U.S. Stocks May See Early Weakness Ahead Of Fed Announcement

The major U.S. index futures are currently pointing to a modestly lower open on Wednesday, with stocks likely to see further downside following the downturn seen in the previous session.

Uncertainty ahead of the Federal Reserve’s monetary policy announcement may weigh on Wall Street in early trading.

Trading activity is likely to be somewhat subdued, however, as traders await the Fed’s decision relatively late in the trading day.

With the Fed widely expected to raise interest by another 75 basis points, traders will pay close attention to the accompanying statement for clues about the outlook for future rate hikes.

U.S. stocks fell into the red after a positive start on Tuesday, and then stayed weak right until the end of the day’s trading session to close on a negative note.

Investors digested the latest batch of earnings updates and economic data and looked ahead to the Federal Reserve’s monetary policy announcement.

The major averages all fell after opening higher and ended in negative territory. The Dow ended down 79.75 points or 0.2 percent at 32,653.20, more than 300 points off an early high of 32,975.48.

The S&P 500, which climbed to 3,911.79 in early trades, settled at 3,856.10, down 15.88 points or 0.4 percent, while the Nasdaq ended down 97.30 points or 0.9 percent at 10,890.85 after rising to a high of 11,156.35 at the start.

The Fed is widely expected to raise interest rates by another 75 basis points, but traders have recently expressed optimism the central bank will signal plans to slow the pace of rate hikes at upcoming meetings.

The optimism was partly offset by a report from the Labor Department showing a jump in U.S. job openings in the month of September.

A separate report released by the Institute for Supply Management showed a slight increase in U.S. manufacturing activity in the month of October.

The ISM said its manufacturing PMI edged down to 50.2 in October from 50.9 in September, but a reading above 50 still indicates growth in the sector. Economists had expected the index to dip to 50.0.

A report from the Commerce Department showed construction spending in the U.S. unexpectedly showed a modest increase in the month of October, inching up by 0.2 percent to an annual rate of $1.811 trillion, after falling by 0.6 percent to a revised rate of $1.807 trillion in August. Economists had expected construction spending to decrease by 0.5 percent.

Shares from transportation, retail, pharmaceutical and housing sectors mostly struggled for support.

Apple Inc (AAPL), Microsoft (MSFT), Salesforce.com (CRM), United Health (UNH) and Merck & Co (MRK) drifted down 1.4 to 2 percent.

JP Morgan (JPM) climbed nearly 2 percent. Nike (NKE), Goldman Sachs (GS) and Caterpillar (CAT) gained 1 to 1.3 percent. Boeing (BA) and Chevron (CVX) posted moderate gains.

Shares of Uber Technologies (UBER) soared 12 percent after the company raised its fourth-quarter operating profit forecast. The compay said it expects fourth-quarter adjusted EBITDA of $600 – $630 million, above analysts’ expectations of a $569.39 million earnings.

Commodity, Currency Markets

Crude oil futures are inching up $0.16 to $88.53 a barrel after jumping $1.84 to $88.37 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,660.10, up $10.40 compared to the previous session’s close of $1,649.70. On Tuesday, gold rose $9.

On the currency front, the U.S. dollar is trading at 147.15 yen compared to the 148.27 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $0.9896 compared to yesterday’s $0.9877.

Asia

Asian stocks ended on a muted note Wednesday, though Chinese and Hong Kong markets extended strong gains from the previous session following unconfirmed social media posts suggesting that policymakers are preparing to gradually exit the stringent zero-COVID policy.

Investors remained focused on the U.S. Federal Reserve policy meeting later in the day that could offer additional cues on future rate hikes.

The world’s largest central bank is widely expected to raise interest rates by 75 basis points, but investors will look for any signs the central bank may be considering slowing the pace of rate hikes in December.

China’s Shanghai Composite index rallied 1.15 percent to 3,003.37, continuing its stellar performance on Tuesday amid the buzz that policymakers are planning a relaxation of strict COVID-19 curbs in March 2023.

