The major U.S. index futures are pointing to a higher opening on Wednesday as traders look ahead to the Federal Reserve’s monetary policy announcement.
Upward momentum may contribute to early strength among stocks, although trading activity is likely to be somewhat subdued ahead of the Fed’s announcement.
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.
While the Fed is widely expected to raise interest rates by a quarter point, traders are likely to pay close attention to the accompanying statement for clues about future rate hikes.
Likely reinforcing expectations for a rate hike, the Labor Department recently released a report showing a bigger than expected increase in producer prices in the month of May.
Stocks showed a lack of direction over the course of the trading session on Tuesday, with the major averages bouncing back and forth across the unchanged line. Despite the choppy trading, the tech-heavy Nasdaq reached a new record closing high.
The major averages eventually ended the session mixed. While the Dow edged down 1.58 points or less than a tenth of a percent to 25,320.73, the Nasdaq climbed 43.87 points or 0.6 percent to 7,703.79 and the S&P 500 rose 4.85 points or 0.2 percent to 2,786.85.
The lackluster performance on Wall Street came as traders looked ahead to monetary policy announcements by the Federal Reserve and the European Central Bank.
Ahead of the Fed meeting, the Labor Department released a report showing another modest increase in consumer prices in the month of May.
The Labor Department said its consumer price index rose by 0.2 percent in May, matching the increase seen in April as well as economist estimates.
Excluding food and energy prices, core consumer prices still increased by 0.2 percent in May after inching up by 0.1 percent in April. The core price growth also matched expectations.
The annual rate of consumer price growth accelerated to 2.8 percent in May from 2.5 percent in April, reaching its highest level since February of 2012.
Core consumer price growth also edged up to a fifteen-year high of 2.2 percent in May from 2.1 percent in the previous month.
Michael Pearce, Senior U.S. Economist at Capital Economics, said the consumer price growth will keep the Federal Reserve on course to raise interest rates on Wednesday.
“We expect underlying inflation to trend gradually higher from here, which will prompt the Fed to hike rates twice in the second half of the year,” Pearce said.
Meanwhile, traders largely shrugged off the historic summit between President Donald Trump and North Korean leader Kim Jong Un.
Following the meeting, Trump and Kim signed a joint statement pledging to work together to “build a lasting and stable peace regime on the Korean Peninsula.”
The statement said Kim reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula, while Trump committed to provide security guarantees to North Korea.
The U.S. and North Korea also committed to hold follow-on negotiations led by the Secretary of State Mike Pompeo and a relevant high-level North Korean official.
Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.
Utilities stocks saw considerable strength, however, with the Dow Jones Utilities Average climbing by 1.3 percent. The average bounced off its lowest closing level in four months.
Notable strength also emerged among biotechnology stocks, as reflected by the 1.1 percent gain posted by the NYSE Arca Biotechnology Index. With the gain, the index reached its best closing level in over four months.
On the other hand, oil stocks came under pressure on the day, dragging the NYSE Arca Oil Index down by 1.3 percent. The weakness in the sector came despite a modest increase by the price of crude oil.
Commodity, Currency Markets
Crude oil futures are falling $0.41 to $65.95 a barrel after rising $0.26 to $66.36 a barrel on Tuesday. Meanwhile, after sliding $3.80 to $1,299.40 an ounce in the previous session, gold futures are dipping $0.90 to $1,298.50 an ounce.
On the currency front, the U.S. dollar is trading at 110.55 yen compared to the 110.37 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1769 compared to yesterday’s $1.1745.
Asian stocks fell broadly on Wednesday as initial optimism over the Trump-Kim summit faded and investors shifted their focus to upcoming central bank meetings in the U.S., Europe and Japan.
The U.S. Federal Reserve is widely expected to raise interest rates by 25 basis points when it ends its two-day policy meeting later today. On Thursday, the European Central Bank may outline plans for ending its bond purchasing program.
The Bank of Japan’s policy decision is due on Friday, with no change to policy expected.
Chinese markets fell, dragged down by telecom shares as ZTE Corp. resumed trading after recently agreeing to pay up to $1.4 billion in penalties to the U.S. government.
The benchmark Shanghai Composite Index slumped 30.01 points or 1 percent to 3,049.80, while Hong Kong’s Hang Seng Index tumbled 377.91 points or 1.2 percent to close at 30,725.15.
Australian shares closed notably lower, led by financials and commodity-related stocks as investors awaited clues on the Fed policy outlook.
