Looming Fed Announcement May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Tuesday, with stocks likely to show a lack of direction after reaching new record highs in the previous session.

Traders may be reluctant to make significant moves ahead of the Federal Reserve’s monetary policy announcement on Wednesday.

The Fed is expected to announce plans to begin gradually scaling back its $120 billion in monthly bond purchases by mid-November or December.

The language of the Fed’s statement is likely to be in focus as traders look for clues about the outlook for interest rates amid concerns about the high rate of inflation.

A lack of major U.S. economic data may also keep traders on the sidelines ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

Among individual stocks, shares of Pfizer (PFE) are likely to see initial strength after the drugmaker reported better than expected third quarter results and raised its full-year guidance.

Household products maker Clorox (CLX) may also move to the upside after reporting fiscal first quarter results that beat analyst estimates on both the top and bottom lines.

Meanwhile, shares of DuPont (DD) are moving lower in pre-market trading after the chemical maker reported third quarter results that exceeded expectations but cut its full-year outlook.

DuPont also announced an agreement to acquire materials technology company Rogers Corp. (ROG) for $5.2 billion in cash.

Stocks turned in a relatively lackluster performance during trading on Monday but managed to end the session modestly higher. With the uptick on the day, the major averages all reached new record closing highs.

The major averages all finished the day in positive territory. The Dow rose 94.28 points or 0.3 percent to 35,913.84, the Nasdaq climbed 97.52 points or 0.6 percent to 15,595.92 and the S&P 500 edged up 8.29 points or 0.2 percent to 4,613.67.

The choppy trading on Wall Street came as traders looked ahead to the Fed’s monetary policy announcement on Wednesday.

However, a batch of upbeat earnings news has contributed to a recent upward trend, as most major companies have reported better than expected quarterly results.

In U.S. economic news, a report released by the Institute for Supply Management on Monday showed a modest slowdown in the pace of growth in U.S. manufacturing activity in the month of October.

The ISM said its manufacturing index edged down to 60.8 in October from 61.1 in September, although a reading above 50 still indicates growth. Economists had expected the index to dip to 60.5.

Meanwhile, the Commerce Department released a report showing construction spending in the U.S. unexpectedly decreased in the month of September.

The report said construction spending fell by 0.5 percent to an annual rate of $1.574 trillion in September after inching up by 0.1 percent to a revised rate of $1.582 trillion in August.

The drop in construction spending came as a surprise to economists, who had expected spending to increase by 0.4 percent.

Oil service stocks showed a substantial move to the upside on the day, driving the Philadelphia Oil Service Index up by 2.9 percent. The rally by oil service stocks came amid an increase by the price of crude oil.

Significant strength was also visible among tobacco stocks, as reflected by the 2.4 percent jump by the NYSE Arca Tobacco Index.

Biotechnology, networking and natural gas stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are falling $0.40 to $83.65 a barrel after rising $0.48 to $84.05 a barrel on Monday. Meanwhile, after climbing $11.90 to $1,795.80 an ounce in the previous session, gold futures are slipping $5.30 to $1,790.50 an ounce.

On the currency front, the U.S. dollar is trading at 113.78 yen compared to the 114.00 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1602 compared to yesterday’s $1.1606.

Asia

Asian stocks ended broadly lower on Tuesday as traders digested the latest coronavirus curbs in China and awaited key central bank decisions for clues on whether they could consider tightening monetary policy earlier than thought.

The Fed’s policy announcement is due on Wednesday, and it is likely the U.S. central bank will announce tapering of its bond purchases.

Markets will closely watch the Fed’s language on inflation and the timing of the first interest rate hike since December 2018.

Chinese stocks fell sharply on growing concerns about the country’s economic outlook. Worries over spreading financial contagion worsened after Yango Group offered to exchange some U.S. dollar bonds for new notes personally guaranteed by its chairman to avoid defaulting on upcoming debt payments.

Fitch Ratings downgraded the firm’s rating “C” from “B,” saying that it considered the offer a distressed debt exchange. Moody’s Investors Service earlier cut Yango’s corporate family rating to Caa2 from B2, citing liquidity risk.

The benchmark Shanghai Composite Index fell 38.85 points, or 1.1 percent, to 3,505.63, while Hong Kong’s Hang Seng Index ended down 54.65 points, or 0.2 percent, at 25,099.67.

