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Looming Fed Announcement May Lead To Choppy Trading
US Market
The major U.S. index futures are currently pointing to a roughly flat open on Monday, with stocks likely to extend the lackluster performance seen last Friday.
Traders may remain reluctant to make significant moves ahead of the Federal Reserve’s monetary policy announcement on Wednesday.
The Fed is widely expected to leave its monetary policy unchanged, but traders will be looking for any clues the central bank is considering tapering its asset purchases.
Last Thursday’s report from the Labor Department showed consumer price inflation reached the highest level in nearly thirteen years in May, although Fed officials have repeatedly downplayed the risks of prolonged inflation.
Traders will likely pay close attention to any changes to the Fed’s comments about inflation, with previous statements largely attributing rising inflation to “transitory factors.”
A lack of major U.S. economic data may also keep traders on the sidelines ahead of the release of a slew of data in the coming days.
While the Fed announcement will be in the spotlight, traders are also likely to keep an eye on reports on producer prices, retail sales, industrial production, and housing starts.
Stocks showed a lack of direction for much of the trading day on Friday but managed to end the session mostly higher. The S&P 500 reached a new record closing high, while the Nasdaq rose to its best closing level in over a month.
The major averages moved to the upside going into close to finish the day in positive territory. The Dow crept up 13.36 points or less than a tenth of a percent to 34,479.60, the Nasdaq climbed 49.09 points or 0.4 percent to 14,069.42 and the S&P 500 edged up 8.26 points or 0.2 percent at 4,247.44.
For the week, the major averages turned in a mixed performance. The Nasdaq jumped by 1.8 percent and the S&P 500 rose by 0.4 percent, but the Dow fell by 0.8 percent.
Traders seemed reluctant to make significant moves ahead of the Federal Reserve’s upcoming monetary policy meeting.
In U.S. economic news, preliminary data released by the University of Michigan showed a bigger than expected rebound in consumer sentiment in the month of June.
The report said the consumer sentiment index climbed to 86.4 in June after falling to 82.9 in May. Economists had expected the index to rise to 84.0.
Most of the major sectors ended the day showing only modest moves, but steel stocks showed a strong move to the upside, driving the NYSE Arca Steel Index up by 1.5 percent.
Significant strength was also visible among brokerage stocks, as reflected by the 1.3 percent gain posted by the NYSE Arca Broker/Dealer Index.
Airline, natural gas and housing stocks also saw strength on the day, while gold stocks moved notably lower along with the price of the precious metal.
U.S. Economic Reports
No major U.S. economic data is scheduled to be released today.
Stocks in Focus
Shares of Novavax (NVAX) are moving sharply higher in pre-market trading after the drugmaker said its Covid-19 vaccine demonstrated 100 percent protection against moderate and severe disease and 90.4 percent efficacy overall.
Restaurant chain Chipotle Mexican Grill (CMG) may also see initial strength after Raymond James upgraded its rating on the company’s stock to Strong Buy from Outperform.
On the other hand, shares of Lordstown Motors (RIDE) are seeing substantial pre-market weakness after the electric truck maker announced the resignations of Chief Executive Officer Steve Burns and Chief Financial Officer Julio Rodriguez.
Automaker Ferrari (RACE) may also come under pressure after Goldman Sachs downgraded its rating on the company’s stock to Sell from Buy.
Europe
European stocks are modestly higher on Monday, as traders bet on monetary policy forbearance by central banks until a firmer economic rebound is in place.
European Central Bank President Christine Lagarde’s comments on the continuance of stimulus till the economic recovery proves sustainable have supported the markets, despite the impending Federal Reserve meeting.
Market sentiment was also supported as Eurozone industrial production for April recorded 39.3 percent growth versus the forecast of 37.4 percent.
While the French CAC 40 Index is up by 0.1 percent, the German DAX Index and the U.K.’s FTSE 100 Index are both up by 0.2 percent.
Markets await a speech by Bank of England Governor Andrew Bailey later in the day to get cues on central bank thinking especially in the context of recent inflation spikes and the resurgence in economic activities.
On the data horizon are Tuesday’s inflation data for May from Germany, France and Italy, Unemployment Claimant Data for May from Great Britain, Balance of Trade for April from Euro Area, SECO Economic forecasts from Switzerland, Q1 GDP Numbers from Russia and Retail Sales for May from the U.S.
On Wednesday, Annual inflation Rate for the month of May will be released by Great Britain’s Office for National Statistics but the more decisive event for the markets could be the U.S Federal Reserve’s meeting on the same day to review the Federal Funds Rate as well as FOMC projections.
Though markets are yet to discount the possibility of the Fed utilizing any available headroom for rolling back monetary stimulus without jeopardizing economic recovery, any indication in that direction could hurt stocks, irrespective of geography.
Asia
Asian stocks rose broadly on Monday after the G7 summit ended with a pledge to continue to support economies with investment until pandemic subsidies.
Amid inflation worries, investors awaited the U.S. Federal Reserve’s monetary policy meeting scheduled for Tuesday and Wednesday for more clues about the economic recovery and monetary policy.
Markets in Taiwan, China and Hong Kong were closed for the Dragon Boat Festival. The Australian market was closed in observance of the Queen’s Birthday.
Japanese shares posted solid gains as the government lifted the COVID-19 state of emergency in Olympics city Tokyo and downgraded it to quasi-emergency state in three prefectures.
Prime Minister Yoshihide Suga has expressed his strong resolve to go ahead with the Tokyo Olympics next month despite concerns over the coronavirus pandemic.
The Nikkei 225 Index climbed 213.07 points, or 0.7 percent, to 29,161.80, while the broader Topix closed 0.3 percent higher at 1,959.75.
Shippers and tire makers paced the gainers, with Bridgestone, Nippon Yusen and Yokohama Rubber rallying 1-3 percent. Uniqlo operator Fast Retailing advanced 2.2 percent.
Toshiba Corp. shares jumped 2.7 percent. The conglomerate said it has amended a slate of nominees for directors, committee members and executive officers as major shareholders demanded accountability after an investigation showed unfair practices in last year’s board selection process.
Seoul stocks edged up marginally to close at a record high as investors awaited cues from this week’s Federal Reserve policy meeting. The Kospi edged up 2.81 points to settle at 3,252.13. Naver rallied 3.9 percent, while LG Chem led losses to end 2.7 percent lower.
Commodities
Crude oil futures are climbing $0.69 to $71.60 a barrel after rising $0.62 to $70.91 a barrel last Friday. Meanwhile, after slumping $16.80 to $1,879.60 an ounce in the previous session, gold futures are plunging $27.40 to $1,852.20 an ounce.
On the currency front, the U.S. dollar is trading at 109.77 yen versus the 109.66 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.2114 compared to last Friday’s $1.2109.
