U.S. Stocks May Lack Direction Ahead Of Next Week’s Fed Meeting

The major U.S. index futures are currently pointing to a roughly flat open on Friday, with stocks likely to show a lack of direction after ending the previous session mostly lower.

Traders may be reluctant to make significant moves ahead of the Federal Reserve’s monetary policy meeting next week.

While the Fed is widely expected to leave interest rates unchanged, traders will look to the accompanying statement for clues about the outlook for rates.

Recent hotter-than-expected inflation readings have reduced optimism about the likelihood of the Fed’s first rate cut coming in June.

According to the CME FedWatch Tool, the probability of the Fed leaving rates unchanged at June meeting has climbed from 25 percent to 41.6 percent.

Stocks showed a lack of direction in early trading on Thursday but moved mostly lower over the course of the session. The major averages all moved to the downside on the day, although selling pressure remained somewhat subdued.

The major averages climbed well off their worst levels going into the close but remained in negative territory. The Dow slid 137.66 points or 0.4 percent to 39,905.66, the Nasdaq fell 49.24 points or 0.3 percent to 16,128.53 and the S&P 500 dipped 14.83 points or 0.3 percent to 5,150.48.

The weakness on Wall Street reflected renewed concerns about the Federal Reserve further postponing its first interest rate cut following the release of hotter-than-expected inflation data.

Before the start of trading, the Labor Department released a report showing producer prices increased by much more than expected in the month of February;

The Labor Department said its producer price index for final demand climbed by 0.6 percent in February after rising by 0.3 percent in January. Economists had expected producer prices to rise by another 0.3 percent.

The report also said the annual rate of producer price growth accelerated to 1.6 percent in February from a revised 1.0 percent in January.

Economists had expected the year-over-year price growth to rise to 1.1 percent from the 0.9 percent originally reported for the previous month.

“With less than a week to go until the next meeting of US central bankers, markets are having to face up to the prospect that the path to a pivot will be a long and winding one,” says Danni Hewson, head of financial analysis at AJ Bell.

“After markets broadly managed to shrug off last week’s hotter than expected inflation data, today’s producer price numbers have settled like a bucket of cold porridge,” she added. “Investors can still subscribe to the expectation that the ‘Goldilocks’ scenario is in play, but it’s going into extra time and that’s requiring a bit of a rethink.”

Meanwhile, the Commerce Department released a report showing retail sales rebounded in the month of February, although the increase fell short of economist estimates.

The Commerce Department said retail sales climbed by 0.6 percent in February after slumping by a revised 1.1 percent in January.

Economists had expected retail sales to increase by 0.8 percent compared to the 0.8 percent decrease originally reported for the previous month.

Excluding sales by motor vehicle and parts dealers, retail sales rose by 0.3 percent in February after falling by 0.8 percent in January. Ex-auto sales were expected to rise by 0.5 percent.

However, FHN Financial chief economist said, “When the Fed is contemplating a series of rate cuts and is confronted by suddenly slower economic growth and suddenly brisker inflation, they will respond to the new news on the inflation side every time.”

“After all, this is not the first time in the past couple of years consumers have paused spending for a couple of months to catch their breath, and getting inflation to 2% has been an overriding goal since the Fed abetted Congress in driving inflation to 7% in 2021,” he added.

Housing stocks saw substantial weakness on the day, resulting in a 3.0 percent nosedive by the Philadelphia Housing Sector Index.

Interest rate-sensitive telecom stocks also saw considerable weakness, dragging the NYSE Arca North American Telecom Index down by 2.3 percent.

Significant weakness was also visible among biotechnology stocks, as reflected by the 2.0 percent slump by the NYSE Arca Biotechnology Index.

Steel, banking and semiconductor stocks also saw notable weakness, while software and oil service stocks bucked the downtrend.

Commodity, Currency Markets

Crude oil futures are sliding $0.57 to $80.69 a barrel after jumping $1.54 to $81.26 a barrel on Thursday. Meanwhile, after falling $13.30 to $2,167.50 an ounce in the previous session, gold futures are edging down $2.40 to $2,165.10 an ounce.

On the currency front, the U.S. dollar is trading at 148.81 yen versus the 148.33 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0886 compared to yesterday’s $1.0883.

Asia

Asian stocks declined on Friday, with uncertainty around Fed easing, a lack of big-ticket stimulus from top metals consumer China and anxiety ahead of next week’s Bank of Japan policy meeting weighing on sentiment.

The dollar traded firm and the Japanese yen was steady as investors digested another hotter-than-expected U.S. inflation reading and looked ahead to next week’s BoJ policy meeting for any possible changes in monetary policy. Gold edged up slightly, while oil consolidated solid weekly gains to hover near a fourth-month high.

China’s Shanghai Composite Index rose 0.5 percent to 3,054.64 as the country’s central bank left its key policy rate unchanged and withdrew cash from a medium-term policy loan operation for the first time in 16 months.

Some analysts and traders said the central bank was reducing liquidity in line with a government call to prevent idle funds.

However, the central bank-backed Financial News reported, citing sources, that the central bank has no intention of actively draining cash.