The benchmark S&P/ASX 200 Index dropped 30.90 points or 0.5 percent to 6,023.50, while the broader All Ordinaries Index ended down 31.70 points or 0.5 percent at 6,133.10.
The big four banks fell between 0.3 percent and 1 percent on a weaker Aussie dollar, and mining heavyweights BHP Billiton and Rio Tinto shed more than 1 percent to extend losses amid declines in base metal prices.
On the other hand, gas pipeline company APA Group soared 21 percent after it received a A$12.98 billion (£7.3 billion) takeover offer from Hong Kong’s CK Infrastructure Holdings.
Shares of Atlas Iron jumped 4.8 percent after Gina Rinehart disclosed a 19.96 stake in the company.
Meanwhile, Japanese shares closed higher as the yen extended losses ahead of the Fed, ECB and BoJ policy meetings. The Nikkei 225 Index rose 88.03 points or 0.4 percent to 22,966.38, while the broader Topix Index closed 0.4 percent higher at 1,800.37.
Toshiba shares soared 6.7 percent on share buyback news. Automaker Toyota gained 1.3 percent after the company said it has concluded an agreement with Grab Holdings Inc. to strengthen their existing partnership.
Energy stocks succumbed to selling pressure, with Inpex and Japan Petroleum closing down over 1 percent each. Nintendo plunged 6.2 percent after unveiling new game titles for its Nintendo Switch console
European stocks have moved mostly higher on Wednesday as geopolitical tensions have eased and the dollar stands tall against the euro ahead of the Fed and ECB meetings.
While the U.K.’s FTSE 100 Index has climbed by 0.5 percent, the German DAX Index and the French CAC 40 Index are both up by 0.3 percent.
In economic news, regional data proved to be a mixed bag. While euro area industrial production fell more sharply than expected in April, U.K. consumer price inflation unexpectedly held at an annual rate of 2.4 percent in May, its lowest level since March 2017.
Glencore has rallied a day after its unit Katanga Mining said it had agreed to a recapitalization plan for 75-percent-owned Kamoto Copper Co. with Gécamines.
On the other hand, shares of Sky Plc have moved to the downside in London after a judge ruled that AT&T and Time Warner can merge.
Just Eat has also slumped on worries about heightened competition after Deliveroo said it would allow partner restaurants to use their own riders.
Banking stocks are broadly lower on rising bets the European Central Bank may announce it will wind down its stimulus program by year-end.
U.S. Economic Reports
Reflecting a sharp jump in energy prices, the Labor Department released a report showing a bigger than expected increase in U.S. producer prices in the month of May.
The Labor Department said its producer price index for final demand climbed by 0.5 percent in May after inching up by 0.1 percent in April. Economists had expected producer prices to rise by 0.3 percent.
Excluding food and energy prices, core producer prices rose by 0.3 percent in May after edging up by 0.2 percent in April. Core prices had been expected to show another 0.2 percent increase.
The report said the annual rate of producer price growth accelerated to 3.1 percent in May from 2.6 percent in April, reaching its highest level in over six years.
The annual rate of growth in core producer prices also ticked up to 2.6 percent in May from 2.5 percent in the previous month.
At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended June 8th.
Crude oil inventories are expected to slump by 2.9 million barrels after falling by 2.1 million barrels in the previous week.
The Federal Reserve 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 Pivotal Software (PVTL) are moving sharply higher in pre-market trading after the cloud software company reported a narrower than expected fiscal first quarter loss on better than expected revenues.
Media giant Time Warner (TWX) is also likely to see early strength after a federal judge approved a proposed takeover by telecom giant AT&T (T).
Shares of Target (TGT) may also move to the upside after the retail giant announced a 3.2 percent increase in its quarterly dividend to $0.64 per share.
On the other hand, shares of H&R Block (HRB) are likely come under pressure after the tax preparation firm reported fiscal fourth quarter results that exceeded analyst estimates but provided disappointing guidance.
Apparel maker Oxford Industries (OXM) is also seeing pre-market weakness after reporting fiscal first quarter earnings that beat estimates but on weaker than expected sales. The company also forecast weaker than expected earnings for the current quarter.
Shares of Guess (GES) may also move to the downside on news the fashion retailer’s co-founder Paul Marciano has resigned as executive chairman after an investigation into allegations of improper behavior.
by RTTNews Staff Writer
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