Stocks Open Flat Ahead of Final Fed Decision of the Year
December 19 2018 - 10:02AM
Dow Jones News
By Riva Gold
-- Dollar extends declines ahead of Fed meeting
-- Italian stocks, bonds rally on budget deficit compromise
-- Crude oil stabilizes
U.S. stocks opened mixed Wednesday ahead of a Federal Reserve
meeting that is expected to set the tone for interest rates in
2019.
The S&P 500 fell about 0.07% after closing little changed
Tuesday when a steep fall in oil prices dragged down shares of
energy companies. The Dow Jones Industrial Average rose about
0.4%
The Stoxx Europe 600 was up 0.6% in afternoon trading as a
budget-deficit agreement buoyed shares of Italian lenders, while
markets in Asia closed mixed.
The Federal Reserve releases its interest rate decision,
statement and projections from its December meeting later
Wednesday, marking the last major scheduled event for investors to
monitor in 2018.
The outcome of the meeting and the Fed's assessment of the
economy will be critical for investor sentiment, market
participants say.
"You need to see some calming words, in terms of downgrading
[the Fed's]] view on the economy and emphasizing the path forward
is data-dependent," said Patrick Spencer, vice chairman of equities
at Baird.
With sentiment around markets so negative, "you could see a
relief bounce out of this depending on how [Chair Powell] moderates
his language," he said.
"You've seen a huge correction [in stocks] -- to me, a lot of
the damage has already been done," he added.
The strength of the labor market and broader U.S. economy is
expected to keep the central bank on course to raise rates at
Wednesday's meeting for the fourth time this year. Fed-fund futures
tracked by CME Group suggest a 70% chance of a rate increase at
this meeting. Still, the figure is down from 78% a week ago, while
signs of a slowdown ahead have put a question market over the pace
of rate increases in 2019.
The market has already moved in anticipation of fewer rate rises
next year than planned: The ICE U.S. Dollar Index, which tends to
move lower when interest rate expectations fall, was down 0.3%
Wednesday, bringing its declines this week to 0.7%. Yields on
rate-sensitive two-year Treasurys have fallen to 2.65% from 2.97%
about a month ago.
Market participants say they will focus on the Fed's tone around
the outlook following a rocky stretch for markets and recent
criticism from President Trump.
This year, "it really wasn't trade that caused the big pullbacks
in the stock market, it was more worries about the Fed," said
Jeffrey Kleintop, chief global investment strategist at Charles
Schwab.
Mr. Kleintop pointed to February's big selloff when rising wage
growth sparked worries about higher interest rates, as well as
Chairman Jerome Powell's statement in October that he believed the
U.S. economy was "a long way from neutral", referring to the point
at which interest rates are neither spurring nor slowing economy
growth.
In Europe on Wednesday, shares of GlaxoSmithKline led gains,
climbing 7.5% after the company said it would create a consumer
health care-focused joint venture with American drugmaker
Pfizer.
Italian stocks also drove much of the day's advance, with the
FTSE MIB Index up 2% after Italy's finance ministry said it had
agreed on a compromise with European Union authorities over the
country's budget deficit.
If confirmed, the deal could reduce the Italian government's
borrowing costs and limit losses the country's banks have suffered
on their large holdings of national debt. Yields on 10-year Italian
government bonds fell to 2.77% from around 2.95% Tuesday afternoon,
signaling a rise in prices. The FTSE Italia All-Share Banks index
was up 3.8%.
Earlier, stocks were mixed in Asian trading, with Hong Kong's
Hang Seng inching 0.2% higher while Japan's Nikkei Stock Average
fell 0.6% and stocks in Shanghai and Shenzhen fell over 1%.
Energy companies were among the biggest decliners in the region,
catching up with steep oil price declines late Tuesday.
Oil prices showed signed of stabilizing Wednesday but remained
down sharply this quarter amid mounting worries over global demand
and growing supplies.
While lower oil prices are typically considered positive for
U.S. consumers, energy companies have become more important to U.S.
investment, manufacturing and employment as the country has become
the world's largest oil producer.
The S&P 500 energy sector is down 22% this quarter,
contributing to the slide in U.S. stocks.
Giovanni Legorano and
Carlo Martuscelli
contributed to this article.
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
December 19, 2018 09:47 ET (14:47 GMT)
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