Rate Cut Optimism May Lead To Early Strength On Wall Street Ahead Of Fed Minutes

The major U.S. index futures are currently pointing to a slightly higher open on Wall Street on Wednesday, with stocks likely to move back to the upside after ending yesterday’s choppy trading session modestly lower.

Optimism about the outlook for interest rates may lead stocks to resume their upward trend ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

The Fed is due to release the minutes of its late July meeting this afternoon, and traders will be looking for the minutes to support expectations of an interest rate cut next month.

Ahead of the release of the minutes, CME Group’s FedWatch Tool suggests there is a 67.5 percent of a quarter point rate cut next month and a 32.5 percent chance of a half point rate cut.

Later in the week, remarks by Fed Chair Jerome Powell and other Fed officials at the Jackson Hole Economic Symposium are also likely to attract attention.

After trending higher for several sessions, stock showed a lack of direction over the course of the trading day on Tuesday. The major averages bounced back and forth across the unchanged line before eventually ending the day modestly lower.

The major averages finished the session well off their worst levels of the day but still in the red. The Dow dipped 61.56 points or 0.2 percent to 40,834.97, the Nasdaq fell 59.83 points or 0.3 percent to 17,816.94 and the S&P 500 slipped 11.13 points or 0.2 percent to 5,597.12.

The modestly lower close on Wall Street may partly have reflected profit taking following the recent upward trend on Wall Street, which saw the Nasdaq and the S&P 500 close higher for eight consecutive sessions.

Trading activity remained relatively subdued, however, as traders seemed reluctant to make significant moves ahead of key events later this week that could impact the outlook for interest rates.

Substantial weakness among energy stocks weighed on the markets, with the Philadelphia Oil Service Index and the NYSE Arca Oil Index plunging by 3.4 percent and 2.8 percent, respectively.

The weakness among energy stocks came as the price of crude oil saw further downside after moving sharply lower over the two previous sessions.

Considerable weakness was also visible among steel stocks, as reflected by the 1.4 percent loss posted by the NYSE Arca Steel Index.

Semiconductor, natural gas and brokerage stocks also saw notable weakness, while networking stocks showed a strong move to the upside on the day.

Commodity, Currency Markets

Crude oil futures are inching up $0.13 to $73.30 a barrel after falling $0.49 to $73.17 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,548.60, down $2 compared to the previous session’s close of $2,550.60. On Tuesday, gold rose $9.30.

On the currency front, the U.S. dollar is trading at 145.79 yen compared to the 145.26 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1125 compared to yesterday’s $1.1138.

Asia

Asian stocks fluctuated before ending mixed on Wednesday as investors awaited cues on future rate cuts in the U.S.

Minutes of the Fed’s July meeting due to be published later today and Fed Chair Powell’s keynote speech at the Jackson Hole Symposium on Friday are expected to provide greater clarity on monetary policy easing.

The dollar extended its weakness against other major currencies, helping gold prices push higher in Asian trading. Oil was little changed as estimates showed swelling U.S. crude inventories.

China’s Shanghai Composite Index dropped 0.4 percent to 2,856.58 and Hong Kong’s Hang Seng Index fell 0.7 percent to 17,391.01.

E-commerce giant JD.com plummeted 8.7 percent after its biggest shareholder Walmart sold its stake in the firm.

Japanese shares fell slightly as the yen strengthened back to the 145 levels per dollar and data showed the country’s balance of trade fell back into the red in July.

The Nikkei 225 Index slipped 0.3 percent to 37,951.80, while the broader Topix Index settled 0.2 percent lower at 2,664.86.

Chip-related stocks fell, with Tokyo Electron, Advantest, Screen Holdings and Shin-Etsu Chemical losing 1-2 percent.

Sven & I Holdings surged 5.8 percent after slumping Tuesday on receiving a preliminary takeover bid from Canada’s Alimentation Couche-Tard ATD.TO.

Seoul stocks ended higher for a second day running as investors awaited the U.S. rate policy direction from this week’s Jackson Hole symposium. The Kospi edged up 0.2 percent to 2,701.13, with Posco Holdings and LG Chem both rising over 2 percent.

Australian markets eked out modest gains to extend their winning streak for the ninth consecutive session. Tech and mining stocks advanced, offsetting losses in the energy sector.

The benchmark S&P/ASX 200 Index crept up up 0.2 percent to 8,010.50, while the broader All Ordinaries Index gained 0.3 percent to close at 8,234.

Oil and gas giant Santos tumbled 4.4 percent after reporting a bigger-than-expected decrease in first-half profit.

Logistics software maker WiseTech Global soared 18.4 percent after raising its dividend and flagging earnings growth over its current fiscal year.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dropped 0.4 percent to 12,502.97.

Europe

European stocks have moved higher in cautious trading on Wednesday ahead of the release of the Federal Reserve’s July meeting minutes and preliminary revisions to U.S. labor data later in the day.

The dollar dipped against major currencies, tracking overnight declines in U.S. Treasury yields as investors brace for Fed Chair Jerome Powell’s upcoming speech at the Kansas City Fed’s Jackson Hole economic symposium on Friday.

Experts anticipate Powell will hint at a 25-basis point rate cut in September but caution that decisions will remain data-dependent.

The pan European STOXX 600 is up by 0.4 percent at 514.19 after snapping a five-day winning streak in the previous session.

The German DAX Index is up by 0.6 percent, the French CAC 40 Index is up by 0.5 percent and the U.K.’s FTSE 100 Index is up by 0.2 percent.

Miners traded higher in London after Shanghai aluminum futures scaled a five-week high, supported by tightness in raw materials supply.

Costain Group has also jumped after the engineering firm announced robust first-half results and unveiled a £10m share buyback program.

Homebuilder Barratt Developments has edged up slightly. The Competition and Markets Authority (CMA) has hinted measures proposed by Barratt and Redrow to alleviate the regulator’s local competition concerns are likely to be accepted.

Meanwhile, Alcon AG has tumbled after the Swiss eye care company reported second-quarter results that missed estimates.

U.S. Economic Reports

The Energy Information Administration is scheduled to release its report on oil inventories in the week ended August 16th at 10:30 am ET.

Crude oil inventories are expected to decrease by 2.8 million barrels after rising by 1.4 million barrels in the previous week.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $16 billion worth of twenty-year bonds.

The Federal Reserve is scheduled to release the minutes of its July 30-31 monetary policy meeting at 2 pm ET. At the meeting, the Fed decided to leave interest rates unchanged.

Stocks In Focus

Shares of Target (TGT) are moving sharply higher in pre-market trading after the retailer reported fiscal second quarter earnings that far exceeded analyst estimates.

Electronic measurement technology company Keysight Technologies (KEYS) is also seeing significant pre-market strength after reporting better than expected fiscal third quarter results.

On the other hand, shares of Macy’s (M) may come under pressure after the department store operator reported mixed fiscal second quarter results and cut its full-year sales forecast.

Chinese e-commerce company JD.com (JD) is also likely to move to the downside on news Walmart (WMT) has sold its entire stake in the company.