Investors also cheered comments from China’s central bank governor suggesting that the yuan will remain stable against a basket of currencies and that the country would be able to maintain normal monetary policy and positive interest rates as long as possible.

Hong Kong’s Hang Seng index jumped 2.41 percent to 15,827.17, marking its best two-day run since March in a session cut short by a storm warning.

Japanese shares ended on a flat note as minutes from the Bank of Japan’s policy meeting in September showed several officials stressed the need to maintain the bank’s easing policy.

The Nikkei average finished marginally lower at 27,663.39 ahead of a public holiday on Thursday. The broader Topix index closed 0.10 percent higher at 1,940.46.

Sony Group soared 7 percent after the conglomerate raised its annual operating forecast. Sensor maker TDK jumped 6.7 percent and carmaker Subaru added 7 percent on robust earnings.

Seoul stocks ended little changed, with the Kospi average closing marginally higher at 2,336.87 ahead of the Fed meeting outcome. Naver and Kakao climbed 2-3 percent while LG Chem tumbled 3.3 percent and Samsung SDI lost 4.6 percent.

Consumer prices in the country advanced 5.7 percent in October from a year earlier, Statistics Korea said earlier in day – matching estimates.

Australian markets edged up slightly as firmer commodity prices helped lift miners and energy stocks. The benchmark S&P/ASX 200 index inched up 0.14 percent to 6,986.70 while the broader All Ordinaries index ended up 0.11 percent at 7,177.80.

Lithium miner Lake Resources jumped 5.2 percent after saying it had completed the onsite construction of a modular processing demonstration plant for its Kachi lithium project in Argentina.

Europe

European stocks were flat to slightly higher on Wednesday as investors awaited the outcome of key meetings at the Federal Reserve and the Bank of England.

Eurozone bond yields struggled for direction and the dollar dipped as investors awaited the U.S. Fed’s monetary policy announcement later in the day.

The U.S. central bank is widely expected to raise interest rates by another 75 basis points, but investors are pinning hopes that the Fed will signal plans to slow the pace of rate hikes at upcoming meetings.

Thursday’s Bank of England meeting has become a close call between 50 bps and 75 bps.
The pan European STOXX 600 rose 0.3 percent to 416.03 after gaining 0.6 percent on Tuesday.

The German DAX edged up 0.1 percent and France’s CAC 40 index added half a percent while the U.K.’s FTSE 100 was little changed.

Danish drug maker Novo Nordisk surged 5 percent after raising its full-year earnings outlook.

Maersk, the world’s largest container shipping firm, plunged 5.6 percent after it warned of a slowdown in container demand.

Swiss dental equipment firm Straumann gained 1 percent after raising its 2022 sales outlook.

Sodexo shares fell about 2 percent as the French food services and facilities management company announced its strategic plans to accelerate future revenue growth.

British paper packaging giant Smurfit Kappa tumbled 3.2 percent despite delivering strong performance for the first nine months of 2022.

Next, the clothing and homeware chain, jumped 2.4 percent after maintaining its profit guidance for the year.

Luxury car maker Aston Martin Lagonda slumped 12 percent after its loss for the third quarter more than doubled.

Pharmaceutical and biotechnology firm GSK rose 1.2 percent after lifting its 2022 sales growth outlook.

In economic releases, German exports dropped 0.5 percent month-on-month in September after rising 2.9 percent in August, Destatis reported.

Another report revealed that Germany’s jobless rate held steady at seasonally adjusted 3.0 percent in September.

Eurozone manufacturing PMI was finalized at 46.4 in October, down from September’s 48.4.

U.S. Economic Reports

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

ADP said private sector employment jumped by 239,000 jobs in October after climbing by a downwardly revised 192,000 jobs in September.

Economists had expected private sector employment to advance by 195,000 jobs compared to the addition of 208,000 jobs originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended October 28th.

Crude oil inventories are expected to edge up by 0.4 million barrels after climbing by 2.6 million barrels in the previous week.

The Federal Reserve is scheduled to announce its monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.