Traders May Stick To The Sidelines Ahead Of Fed Minutes

The major U.S. index futures are currently pointing to a roughly flat open on Wednesday, with stocks likely to show a lack of direction in early trading.

Traders may be reluctant to make significant moves ahead of this afternoon’s release of the minutes of the Federal Reserve’s latest monetary policy meeting.

After the December meeting, the Fed announced its widely expected decision to accelerate the pace of reductions to its asset purchases program.

The Fed minutes may shed additional light on the outlook for monetary policy, with the central bank’s latest projections forecasting as many three interest rate hikes in 2022.

Concerns about higher interest rates may continue to weigh on tech stocks, which pulled back sharply in the previous session.

Meanwhile, the futures did not show much reaction to a report from payroll processor ADP showing stronger than expected private sector job growth in the month of December.

After moving notably higher over the course of Monday’s session, the major U.S. stock indexes turned a starkly mixed performance during trading on Tuesday. While the Dow climbed to a new record closing high, the tech-heavy Nasdaq showed a substantial pullback.

The Dow ended the session off its best levels of the day but still closed up 214.59 points or 0.6 percent at 36,799.65. Meanwhile, the Nasdaq tumbled 210.08 points or 1.3 percent to 15,622.72 and the S&P 500 edged down 3.02 points or 0.1 percent to 4,793.54 after reaching a record intraday high.

The sharp pullback by Nasdaq partly reflected substantial weakness among software and biotechnology stocks.

Reflecting the weakness in the sectors, the Dow Jones U.S. Software Index and the NYSE Arca Biotechnology Index plunged by 2.5 percent and 2.1 percent, respectively.

Healthcare and pharmaceutical stocks also moved notably lower on the day, while energy stocks rallied amid a continued increase by the price of crude oil. Crude for February delivery jumped $0.91 to $76.99 a barrel.

Oil service stocks posted particularly strong gains on the day, resulting in a 4.5 percent spike by the Philadelphia Oil Service Index.

Significant strength was also visible among banking stocks, as reflected by the 3.4 percent jump by the KBW Bank Index.

Banking stocks benefited from a continued increase by Treasury yields, with notable gains by financial giants JPMorgan Chase (JPM) and Goldman Sachs (GS) contributing to the upward move by the Dow.

The continued advance by the Dow also came as traders remain optimistic about the economic outlook even as the U.S. reported more than 1 million new Covid cases on Monday.

Indications the new Omicron variant causes milder symptoms has led to hopes the recent surge could actually help to accelerate the end of the pandemic.

Commodity, Currency Markets

Crude oil futures are rising $0.60 to $77.59 a barrel after jumping $0.91 to $76.99 a barrel a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,822.40, up $7.80 compared to the previous session’s close of $1,814.60. On Tuesday, gold climbed $14.50.

On the currency front, the U.S. dollar is trading at 115.81 yen compared to the 116.16 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1313 compared to yesterday’s $1.1287.

Asia

Asian stocks ended mostly lower on Wednesday after a continued rise in the U.S. 10-year Treasury yields pulled U.S. tech shares sharply lower overnight.

News reports on North Korea firing a ballistic missile off its east coast also kept underlying sentiment cautious.

China’s Shanghai Composite Index slumped 37.15 points, or 1 percent, to 3,595.18 after an index of Chinese companies traded in New York fell the most in more than two weeks.

Hong Kong’s Hang Seng Index tumbled 382.59 points, or 1.6 percent, to 22,907.25, with tech stocks retreating on concerns that Tencent Holdings will keep cutting its stakes in a host of companies following several recent billion-dollar divestment plans.

Japanese shares ended flat with a positive bias as gains by Toyota Motor and Sony Group offset losses in the tech sector.

The Nikkei 225 Index edged up 30.37 points, or 0.1 percent, to 29,332.16 ahead of the release of the U.S. Federal Reserve’s December meeting minutes later in the day. The broader Topix rose 9.05 points, or 0.5 percent, to 2,039.27.

Toyota Motor rallied 2.6 percent after it surpassed General Motors to grab the best-seller crown in the U.S. for 2021.

Sony Group jumped 3.7 percent after the game maker announced it is exploring the commercial launch of its own electric vehicle.

Australian shares gave up early gains to end slightly lower for the day, with technology and healthcare stocks pacing the declines. Energy and mining stocks advanced, helping limit the downside.

The benchmark S&P/ASX 200 Index dipped 24 points, or 0.3 percent, to 7,565.80, while the broader All Ordinaries Index ended down 27.20 points, or 0.3 percent, at 7,899.60.

Xero, Afterpay and Wisetech Global lost 3-4 percent amid concerns over rising bond yields. Hearing device maker Cochlear declined 2.8 percent and biotech major CSL gave up 1.8 percent.

Seoul stocks tumbled amid Covid-19 worries and on expectations for a Fed rate hike this year. The Kospi fell 35.27 points, or 1.2 percent, to close at 2,953.97.

Market heavyweight Samsung Electronics declined 1.7 percent, chipmaker SK Hynix lost 2.3 percent and internet portal operator Naver shed 2.9 percent.

Europe

European stocks are moving mostly higher on Wednesday, although the upside has remained capped by Covid-19 worries and uncertainty surrounding the interest rate outlook.

Investors await the U.S. Federal Reserve’s minutes of its December 14-15, 2021 policy meeting later in the day for clues about the timing of any rate hikes.

In economic news, the euro zone services PMI was finalized at 53.1 in December, down from November’s 55.9. The Composite PMI was finalized at 53.3, down from November’s 55.4, signaling the softest expansion in combined manufacturing and services output since March.

While the U.K.’s FTSE 100 Index has edged up by 0.2 percent, the German DAX Index and the French CAC 40 Index are both up by 0.7 percent.

Oxford Biomedica shares have advanced in London. The gene and cell therapy group announced that it has signed a new License and Supply Agreement or LSA with Cabaletta Bio, Inc. (CABA) for LentiVector Platform.

Meanwhile, Dutch tech investor Prosus, which has a stake in China’s Tencent, has fallen after a sell-off in Chinese tech names listed in Hong Kong.

Renewi has moved to the downside. The waste management company said that Toby Woolrych will step down as chief financial officer on 1 April.

Gambling software maker Playtech has dipped. The company said it was also postponing court and shareholder meetings relating to the offer by Aristocrat Leisure Limited from January 12 to February 2.

U.S. Economic Reports

Private sector employment in the U.S. surged by much more than expected in the month of December, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment spiked by 807,000 jobs in December after jumping by a revised 505,000 jobs in November.

Economists had expected private sector employment to increase by 400,000 jobs compared to the addition of 534,000 jobs originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended December 31st.

Crude oil inventories are expected to decrease by 3.3 million barrels after declining by 3.6 million barrels in the previous week.

The Federal Reserve is due to release the minutes of its latest monetary policy meeting at 2 pm ET. After the December meeting, the Fed announced its widely expected decision to accelerate the pace of reductions to its asset purchases program.

Stocks In Focus

Shares of Miller Knoll (MLKN) are moving notably lower in pre-market trading after the office furniture maker reported weaker than expected fiscal second quarter results.

Software maker Adobe (ADBE) may also move to the downside after UBS downgraded its rating on the company’s stock to Neutral from Buy.

On the other hand, shares of Beyond Meat (BYND) are likely to see initial strength on news KFC will start selling the company’s fried chicken substitute nationwide starting Monday, January 10.

Drug giant Pfizer (PFE) is also seeing some pre-market strength after Bank of America upgraded its rating on the company’s stock to Buy from Neutral.