U.S. Stocks May Move To The Upside Ahead Of Widely Expected Rate Cut

The major U.S. index futures are currently pointing to a modestly higher open on Wednesday, with stocks likely to move to the upside after ending the previous session little changed.

Traders may be reluctant to make significant moves early in the session ahead of the Federal Reserve’s monetary policy decision this afternoon.

The Fed is due to announce its decision on interest rates at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.

While the Fed is almost universally expected to lower rates, there continues to be some debate about the size of the rate cut.

CME Group’s FedWatch Tool is currently indicating a 65.0 percent chance of a half-point rate cut and a 35.0 percent chance of a quarter-point rate cut.

However, John Lynch, Chief Investment Officer for Comerica Wealth Management, said, “Though consensus is leaning toward a 50 basis point move, we look for the Fed to cut by 25 basis points today.”

“Inflation growth is not yet at the Fed’s target for price stability, the unemployment rate still hovers around 4.0%, and federal deficit spending continues to surge,” he added. “In this environment, we believe the more prudent policy action is to withstand market pressure and proceed slowly with a 1/4 point mover lower today.”

In U.S. economic news, a report released by the Commerce Department showed a substantial rebound by new residential construction in the U.S. in the month of August.

After moving mostly higher early in the session, stocks gave back ground over the course of the trading day on Tuesday. The Dow and the S&P 500 reached new record intraday highs in early trading but subsequently pulled back near the unchanged line.

The major averages ended the day narrowly mixed. While the Dow edged down 15.90 points or less than a tenth of a percent to 41,606.18, the S&P 500 inched up 1.49 points or less than a tenth of a percent to 5,634.58 and the Nasdaq rose 35.93 points or 0.2 percent to 17,628.06.

Optimism about the outlook for interest rates contributed to early strength on Wall Street, but buying interest waned over the course of the session.

Stocks ended the day little changed following the release of a Commerce Department report unexpectedly showing a modest increase by U.S. retail sales in the month of August.

The Commerce Department said retail sales inched up by 0.1 percent in August after surging by an upwardly revised 1.1 percent in July.

The uptick surprised economists, who had expected retail sales to dip by 0.2 percent compared to the 1.0 percent jump originally reported for the previous month.

While the data is positive for the economy, it was seen as reducing the likelihood the Federal Reserve will lower interest rates by 50 basis points when announcing its highly anticipated monetary policy decision later in the day.

“Despite a lot of concern about the health of the US consumer, the latest data shows resilience rather than the kind of weakness that would warrant a big opening gambit from the Fed,” said Danni Hewson, head of financial analysis at AJ Bell.

She added, “A 50 basis point cut might be perceived as worry, an indication that they’ve waited too long to change tack, whilst a slow and steady unwinding suggests control and is less likely to be viewed through a political lens.”

The Federal Reserve also released a separate report showing industrial production in the U.S. rebounded by much more than anticipated in the month of August.
Oil service stocks moved sharply higher along with the price of crude oil, resulting in a 3.2 percent spike by the Philadelphia Oil Service Index.

Significant strength was also visible among airline stocks, as reflected by the 2.5 percent surge by the NYSE Arca Airline Index. The index ended the session at its best closing level in two months.

Oil producer and computer hardware stocks also saw notable strength on the day, while pharmaceutical stocks came under pressure, dragging the NYSE Arca Pharmaceutical Index down by 1.3 percent.

Commodity, Currency Markets

Crude oil futures are falling $0.62 to $70.57 a barrel after jumping $1.10 to $71.19 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,601, up $8.60 compared to the previous session’s close of $2,592.40. On Tuesday, gold slid $16.50.

On the currency front, the U.S. dollar is trading at 141.86 yen compared to the 142.41 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1118 compared to yesterday’s $1.1114.

Asia

Asian stocks ended Wednesday’s session broadly higher as investors waited for the U.S. Federal Reserve’s first cut to interest rates in more than four years.

There is a debate about the size of reduction after data showed U.S. retail sales unexpectedly ticked up in August in a sign of ongoing consumer resilience.

