Persistent Interest Rate Optimism May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to add to yesterday’s modest gains.

Ongoing optimism about the outlook for interest rates may contribute to early strength on Wall Street despite conflicting remarks by Federal Reserve officials.

While Fed Governor Christopher Waller said Tuesday he is “increasingly confident that policy is currently well positioned,” Fed Governor Michelle W. Bowman said she expects further rate hikes will be needed.

Traders seem to be focusing more on the comments that reinforce expectations the Fed will leave policy unchanged until cutting rates beginning in mid-2024.

Positive sentiment may also be generated in reaction to a surge by shares of General Motors (GM), with the auto giant spiking by 9.3 percent in pre-market trading after announcing $10 billion stock buyback and increasing its dividend.

Stocks fluctuated over the course of the trading session on Tuesday before eventually ending the day modestly higher. With the uptick on the day, the Dow reached its best closing level in well over three months.

The major averages finished the day well off their highs of the session but still in positive territory. The Dow crept up 83.51 points or 0.2 percent to 35,416.98, the Nasdaq rose 40.73 points or 0.3 percent to 14,281.76 and the S&P 500 inched up 4.46 points or 0.1 percent to 4,554.89.

Stocks moved to the upside in morning trading on the heels of Waller’s remarks adding to recent optimism the Fed is done raising interest rates.

Speaking at an American Enterprise Institute event, Waller said he is “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent.”

Waller warned that he cannot say for sure whether the Fed has done enough to achieve price stability but expressed hope incoming economic data will help answer that question.

However, the buying interest generated by Waller’s remarks was partly offset by the conflicting comments from Bowman.

Bowman said during a Utah Bankers Association and Salt Lake Chamber breakfast that she continues to expect the Fed will need to increase rates further to keep policy sufficiently restrictive to bring inflation down to 2 percent in a timely way.

Overall trading activity remained subdued, however, with traders reluctant to make significant moves ahead of the release of several key economic reports in the coming days.

On Thursday, the Commerce Department is due to release its report on personal income and spending in the month of October.

The report includes readings on inflation said to be preferred by the Fed and could impact the outlook for interest rates.

The uptick by the Dow was partly due to a strong gain by shares of Boeing (BA), with the aerospace giant jumping by 1.4 percent to its best closing level in well over two months.

Boeing moved higher after RBC Capital Markets upgraded its rating on the Dow component’s stock to Outperform from Sector Perform.

Gold stocks extended the rally seen during Monday’s session, driving the NYSE Arca Gold Bugs Index up by 4.5 percent to a nearly four-month closing high.

The rally by gold stocks came amid a sharp increase by the price of the precious metal, with gold for December delivery surging $27.60 to $2,040 ounce.

Significant strength also emerged among airline stocks, as reflected by the 1.3 percent gain posted by the NYSE Arca Airline Index. The index reached its best closing level in two months.

On the other hand, brokerage stocks showed a notable move to the downside, dragging the NYSE Arca Broker/Dealer Index down by 1.2 percent.

Commodity, Currency Markets

Crude oil futures are jumping $1.13 to $77.54 a barrel after surging $1.55 to $76.41 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,042.90, up $2.90 compared to the previous session’s close of $2,040. On Tuesday, gold spiked $27.60.

On the currency front, the U.S. dollar is trading at 147.71 yen compared to the 147.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0973 compared to yesterday’s $1.0993.

Asia

Asian markets closed on a predominantly negative note on Wednesday amidst anxiety ahead of release of PMI readings from China. Hang Seng extended losses, closing at a 1-month low. Comments from a Bank of Japan official suggesting it is too premature to discuss policy normalization also swayed sentiment.

China’s Shanghai Composite Index declined 0.6 percent to finish trading at 3,021.69. The day’s trading ranged between 3,038.98 and 3,017.66. The Shenzhen Component Index lost 0.9 percent to close at 9,744.39.

The Japanese benchmark Nikkei 225 Index slipped or 0.3 percent to end trading at 33,244.43. The day’s trading range was between 33,516.23 and 33,179.07.

Mitsui Engineering & Shipbuilding was the top gainer with a surge of 3.6 percent. Kyocera Corp and Rakuten both added more than 2 percent. Recruit Holdings and Dainippon Screen Manufacturing gained more than 1 percent.

Sumitomo Dainippon Pharma was the biggest laggard with a decline of 4.9 percent. Kobe Steel slumped 4.3 percent. Seven & i Holdings, GS Yuasa Corp, Kawasaki Kisen Kaisha all slipped more than 3 percent.

The Hang Seng Index of the Hong Kong Stock Exchange shed 2.1 percent from the previous close to finish trading at 16,993.44. The day’s trading range was between a high of 17,359.08 and a low of 16,881.98.

The Korean Stock Exchange’s Kospi Index edged down 0.1 percent to close trading at 2,519.81. The day’s trading range was between 2,501.44 and 2,523.98.

