Traders Likely To Keep A Close Eye On Fed Minutes For Policy Clues

The major U.S. index futures are currently pointing to a higher open on Wednesday following the mixed performance seen in the previous session.

The Nasdaq 100 futures are firmly positive after the tech-heavy index ended Tuesday’s trading at a new record closing high.

Optimism about the economic outlook may generate some early buying interest, although traders may be reluctant to make significant moves ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

The minutes of the Fed’s mid-June meeting may shed additional light on the outlook for the central bank’s asset purchase program.

Economic projections provided following the conclusion of the meeting pointed to an increase in interest rates in 2023.

The latest projections from Fed officials suggest interest rates will be increased to 0.6 percent in 2023 compared to previous projections indicating rates would remain at near-zero levels. Seven officials expect a rate hike as soon as 2022.

Meanwhile, the Fed said it plans to continue its bond purchases at a rate of at least $120 billion per month until “substantial further progress” has been made toward its goals of maximum employment and price stability.

In his post-meeting press conference, Fed Chair Jerome Powell said reaching the standard of “substantial further progress” is still “a ways off” and stressed the central bank would provide “advance notice” before making any changes to its asset purchases.

Following the strong upward move seen last week, the major U.S. stock indexes turned in a mixed performance during trading on Tuesday. While the tech-heavy Nasdaq reached a new record closing high, the Dow and the S&P 500 gave back ground.

The Dow and the S&P 500 climbed well off their worst levels but still closed in the red. The Dow slid 208.98 points or 0.6 percent to 34,577.37 and the S&P 500 dipped 8.80 points or 0.2 percent to 4,343.54, but the Nasdaq rose 24.32 points or 0.2 percent to 14,663.64.

The pullback by the Dow and the S&P 500 was partly due to profit taking after the advance seen last Friday lifted all three major averages to new record closing highs.

Optimism about the economic outlook helped support the markets, although traders remain somewhat concerned about the outlook for monetary policy.

Further insight into the Federal Reserve’s plans may be provided later this week when the central bank releases the minutes of its latest monetary policy meeting.

Negative sentiment may also have been generated by a report from the Institute for Supply Management showing its reading on service sector activity pulled back off a record high in June.

The ISM said its services PMI slid to 60.1 in June from 64.0 in May, although a reading above 50 still indicates growth in the sector. Economists had expected the index to edge down to 63.5.

“The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.

He added, “Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”

Energy stocks showed a substantial move to the downside on the day as the price of crude oil pulled back sharply after reaching a six-year intraday high.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 5.6 percent and the NYSE Arca Oil Index plummeted by 3.5 percent.

Considerable weakness was also visible among steel stocks, as reflected by the 2.9 percent slump by the NYSE Arca Steel Index.

Airline, banking and natural gas stocks also saw significant weakness on the day, while retail stocks showed a strong move to the upside.

Commodity, Currency Markets

Crude oil futures are inching up $0.11 to $73.48 a barrel after tumbling $1.79 to $73.37 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,807.70, up $13.50 compared to the previous session’s close of $1,794.20. On Tuesday, gold advanced $10.90.

On the currency front, the U.S. dollar is trading at 110.54 yen compared to the 110.63 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1818 compared to yesterday’s $1.1824.

Asia

Asian stocks ended mixed on Wednesday as investors awaited the release of the minutes from the Federal Reserve’s June meeting for more clues on the U.S. central bank’s thinking around interest rates, bond purchasing and the economic outlook.

Chinese stocks advanced as Beijing stepped up supervision of Chinese firms listed overseas. The benchmark Shanghai Composite Index rose 23.46 points, or 0.7 percent, to 3,553.72, while Hong Kong’s Hang Seng Index ended down 112.24 points, or 0.4 percent, at 27,960.62.

Japanese shares fell as traders remain spooked by the recent acceleration in the new wave of coronavirus cases, particularly in Olympic city Tokyo. A firmer yen and a steep drop in crude oil futures overnight also weighed on markets.

The Nikkei 225 Index slumped 276.26 points, or 1 percent, to 28,366.95, while the broader Topix closed 0.9 percent lower at 1,937.68.

Exporters Sony, Honda Motor, Nissan and Mazda Motor fell 1-3 percent as the yen strengthened on data revealing slower than expected growth in the U.S. services sector.