The U.S. dollar was muted below 101 yen mark in Asian trading and gold held steady, while oil resumed its slide after a two-day rally on concerns about the ongoing impact of Hurricane Francine on output in the U.S. Gulf of Mexico.

Trading was closed in Hong Kong for a national holiday. South Korea’s market was also closed for thanksgiving Chuseok holidays.

China’s Shanghai Composite Index rose 0.5 percent to 2,717.28 on stimulus hopes as trading resumed after a holiday break.

Japanese markets advanced as a weaker yen lifted export-related stocks. Investors shrugged off data that showed Japan posted a trade deficit for a second straight month in August, as growth in both imports and exports missed expectations.

The Nikkei 225 Index climbed 0.5 percent to 36,380.17, while the broader Topix Index closed 0.4 percent higher at 2,565.37. The Bank of Japan meets later this week but no move is expected on rates.

Daiichi Sankyo fell 1.5 percent despite reporting positive initial findings from the dose escalation phase of the Phase I trial of its investigational antibody-drug conjugate (ADC) DS-9606 for treating advanced solid tumors.

Australian markets finished marginally higher after a choppy session. Miners fell, offsetting gains in the financial sector in the lead up to the Fed decision.

The Australian dollar hit a two-week high ahead of labor market data due on Thursday, the Reserve Bank of Australia’s policy meeting due next Tuesday, and the monthly CPI indicator due one day after the RBA decision.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index fell 0.7 percent to 12,586.98 after data showed the country’s seasonally adjusted current account deficit widened by $269 million to $7.2 billion in the June 2024 quarter.

Europe

European stocks have fallen from two-week highs on Wednesday, as investors reacted to the latest euro zone and U.K. inflation data.

Eurostat confirmed that the euro area annual inflation rate was 2.2 percent in August 2024, down from 2.6 percent in July.

U.K. headline consumer inflation gained 2.2 percent from a year ago in August, the same rate as seen in July, the Office for National Statistics reported.

However, price growth in the services sector picked up, cementing expectations that the Bank of England will pause interest rate cuts on Thursday. Services inflation rose to 5.6 percent from 5.2 percent.

While the U.K.’s FTSE 100 Index is down by 0.6 percent, the French CAC 40 Index is down by 0.4 percent and the German DAX Index is just below the unchanged line.

In corporate news, Danish drug maker Novo Nordisk has slumped on a Bloomberg report that its diabetes drug Ozempic is” very likely” to be one of the next drugs targeted for a price cut in the United States.

Italian spirits group Campari has also plunged on news that its CEO Matteo Fantacchiotti was resigning with immediate effect after only five months at the helm.

Legal & General Group shares has also tumbled. The financial services company has agreed to sell its U.K. house builder Cala Group for an enterprise value of 1.35 billion pounds ($1.78 billion).

Meanwhile, Reckitt Benckiser has risen in London. Media reports suggest that the British consumer goods giant has started early discussions with potential suitors for a sale of its homecare assets.

Nordex SE shares have also advanced . The German wind turbine maker said that it has bagged an order for 10 turbines from the wind and solar park developer, Umweltgerechte Kraftanlagen GmbH & Co. KG for an undisclosed amount.

French video games group Ubisoft Entertainment has also jumped after BMO Capital Markets raised its rating on the stock to Outperform.

U.S. Economic Reports

A report released by the Commerce Department on Wednesday showed a substantial rebound by new residential construction in the U.S. in the month of August.

The Commerce Department said housing starts spiked by 9.6 percent to an annual rate of 1.356 million in August after plunging by 3.9 percent to a revised rate of 1.237 million in July.

Economists had expected housing starts to surge by 5.8 percent to an annual rate of 1.310 million from the 1.238 million originally reported for the previous month.

The Commerce Department said building permits also shot up by 4.9 percent to an annual rate of 1.475 million in August after tumbling by 3.3 percent to a revised rate of 1.406 million in July.

Building permits, an indicator of future housing demand, were expected to jump by 1.0 percent to an annual rate of 1.410 million from the 1.396 million originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on crude oil inventories in the week ended September 13th.

Crude oil inventories are expected to edge down by 0.1 million barrels after rising by 0.8 million barrels in the previous week.

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