Traders Shrug Off Data Amid Continued Focus On The Fed

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

Traders have seemingly shrugged off today’s slew of typically closely watched data as they continue to look ahead to the Federal Reserve’s monetary policy announcement.

The two-day Fed meeting that begins today is not likely to result in any changes to monetary policy, but the central bank could signal that it is beginning to think about scaling back its asset purchases.

The Fed announcement on Wednesday is likely to acknowledge the recent increase in inflation, which was highlighted by today’s Labor Department report showing record annual producer price growth.

The Labor Department said its producer price index for final demand advanced by 0.8 in May after climbing by 0.6 percent in April. Economists had expected another 0.6 percent increase.

Excluding prices for food, energy, and trade services, core producer prices rose by 0.7 in May, matching the increase seen in the previous month. Core prices were expected to rise by 0.5 percent.

Compared to the same month a year ago, producer prices in May were up by 6.6 percent, reflecting the largest increase since 12-month data were first calculated in November 2010.

The annual rate of core producer price growth also accelerated to a record high of 5.3 percent in May from 4.6 percent in April.

Meanwhile, the Commerce Department released a separate report showing retail sales tumbled by more than expected in the month of May, although the steep drop followed a notable upward revision to the previous month’s data.

The report said retail sales plunged by 1.3 percent in May following an upwardly revised 0.9 percent increase in April.

Economists had expected retail sales to slump by 0.8 percent compared to the unchanged reading originally reported for the previous month.

Stocks turned in a mixed performance during trading on Monday, although the tech-heavy Nasdaq and the S&P 500 still managed to reach new record closing highs. The narrower Dow climbed well off its worst levels of the day but still closed in the red.

The Nasdaq advanced 104.72 points or 0.7 percent to 14,174.14 and the S&P 500 rose 7.71 points or 0.2 percent to 4,255.15 after spending much of the day in negative territory. Meanwhile, the Dow dipped 85.85 points or 0.3 percent to 34,393.75.

The advance by the Nasdaq reflected strength among tech stocks, with big-name companies like Apple (AAPL), Netflix (NFLX) and Facebook (FB) posting notable gains.

Semiconductor stocks showed a strong move to the upside, driving the Philadelphia Semiconductor Index up by 1.4 percent to a two-month closing high.

Strength was also visible among software stocks, as reflected by the 1 percent gain posted by the Dow Jones U.S. Software Index.

Meanwhile, the lower close by the Dow was partly due to weakness among financial giants JPMorgan Chase (JPM) and Goldman Sachs (GS).

The losses by the Dow components reflected broader weakness in the banking sector, with the KBW Bank Index falling by 1.6 percent to its lowest closing level in well over a month.

Considerable weakness among steel, oil service and housing stocks also partly offset the strength in the technology sector.

The mixed performance on Wall Street came as traders looked ahead to 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.”

Any changes to the Fed’s projections for economic growth, inflation and interest rates are also likely to have a significant impact on the outlook for monetary policy.

Commodity, Currency Markets

Crude oil futures are climbing $0.78 to $71.66 a barrel after edging down $0.03 to $70.88 a barrel on Monday. Meanwhile, after falling $13.70 to $1,865.90 an ounce in the previous session, gold futures are rising $2.20 to $1,868.10 an ounce.

On the currency front, the U.S. dollar is trading at 110.10 yen compared to the 110.07 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.2106 compared to yesterday’s $1.2120.

Asia

Asian stocks ended broadly higher on Tuesday, although Chinese and Hong Kong markets fell as traders returned from a long weekend to play catch-up with global markets. All eyes were on a key Federal Reserve announcement scheduled for Wednesday amid fears of rising interest rates.

China’s Shanghai Composite Index dropped 33.19 points, or 0.9 percent, to 3,556.56, while Hong Kong’s Hang Seng Index down 203.60 points, or 0.7 percent, at 28,638.53.

Japanese stocks extended gains from the previous session after the Bank of Japan said it would consider extending its pandemic-relief programs to support a fragile economic recovery.

The Nikkei 225 Index jumped 279.50 points, or 1 percent, to 29,441.30, marking its biggest gain since late May. The broader Topix ended 0.8 percent higher at 1,975.48, reaching its highest closing level since early April.

Drug makers led the gainers, with Eisai spiking 6.6 percent after saying it expects to earn billions of dollars a year from its new Alzheimer’s disease drug developed jointly with U.S. biopharmaceutical company Biogen Inc.

Takeda Pharmaceutical gained 1.7 percent after a study found that Novavax’s coronavirus vaccine is 90 percent effective against a variety of variants of the virus. Takeda is handling the supply of Novavax’s COVID-19 vaccine in Japan.

Australian markets hit a record high, with gains seen across the board, as Victoria reported no new locally acquired cases of COVID-19 and minutes of the June Reserve Bank of Australia meeting signaled a dovish bias.

The benchmark S&P/ASX 200 Index rallied 67.20 points, or 0.9 percent, to 7,379.50, while the broader All Ordinaries Index ended up 55.80 points, or 0.7 percent, at 7,633.