Japanese shares closed lower on profit taking after a strong rally in the previous session following Prime Minister Fumio Kishida’s stronger than expected election victory.

The Nikkei 225 Index dropped 126.18 points, or 0.4 percent, to 29,520.90, while the broader Topix ended 0.6 percent lower at 2,031.67.

Panasonic lost 1 percent and Olympus gave up 2.4 percent, while ANA Holdings and Japan Airlines climbed 1-2 percent on a Nikkei report that entry restrictions would be lifted for foreign students and short-term business travelers.

Australian markets fell after the Reserve Bank left its key rate unchanged at a record low but discontinued its government bond yield target, opening the door for an earlier interest rate hike amid an improving economic recovery and rising inflation.

The benchmark S&P/ASX 200 Index slid 46.50 points, or 0.6 percent, to 7,324.30, while the broader All Ordinaries Index ended down 45.60 points, or 0.6 percent, at 7,646.60.

Miners BHP, Rio Tinto and Fortescue Metals Group tumbled 2-3 percent as benchmark iron ore futures in China hit their lowest levels in nearly a year on a poor demand outlook.

Financials ended broadly lower, with Insurance Australia Group plunging 7 percent after warning of higher costs. Industrial property company Goodman Group jumped 5.6 percent after lifting its full-year earnings growth forecast.

Seoul stocks rose for a second straight session as bullish exports data released on Monday helped ease investor concerns over the global supply chain and its impact on the domestic economy down the road.

The benchmark Kospi climbed 34.55 points, or 1.2 percent, to close at 3,013.49. Market bellwether Samsung Electronics gained 2.3 percent, while No. 2 chipmaker SK Hynix and top automaker Hyundai Motor both rose about 1 percent.

Europe

European stocks are turning in a mixed performance on Tuesday after Eurozone manufacturers reported a worsening of the supply chain in October.

IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) dipped to an eight-month low of 58.3 in October from September’s 58.6. That was shy of the initial 58.5 “flash” estimate.

As inflation worries mount, investors awaited the outcome of key central bank meetings in the United States and Britain this week for further direction.

The U.S. Federal Reserve and the Bank of England will announce their monetary policy decisions on Wednesday and Thursday, respectively.

Earlier today, the Reserve Bank of Australia left its official cash rate on hold but abandoned an ultra-low target for bond yields.

While the U.K.’s FTSE 100 Index has slid by 0.6 percent, the French CAC 40 Index is up by 0.2 percent and the German DAX Index is up by 0.7 percent.

Swiss recruitment firm Adecco has tumbled after the company warned “pretty unprecedented” labor shortages would continue to push wages higher in the short to medium term.

A drop in copper and iron ore prices is also weighing on the mining sector, with Anglo American, Antofagasta and Glencore moving notably lower.

TP ICAP Group shares have also slumped. The world’s largest inter-dealer broker reiterated its full-year revenue outlook after reporting a 15 percent jump in third quarter revenue.

Outsourcer Capita has also dropped after it agreed to sell its specialty insurance businesses to Marco Capital Holdings for an undisclosed sum.

BP Plc has also shown a notable move to the downside despite the oil and gas firm reporting a sharp increase in third quarter profit.

Standard Chartered has also moved sharply lower after issuing a cautious third-quarter update.

Flutter Entertainment, the world’s largest online betting group, has also slumped after trimming its full-year outlook.

On the other hand, German meal-kit delivery firm HelloFresh has spiked after raising its 2021 revenue target.

Fresenius shares have also rallied as the healthcare company reported a rise in third quarter sales and net profit.

Fresenius Medical Care has also surged after the kidney dialysis company announced plans to eliminate as many as 5,000 full-time positions.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Arista Networks (ANET) are moving sharply higher in pre-market trading after the networking company reported better than expected third quarter results and provided upbeat guidance. Arista also announced a $1 billion share repurchase program and a four-for-one stock split.

Athletic apparel maker Under Armour (UAA) is also likely to see initial strength after reporting third quarter earnings that exceeded analyst estimates and raising its full-year outlook.

On the other hand, shares of Generac Holdings (GNRC) may come under pressure after the generator maker reported mixed third quarter results and announced an agreement to acquire smart thermostat maker ecobee Inc. in a transaction valued up to $770 million.

Online education company Chegg (CHGG) is also seeing substantial pre-market weakness after reporting third quarter sales that missed analyst estimates and providing disappointing guidance.