Beyond the Numbers

Looming Fed Minutes May Lead To Choppy Trading On Wall Street
5/25/2022 8:52 AM

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside after ending the previous session mostly lower.

Concerns about the global economic outlook may continue to weigh on the markets, although trading activity is likely to be somewhat subdued ahead of the release of the minutes of the latest Federal Reserve meeting.

The Fed is due to release the minutes of its May 3-4 meeting at 2 pm ET. At the meeting, the central bank decided to raise interest rates by 50 basis points.

Traders are likely to look to the minutes for clues about how aggressively the Fed plans to raise interest rates at upcoming meetings.

CME Group’s FedWatch Tool currently indicates a 93.3 percent chance the Fed will raise rates by another 50 basis points at its next meeting in mid-June.

Stocks moved mostly lower during trading on Tuesday, giving back ground following the strong upward move seen in Monday’s session. The tech-heavy Nasdaq showed a particularly steep drop on the day, ending the session at its lowest closing level since November of 2020.

The Nasdaq climbed off its worst levels of the day but still closed down 270.83 points or 2.4 percent at 11,264.45. The S&P 500 also slid 32.27 points or 0.8 percent to 3,941.48, while the narrower Dow managed to close modestly higher, up 48.38 points or 0.2 percent at 31,928.62.

A steep drop by shares of Snap Inc. (SNAP) weighed on the tech sector, with the Snapchat parent plummeting by 43.1 percent to a two-year closing low.

The plunge by Snap comes after the company warned of weaker than expected second quarter results, saying the "macroeconomic environment has deteriorated further and faster than anticipated."

Weakness overseas also carried over onto Wall Street, as a broad package of Chinese measures to support the economy underwhelmed investors.

The pullback also came amid lingering concerns aggressive interest rate hikes by the Federal Reserve could lead to a recession.

On Wednesday, the Fed is due to release the minutes from its latest monetary policy meeting, which may shed additional light on the outlook for rates.

Adding to the negative sentiment on Wall Street, the Commerce Department released a report showing a much steeper than expected drop in new home sales in the month of April.

The report showed new home sales plunged by 16.6 percent to an annual rate of 591,000 in April after tumbling by 10.5 percent to a revised rate of 709,000 in March.

Economists had expected new home sales to slump 1.7 percent to a rate of 750,000 from the 763,000 originally reported for the previous month.

With the much bigger than expected decrease, new home sales dropped to their lowest annual rate since hitting 582,000 in April of 2020.

Airline stocks turned in some of the market's worst performances on the day, resulting in a 4.6 percent nosedive by the NYSE Arca Airline Index.

Reflecting the weakness in the tech sector, the Philadelphia Semiconductor Index and the NYSE Arca Computer Hardware Index also tumbled by 2.5 percent and 2.2 percent, respectively.

The disappointing new home sales data also contributed to considerable weakness among housing stocks, with the Philadelphia Housing Sector Index slumping by 2.2 percent.

Biotechnology, brokerage and retail stocks also showed notable moves to the downside, while significant strength emerged among gold, telecom and utilities stocks.

Commodity, Currency Markets

Crude oil futures are jumping $1.27 to $111.04 a barrel after falling $0.52 to $109.77 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,854.80, down $10.60 compared to the previous session’s close of $1,865.40. On Tuesday, gold climbed $17.60.

On the currency front, the U.S. dollar is trading at 126.93 yen compared to the 126.83 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0659 compared to yesterday’s $1.0736.

Asia

Asian stocks rose broadly on Wednesday after U.S. Treasury yields pulled back following weak U.S. new home sales data and a profit warning by Snapchat owner Snap Inc.

The dollar held steady ahead of the Federal Reserve's May meeting minutes due later in the day, while oil prices rose more than $1 per barrel to stay above $110.

The overall mood in equity markets remained largely cautious after China's capital Beijing further tightened its Covid-19 restrictions.

China's Shanghai Composite Index rallied 1.19 percent to settle at 3,107.46 on hopes that growth will likely strengthen in the second half of 2022 in response to the stimulus that China has introduced into the economy.

China's central bank and banking regulator urged lenders to boost loans in the latest effort to shore up the battered economy. Hong Kong's Hang Seng Index gained 0.3 percent to finish at 20,171.27.

Japanese shares ended slightly lower after Wall Street's tech rout overnight. The Nikkei 225 Index slipped 0.3 percent to 26,677.80, while the broader Topix closed marginally lower at 1,876.58. Dentsu, Rakuten, Shinsei Bank, Mitsubishi Motors and T&D Holdings led losses.

