Market Analysis

Beyond the Numbers

Looming Fed Announcement May Lead To Choppy Trading On Wall Street
6/19/2019 8:58 AM

The major U.S. index futures are currently pointing to a roughly flat opening on Wednesday, with stocks likely to show a lack of direction ahead of the Federal Reserve’s monetary policy announcement this afternoon.

The Fed is widely expected to leave interest rates unchanged, but traders will closely scrutinize the accompanying statement for clues about a potential rate cut in the near future.

Fed Chairman Jerome Powell’s recent pledge to “act as appropriate” to sustain the U.S. economic expansion amid signs of a slowdown due to the U.S.-China trade war has led to speculation the Fed could cut rates as soon as July.

President Donald Trump has been urging the Fed to cut rates and added further pressure in remarks to reporters on Tuesday by suggesting he would consider demoting Powell if the central bank does not act.

“Well, let’s see what he does,” Trump said when asked if he still wants to demote Powell. “They’re going to be making an announcement pretty soon, so we’ll see what happens.”

Trump cited European Central Bank President Mario Draghi’s recent remarks hinting at additional stimulus, which the president has described as “unfair to the U.S.”

“I can tell you that Draghi and the EU, if you look at what’s going on with the euro, they have a much different stance than our folks do,” Trump said.

Powell has denied that monetary policy decisions are impacted by politics, although some analysts accused the Fed of capitulating to Trump’s demands by lowering its forecast for interest rates earlier this year.

Reflecting optimism about a potential U.S.-China trade deal on top of a near-term interest rate cut by the Fed, stocks moved sharply higher during trading on Tuesday. With the rally on the day, the major averages ended the session at their best closing levels in well over a month.

The major averages ended the session well off their highs of the day but still firmly in positive territory. The Dow surged up 353.01 points or 1.4 percent to 26,465.54, the Nasdaq soared 108.86 points or 1.4 percent to 7,953.88 and the S&P 500 jumped 28.08 points or 1 percent to 2,917.75.

Stocks extended an initial move to the upside after Trump said in a post on Twitter that he had a "very good" telephone conversation with Chinese President Xi Jinping and will have an "extended meeting" at the G20 summit next week.

"Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting," Trump tweeted.

The tweet from Trump has led to renewed optimism that the U.S. and China could finally reach an agreement to end their long-running trade dispute.

Trump had previously threatened to raise tariffs on another $300 billion worth of Chinese goods if Xi did not attend the G20 summit.

The president's tweet added to the positive sentiment surrounding Wall Street amid optimism that the Fed will strike a dovish tone in its statement announcing its latest monetary policy decision on Wednesday.

Semiconductor stocks moved sharply higher on the day amid optimism about a potential U.S.-China trade deal. Reflecting the strength in the sector, the Philadelphia Semiconductor Index surged up by 4.3 percent.

Chipmakers have recently warned about the impact of the U.S.-China trade dispute and restrictions on Chinese tech giant Huawei.

Substantial strength was also visible among steel stocks, as reflected by the 3.7 percent jump by the NYSE Arca Steel Index. The index reached its best closing level in over a month.

Oil service also saw considerable strength, benefiting from a sharp increase by the price of crude oil. Telecom, computer hardware, networking, and financial stocks also moved notably higher, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are edging down $0.01 to $53.89 a barrel after soaring $1.97 to $53.90 a barrel on Tuesday. Meanwhile, after climbing $7.80 to $1,350.70 an ounce in the previous session, gold futures are falling $3 to $1,347.70 an ounce.

On the currency front, the U.S. dollar is trading at 108.46 yen compared to the 108.45 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1203 compared to yesterday’s $1.1194.


Asian stocks posted strong gains on Wednesday after European Central Bank President Mario Draghi opened the door to more stimulus and U.S. President Donald Trump announced plans for an "extended" meeting with Chinese President Xi Jinping at the G20 summit in Japan next week.

Investors also waited for the outcome of the Federal Reserve meeting amid increased expectations for dovish remarks.

China's Shanghai Composite Index jumped 27.64 points or 1 percent to 2,917.80 on expectations of monetary easing in both the United States and Europe. Hong Kong's Hang Seng Index rallied 703.37 points or 2.6 percent to 28,202.14.

Japanese shares closed near six-week highs as dovish comments from Draghi and Trump's upbeat tone on the trade front boosted investors' appetite for risk. Fed rate cut hopes also supported sentiment.