Uniqlo operator Fast Retailing lost 1.1 percent and heavyweight SoftBank Group shed 0.6 percent. Oil & gas company Inpex gave up 3.7 percent and Japan Petroleum tumbled 3 percent.

Australian markets rose notably, led by healthcare and technology stocks. Investors shrugged off survey results showing that the services sector in the country expanded at a slower pace in June.

The benchmark S&P/ASX 200 Index climbed 65.10 points, or 0.9 percent, to 7,326.90, while the broader All Ordinaries Index ended up 67.90 points, or 0.9 percent, at 7,599.30.

Healthcare stocks rebounded after two consecutive sessions of losses, with heavyweight CSL gaining 1.4 percent and Resmed adding 3.4 percent. Afterpay surged 4.6 percent and Appen rallied 3.5 percent in the tech sector after the Nasdaq Composite scored another record close overnight.

Challenger soared 8.8 percent after two U.S. companies bought a stake in the investment manager. Gold miner Newcrest rose over 2 percent as gold prices hovered near a three-week high.

Woodside Petroleum, Santos, Beach Energy and Oil Search fell between 1.6 percent and 2.5 percent after crude oil prices tumbled overnight.

Seoul stocks ended lower amid growing concerns over rising delta variant coronavirus cases, with Prime Minister Kim Boo-kyum saying the government will consider placing Seoul and its immediate vicinity under its harshest social distancing protocols.

The benchmark Kospi slipped 19.87 points, or 0.60 percent, to settle at 3,285.34 after hitting a record high the previous session on expectations of robust corporate earnings in the April-June period.

Market bellwether Samsung Electronics dropped half a percent despite the company forecasting a 53 percent jump in second quarter profit.

In economic news, South Korea posted a current account surplus of $10.76 billion in May, the Bank of Korea said earlier today, up from $1.91 billion in April.

Europe

European stocks have rebounded on Wednesday, as yields resumed their slide and oil prices stabilized after the previous session’s wild ride.

Investors await the release of the minutes of the Federal Reserve meeting later today, which could reveal more hawkish ideas for interest rates.

The German DAX Index is up by 0.9 percent and the U.K.’s FTSE 100 Index is up by 0.2 percent, although the French CAC 40 Index has bucked the uptrend and edged down by 0.1 percent.

French state-controlled power group EDF has moved to the upside on the day after upgrading its EBITDA target for 2021.

German software company SAP has also moved sharply higher after a double upgrade to Buy from Bank of America.

Oil major Royal Dutch Shell has also risen in London. The company said it would boost returns to shareholders via share buybacks or dividends earlier than expected.

Dufry shares have also jumped as Italy’s Autogrill denied rumors of a potential tie-up with the Swiss duty-free retailer.

Meanwhile, JD Wetherspoon shares have fallen. The company reported that its like-for-like sales from May 17 to July 4, when pubs were fully open, were down 14.6 percent.

In economic news, German industrial production fell 0.3 percent month-on-month in May, the same pace of decline as seen in April, data from Destatis revealed. Economists had forecast output to grow 0.5 percent.

On a yearly basis, industrial output growth moderated to 17.3 percent from 27.6 percent a month ago.

U.K. house prices dropped for the first time in five months in June as the government phased out a stamp duty holiday, data from Lloyds Bank subsidiary Halifax and IHS Markit showed.

House prices decreased 0.5 percent on a monthly basis in June, reversing a 1.2 percent increase in May.

U.S. Economic Reports

The Labor Department is due to release the results of its Job Openings and Labor Turnover Survey for the month of May at 10 am ET. Economists expect job openings to rise to 9.388 million in May from 9.286 million in April.

At 2 pm ET, the Federal Reserve is scheduled to release the minutes of its latest monetary policy meeting held in mid-June.

Atlanta Federal Reserve President Raphael Bostic is due to participate in question-and-answer session before the National Association of Black Journalists Business Journalism Task Force at 3:30 pm ET.

Stocks In Focus

Shares of Sunnova Energy (NOVA) are moving notably higher in pre-market trading after Raymond James upgraded its rating on the solar company’s stock to Strong Buy from Outperform.

Appliance maker Whirlpool (WHR) is also likely to see initial strength after JPMorgan named the company a top pick.

On the other hand, shares of Didi (DIDI) are under pressure in pre-market trading, with the Chinese ride-hailing company poised to extend the steep drop seen on Tuesday.