Australia’s S&P/ASX 200 Index closed trading at 7,035.30, adding 0.3 percent. The day’s trading range was between 7014.10 and 7,056.60.

Link Administration Holdings surged 8.5 percent, while Fisher & Paykel Healthcare rallied 7.9 percent. Perseus Mining, Emerald Resources and healthcare equipment business Healius all recorded gains of more than 6 percent.

Core Lithium extended losses with a decline of close to 8 percent. Graincorp declined 4.8 percent followed by QBE Insurance Group that erased 3.1 percent. Sayona Mining and Karoon Energy both slipped more than 2 percent.

The NZX 50 Index of the New Zealand Stock Exchange shed 0.1 percent to close trading at 11,235.94 versus the previous close of 11,237.38. Trading ranged between 11,235.94 and 11,409.13.

EROAD extended gains with a spike of 7.6 percent. Fisher & Paykel Healthcare followed with a gain of 5.8 percent. EBOS Group added 3.8 percent whereas Mainfreight gained 2.1 percent. Freightways also gained 1.5 percent.

Pacific Edge slid close to 5 percent, followed by Arvida Group that declined 4.7 percent. Argosy Property, ANZ Group Holdings, Meridian Energy all fell more than 3 percent.

Wall Street had closed with minor gains on Tuesday amidst not-so-hawkish comments from Fed officials that bolstered rate cut hopes. However, anxiety ahead of the release of the PCE readings limited gains.

The Nasdaq Composite added 0.3 percent to close at 14,281.76 whereas the Dow Jones Industrial Average gained 0.2 percent to finish trading at 35,416.98.

Europe

European stocks are mostly higher on Wednesday, with dovish comments from Fed Governor Christopher Waller on Tuesday adding to optimism that the U.S. central bank might cut rates as early as March 24.

Data showing a slowdown in German inflation is also contributing to the positive mood in the markets.

While the German DAX Index has jumped by 1.1 percent and the French CAC 40 Index is up by 0.5 percent, the U.K.’s FTSE 100 Index is nearly unchanged.

In the UK market, Fresnillo is gaining 3.5 percent. British Land Company, Easyjet, RightMove, Just Eat Takeaway.com and M&G are up 2 to 3 percent.

Land Securities, Segro, TUI, St. James’s Place, JD Sports Fashion, Mondi, Taylor Wimpey, Smurfit Kappa Group, AstraZeneca and Persimmon are advancing 1 to 2 percent.

Pennon is down by about 3 percent. Centrica, Rentokil Initial, Standard Chartered and HSBC Holdings are lower by 2 to 2.2 percent.

In the German market, Infineon is climbing nearly 4.5 percent. Zalando, Siemens Energy and Siemens are up 3 to 3.7 percent. BMW is up nearly 2.5 percent and Vonovia is gaining about 2 percent.

Daimler Truck Holding, Deutsche Post, Mercedes-Benz, Continental, SAP, Qiagen, Siemens and Porsche are up 1 to 1.8 percent.

In Paris, WorldLine, Unibail Rodamco, Stellantis, Capgemini, Renault and Michelin are up 2 to 3.1 percent.

STMicroElectronics, Societe Generale, Saint Gobain, LVMH, Teleperformance, Eurofins Scientific, Dassault Systemes, Publicis Groupe and Airbus Group are gaining 1 to 1.8 percent.

TotalEnergies is down by about 1.4 percent, and Alstom is lower by 1.1 percent. Legrand and Hermes International are down marginally.

On the economic front, data published by the statistical office INSEE showed French payroll employment increased slightly in the third quarter, rising just 0.1 percent, or 36,700. The rate was 0.1 percent in the second quarter.

Nonetheless, payroll employment exceeded the previous year level by 0.8 percent. Private as well as public payroll employment gained 0.1 percent each in the third quarter.

Germany’s import prices continued to fall in October, but the large decreases primarily reflect higher base of comparison, Destatis reported today.

Import prices posted an annual fall of 13 percent in October after a 14.3 percent decrease in September. Prices have been falling since March.

“The large decreases are still primarily due to a base effect originating from the high price increases in 2022 as a result of the war in Ukraine,” Destatis said.

U.S. Economic Reports

Revised data released by the Commerce Department on Wednesday showed the U.S. economy grew faster than previously estimated in the third quarter of 2023.

The Commerce Department said the jump by real gross domestic product in the third quarter was upwardly revised to 5.2 percent from the previously reported 4.9 percent. Economists had expected the pace of growth to be upwardly revised to 5.0 percent.

The faster than previously estimated growth reflected upward revisions to non-residential fixed investment and state and local government spending that were partly offset by a downward revision to consumer spending.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 24th.

Cleveland Federal Reserve Bank President Loretta Mester is due to give the keynote speech before the Policy Conference 2023 hosted by the Loyola University Chicago Quinlan School of Business at 1:45 pm ET.

At 2 pm ET, the Federal Reserve is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.