Seoul stocks eked out modest gains, with the Kospi rising 0.4 percent to 2,617.22. Bio and chemical stocks advanced, while tech and automakers ended in the red.

Business conditions in South Korea deteriorated slightly in May, the Bank of Korea said earlier today, with a Business Survey Index score of 86 - down from 87 in April.

Australian markets advanced, with heavyweight mining and financial stocks pacing the gainers. Tech stocks underperformed following Snap's profit warning. The benchmark S&P/ASX 200 Index rose 0.4 percent to 7,155.20, while the broader All Ordinaries Index closed 0.3 percent higher at 7,391.70.

New Zealand shares ended notably lower after the country's central bank hiked interest rates by another 50 basis points for a second straight meeting and signaled more aggressive hikes to curb the risk of inflation becoming persistent.

The benchmark NZX-50 Index dropped 0.7 percent to 11,173.37. Medical device maker Fisher & Paykel Healthcare tumbled 3.9 percent after reporting decreases in annual revenue and net profit.

Europe

European stocks are trading mixed on Wednesday, as investors assess the outlook for Federal Reserve monetary tightening amid signs of softer U.S. growth.

Meanwhile, there were fears that the move by the U.S. Treasury Department to cut off Russia's ability to make payments on its dollar-denominated sovereign debt could push Russia closer to default.

The downside, if any, remained capped after a measure of German consumer sentiment edged up from an all-time low in May.

Market research group GfK said its forward-looking consumer sentiment index rose to -26.0 in June from a revised -26.6 in May. The latest survey was conducted from May 5 to 16.

Investors await the release of minutes from the Federal Reserve's most recent policy meeting for more clues about the pace of tightening.

While the German DAX Index is just below the unchanged line, the French CAC 40 Index is up by 0.1 percent and the U.K.’s FTSE 100 Index is up by 0.3 percent.

Stellantis has declined. The Dutch carmaker and Samsung SDI have agreed to invest more than $2.5 billion in a joint venture to establish an electric-vehicle battery manufacturing facility in Kokomo, Indiana.

German property specialist Aareal Bank AG has also edged lower after announcing the successful public takeover offer by Atlantic BidCo GmbH.

Nordex has slumped after the wind turbine manufacturer downwardly revised its outlook for this year, due in part to restructuring costs and the war in Ukraine.

Supermarket technology group Ocado has also come under pressure after it cut the sales growth target for its joint venture with Marks & Spencer Group.

Meanwhile, miners Anglo American and Glencore have risen after China's central bank and banking regulator urged lenders to boost loans in the latest effort to shore up the battered economy.

TotalEnergies has also moved to the upside after Global Infrastructure Partners formed a strategic partnership with the French oil and gas company to work in the U.S. renewable energy sector.

The FUCHS Group has also advanced after an announcement that it has taken over 28 percent of the shares in E-Lyte Innovations GmbH.

U.S. Economic Reports

A report released by the Commerce Department on Wednesday showed new orders for U.S. manufactured durable goods increased by less than expected in the month of April.

The Commerce Department said durable goods orders rose by 0.4 percent in April after climbing by a downwardly revised 0.6 percent in March.

Economists had expected durable goods orders to advance by 0.6 percent compared to the 1.1 percent jump that had been reported for the previous month.

Excluding orders for transportation equipment, durable goods orders edged up by 0.3 percent in April after surging by 1.1 percent in March. Ex-transportation orders were also expected to increase by 0.6 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended May 20th.

Crude oil inventories are expected to dip by 0.7 million barrels after falling by 3.4 million barrels in the previous week.

Federal Reserve Vice Chair Lael Brainard is due to give commencement remarks before the Johns Hopkins University School of Advance International Studies 2022 Commencement Ceremony at 12:15 pm ET.

At 1 pm ET, the Treasury Department is scheduled to announce the results of this month’s auction of $48 billion worth of five-year notes.

The Federal Reserve is due to release the minutes of its May 3-4 monetary policy meeting at 2 pm ET. At the meeting, the Fed decided to raise interest rates by 50 basis points.

Stocks In Focus

Shares of Express (EXPR) are moving sharply higher in pre-market trading after the apparel retailer reported better than expected first quarter results and raised its full-year outlook.

Wendy’s (WEN) is also likely to see initial strength after the company’s largest shareholder Trian Fund Management said it is considering a potential acquisition of the fast food chain.

On the other hand, shares of Dick’s Sporting Goods (DKS) are seeing substantial pre-market weakness after the sporting goods retailer reported better than expected first quarter results but provided disappointing guidance.
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