Hong Kong’s Hang Seng Index tumbled 1.4 percent to 16,720.89 as data showed China’s house prices continued to fall in February, underlining the challenge facing the country’s beleaguered property sector.

Tech stocks were among the worst hit due to lingering concerns over U.S. sanctions against Chinese biotechnology firms.

Japanese markets ended slightly lower as the country’s largest union group announced hefty wage hikes and the Bank of Japan meeting loomed, with the central bank widely expected to put an end to its negative interest rates and yield curve control policies.

The Nikkei 225 Index slipped 0.3 percent to 38,707.64, while the broader Topix Index settled 0.4 percent higher at 2,670.80. Tech stocks underperformed, with Advantest falling 1.4 percent and Tokyo Electron giving up 4.9 percent.

Seoul stocks tumbled as traders pared their expectations for a U.S. rate cut in June and braced for more hawkish signals from a Federal Reserve meeting next week.

The Kospi slumped 1.9 percent to 2,666.84, snapping a three-day winning streak. Samsung Electronics and KB Financial both fell around 3 percent.

Australian markets ended notably lower amid expectations the Reserve Bank may maintain its hawkish stance at a policy meeting next week.

The benchmark S&P/ASX 200 Index dropped 0.6 percent to 7,670.30, while the broader All Ordinaries Index slid 0.6 percent to close at 7,923.80. Miners led losses as iron ore prices extended declines on China growth concerns.

Graphite producer Syrah Resources plunged 21.4 percent following a discounted placement.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index fell 0.4 percent to 11,766.98.

Europe

European stocks are mostly higher on Friday even as traders pared their expectations for a U.S. rate cut in June and braced for more hawkish signals from a Federal Reserve meeting next week.

According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged at June meeting climbed from 25 percent to 40 percent after the U.S. CPI data released earlier this week and Thursday’s PPI data.

Meanwhile, statistical office INSEE reported earlier today that French consumer price inflation eased slightly less than initially estimated in February.

Consumer price inflation softened marginally to 3.0 percent from 3.1 percent in the prior month. In the initial estimate, the rate of inflation was 2.9 percent. However, this was the lowest rate since December 2021, when inflation stood at 2.8 percent.

EU-harmonized inflation slowed to 3.2 percent in February from 3.4 percent in January. In the initial report, the rate of increase was 3.1 percent.

While the French CAC 40 Index is up by 0.5 percent, the German DAX Index is up by 0.4 percent and the U.K.’s FTSE 100 Index is up by 0.1 percent.

Vodafone Group shares have jumped in London. The telecom major announced a binding agreement to sell Vodafone Italy to telecom service provider Swisscom AG for an enterprise value of 8 billion euros.

Scottish Mortgage Investment Trust has also jumped. The company said its Board has now decided to make available at least £1 billion to purchase its shares over the next two years.

Thermal processing expert Bodycote has also soared after posting a rise in profits and commencing a £60 million share buyback program.

Meanwhile, Vonovia SE shares have tumbled after the German real estate service firm reported its biggest loss ever for 2023.

Steel major Salzgitter AG has also slumped after reporting a plunge in net profit for the full year, mainly due weak economic conditions and lower steel prices.

U.S. Economic Reports

A report released by the Labor Department on Friday showed import prices in the U.S. increased in line with economist estimates in the month of February.

The Labor Department said import prices rose by 0.3 percent in February after climbing by 0.8 percent in January. The uptick matched expectations.

Meanwhile, the report said export prices advanced by 0.8 percent in February following an upwardly revised 0.9 percent increase in January.

Economists had expected export prices to edge up by 0.2 percent compared to the 0.8 percent growth originally reported for the previous month.

The Federal Reserve Bank of New York also released a report showing New York manufacturing activity has contracted at a significantly accelerated rate in the month of March.

The New York Fed said its general business conditions index tumbled to a negative 20.9 in March from a negative 2.4 in February, with a negative reading indicating contraction. Economists had expected the index to decrease to a negative 7.0.

Looking ahead, the New York Fed said firms expect conditions to improve over the next months, although optimism remains subdued, with the index for future business conditions inching up to 21.6 in March from 21.5 in February.

At 9:15 am ET, the Federal Reserve is scheduled to release its report on industrial production in the month of February. Industrial production is expected to come in unchanged in February after edging down by 0.1 percent in January.

The University of Michigan is due to release its preliminary reading on consumer sentiment in the month of March at 10 am ET. The consumer sentiment index is expected to be unchanged in March after falling to 76.9 in February.

Stocks In Focus

Shares of Adobe (ADBE) are moving sharply lower in pre-market trading after the software company reported better than expected fiscal first quarter results but provided disappointing revenue guidance for the current quarter.

Beauty retailer Ulta Beauty (ULTA) may also come under pressure after reporting fiscal fourth quarter results that exceeded estimates but forecasting earnings for the current year at the low ended of analyst estimates.

Meanwhile, shares of Rivian Automotive (RIVN) are seeing significant pre-market strength after Piper Sandler upgraded its rating to the electric vehicle maker to Overweight from Neutral.

Chipmaker Micron (MU) may also move to the upside after Citi reiterated its Buy rating on the company’s stock and raised its price target to $150 from $95.