Tech stocks led the surge, with Afterpay, Xero and Wisetech Global climbing 2-3 percent. The big four banks rose between 0.8 percent and 2.1 percent, while mining heavyweight Rio Tinto gained 1.2 percent and Mineral Resources jumped 3.1 percent.

Energy stocks posted modest gains. Metal recycler Sims Metal added 1.4 percent after lifting its full-year guidance. Gold miners Evolution, Newcrest and Northern Star Resources gave up 1-2 percent after gold prices tumbled overnight. Austal plunged 9 percent after the shipbuilder downgraded its full-year guidance.

Seoul stocks closed at record highs and benchmark bond yields fell heading into the Fed policy update. The Kospi inched up 6.50 points, or 0.2 percent, to 3,258.63, extending gains for the fourth straight session. Heavyweight Samsung Electronics gained half a percent and peer SK Hynix added 1.2 percent.

Europe

European stocks have risen on Tuesday amid hopes for a swift and lasting economic recovery from the coronavirus pandemic.

Investors await the outcome of a two-day policy meeting of the Federal Reserve starting later in the day for indications of the central bank’s view on the recent increase in inflation.

While the U.K.’s FTSE 100 Index has risen by 0.5 percent, the German DAX Index and the French CAC 40 Index are both up by 0.6 percent.

Primark owner Associated British Foods have rallied after a positive first quarter update from fast fashion retailer Boohoo.

Equipment rental group Ashtead has also advanced after reporting a doubling in profits in the fourth quarter of the year.

On the other hand, subprime lender Non-Standard Finance has moved sharply lower after announcing a share sale.

Lufthansa Group shares have also dropped. The airline said it aims to achieve an Adjusted EBIT margin of at least 8 percent and an Adjusted ROCE excluding cash of at least 10 percent in 2024.

Equinor has also fallen. The company said it is seeking to increase the share of investment it dedicates to renewable energy and so-called low-carbon solutions.

Retailer Hennes & Mauritz AB has also slumped. The company reported that its second quarter net sales increased 62 percent to 46.51 billion Swedish kronor from last year’s 28.66 billion kronor.

In economic news, the euro area trade surplus narrowed to 9.4 billion euros in April from 18.3 billion euros in March as exports declined amid rising imports, Eurostat reported. This was the smallest surplus since May 2020.

Germany’s harmonized inflation accelerated for a third month in a row to its highest level in nearly three years and remained above the European Central Bank’s target of ‘below, but close to 2 percent’ in May, final data from Destatis confirmed.

The U.K. unemployment rate dropped 0.3 percentage points quarterly to 4.7 percent in the three months to April as expected, official data showed earlier today. The employment rate rose 0.2 percentage points to 75.2 percent as the economy began to reopen.

U.S. Economic Reports

Partly reflecting a sharp pullback in auto sales, the Commerce Department released a report on Tuesday showing retail sales in the U.S. tumbled by more than expected in the month of May.

The report said retail sales plunged by 1.3 percent in May following an upwardly revised 0.9 percent increase in April.

Economists had expected retail sales to slump by 0.8 percent compared to the unchanged reading originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales still slid 0.7 percent in May after coming in unchanged in April. Ex-auto sales were expected to inch up by 0.2 percent.

A separate report released by the Labor Department showed producer prices in the U.S. increased by more than expected in the month of May.

The Labor Department said its producer price index for final demand advanced by 0.8 in May after climbing by 0.6 percent in April. Economists had expected another 0.6 percent increase.

Excluding prices for food, energy, and trade services, core producer prices rose by 0.7 in May, matching the increase seen in the previous month. Core prices were expected to rise by 0.5 percent.

Compared to the same month a year ago, producer prices in May were up by 6.6 percent, reflecting the largest increase since 12-month data were first calculated in November 2010.

The annual rate of core producer price growth also accelerated to a record high of 5.3 percent in May from 4.6 percent in April.

Meanwhile, New York manufacturing activity expanded at a slower rate in the month of June, according to a report released by the Federal Reserve Bank of New York.

The New York Fed said its general business conditions index fell to 17.4 in June from 24.3 in May, although a positive reading still indicates growth in regional manufacturing activity. Economists had expected the index to dip to 22.0.

Looking ahead, the New York Fed said firms remained optimistic that conditions would improve over the next six months, with the index for future employment reaching a record high.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of May. Industrial production is expected to rise by 0.6 percent in May after climbing by 0.7 percent in April.

The National Association of Home Builders is due to release its report on homebuilder confidence in the month of June at 10 am ET. The housing market index is expected to come in unchanged at 83.

Also at 10 am ET, the Commerce Department is scheduled to release its report on business inventories in the month of April. Business inventories are expected to edge down by 0.1 percent.

Stocks In Focus

Shares of Sage Therapeutics (SAGE) are moving sharply lower in pre-market trading even though a Phase 3 study of the major depressive disorder treatment the drugmaker is developing with Biogen (BIIB) met its primary endpoint.

Online automotive retailer Vroom (VRM) is also seeing significant pre-market weakness after announcing its intention to offer $500 million in convertible senior notes due in 2026.

Meanwhile, shares of Spirit Airlines (SAVE) are likely to move to the upside after Citi upgraded its rating on the discount airline’s stock to Buy from Neutral following a positive second quarter update.