The Nikkei 225 Index surged up 361.16 points or 1.7 percent to 21,333.87, the highest closing level since May 10. The broader Topix closed 1.7 percent higher at 1,555.27.

Nomura Holdings soared 10.5 percent on share buyback news, while Japan Display shares jumped 10.9 percent after reports that Apple has shown a willingness to help the struggling Japanese company.

China-exposed companies rose on trade optimism, with TDK Corp, Advantest and Taiyo Yuden spiking 5-6 percent.

Nissan Motor rose 1.4 percent after the Wall Street Journal reported that alliance partners Nissan Motor Co. and Renault SA are nearing a deal to resolve a standoff over changes to Nissan's corporate governance.

Japan posted a merchandise trade deficit of 967.1 billion yen in May, a government report showed today. That exceeded expectations for a shortfall of 1,207.0 billion yen following the 110.9 billion yen deficit in April.

Exports were down 7.8 percent year-on-year to 5.835 trillion yen, while imports sank an annual 1.5 percent.

Seoul stocks climbed as investors cheered Trump's comments on trade negotiations. The benchmark Kospi jumped 26.07 points or 1.24 percent to 2,124.78, led by technology stocks.

Market heavyweight Samsung Electronics rallied 2.3 percent and SK Hynix soared 6 percent. It was the first time since May 8 that the index had topped the 2,120-mark.

Australian stocks also rallied amid signs of easing in U.S.-China trade tensions. The benchmark S&P/ASX 200 Index climbed 78.10 points or 1.2 percent to 6,648.10, while the broader All Ordinaries Index ended up 80.60 points or 1.2 percent at 6,728.50.

Energy stocks such as Santos, Woodside Petroleum, Oil Search, Origin Energy and Beach Energy jumped 2-3 percent as oil prices spiked on news of a planned meeting between Trump and Xi on the sidelines of the G20 meeting.

News Corp soared 4.6 percent on news it was evaluating options for its News America Marketing business, including a potential sale.

Miners BHP, Rio Tinto and Fortescue Metals Group climbed 2-3 percent, while banks ANZ, Commonwealth and Westpac rose around 1 percent each.

GPT Group shares entered a trading halt after the property group launched an A$800 million placement.


European stocks have edged lower on Wednesday as traders lock in some profits after a strong rally in the previous session. The downside remained limited by a combination of central bank easing and hopes for a thawing in the Sino-U.S. trade dispute.

After ECB President Mario Draghi said that he was open to boosting monetary stimulus, investors now wait to see whether the U.S. central bank will follow the lead of the European Central Bank and open the door to future rate cuts.

While the French CAC 40 Index has edged down by 0.1 percent, the German DAX Index is down by 0.2 percent and the U.K.’s FTSE 100 Index is down by 0.4 percent.

British Airways owner IAG and easyJet have moved sharply lower after HSBC said it is increasingly cautious towards European airlines. Likewise, online food order and delivery service Just Eat has tumbled after a rating cut by UBS.

Insurance and tourism firm Saga has also plunged after the company warned on conditions in its travel business amid political uncertainty in the U.K.

On the other hand, construction and services company Kier Group is moving sharply higher, extending gains from the previous session. Rate-sensitive banks are also broadly higher.

On the data front, the Eurozone current account surplus decreased for a third straight month in April to its lowest level in two years, data from the European Central Bank showed. The current account surplus decreased to 20.905 billion euros from 24.680 billion euros in March.

U.K. inflation slowed to the central bank target in May, as widely expected, data from the Office for National Statistics showed.

Consumer price inflation came in at 2 percent in May versus 2.1 percent in April. The rate matched expectations. The slowdown was largely driven by air fares and falling car prices.

Another report showed that U.K. house price inflation slowed in April after accelerating in the previous month.

Average house prices rose 1.4 percent year-on-year following a 1.6 percent increase in March. In February, house price inflation was 1.2 percent.

U.S. Economic Reports

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended June 14th.

Crude oil inventories are expected to drop by 2.0 million barrels after rising by 2.2 million barrels in the previous week.

The Fed is scheduled 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 La-Z-Boy (LZB) are seeing significant pre-market weakness after the furniture maker reported fiscal fourth quarter sales that missed expectations due in part to the impact of tariffs.

Recreational vehicle maker Winnebago (WGO) may also come under pressure after reporting fiscal third quarter earnings exceeded estimates but on weaker than expected revenues.

On the other hand, shares of Adobe Systems (ADBE) are moving notably higher in pre-market trading after the software company reported fiscal second quarter results that beat analyst estimates on both the top and bottom lines.
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