Uncertainty About Outlook May Lead To Choppy Trading On Wall Street

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(RTTNews) – The major U.S. index futures are currently pointing to a roughly flat on Thursday, with stocks likely to show a lack of direction in early trading following the substantial volatility seen late in the previous session.

Traders may be reluctant to make significant moves amid uncertainty about the near-term outlook for the markets following the Federal Reserve’s third straight 75 basis point interest rate hike.

While the Fed’s economic projections provided a clearer outlook for future rate hikes, traders remain concerned about the impact the aggressive rate increases will have on the economy.

The next Fed meeting is over a month away, giving traders a lot of time to analyze incoming economic data and try to determine the effect of the recent string of rate hikes.

Reports on inflation and the labor market are likely to be in focus in the coming weeks, as traders look for signs the Fed could alter the aggressive plan that has been laid out.

The Labor Department released a report this morning showing an uptick in jobless claims in the week ended September 17th.

Stocks typically see wild swings following the Federal Reserve’s monetary policy announcements but saw particularly significant volatility on the heels of the central bank’s latest decision on Wednesday.

The major averages swung back and forth across the unchanged line before finishing the day just off their lows of the session.

The Dow slumped 522.45 points or 1.7 percent to 30,183.78, the Nasdaq plunged 204.86 points or 1.8 percent to 11,220.19 and the S&P 500 tumbled 66.00 points or 1.7 percent to 3,789.93.

With the sharply lower close, the Dow fell to a three-month closing low, while the Nasdaq and the S&P 500 dropped to their lowest closing levels in well over two months.

The late-day volatility came after the Fed raised interest rates by another three-quarters of a percentage point and signaled further aggressive rate hikes for the remainder of the year.

Citing its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed decided to raise its target range for the federal funds rate by 75 basis points to 3 to 3.25 percent.

The move marks the third straight 75 basis point rate hike by the Fed and lifts rates to their highest level since early 2008.

With inflation remaining elevated, the Fed also said it anticipates that ongoing interest rate increases will be appropriate.

Economic projections provided along with the announcement suggest Fed officials expect to raise rates to 4.4 percent by the end of the year, well above the 3.4 percent forecast in June.

Fed officials expect to increase rates to 4.6 percent by the end of 2023 before eventually scaling back rates in 2024 and 2025.

“The policy statement was almost identical to July’s, so the real interest was in the accompanying economic projections,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

“The Fed now anticipates rates reaching 4.4% by the end of this year, implying another 75bp move in November followed by a 50bp move in December,” he added. “The median projection for end-2023 is up to 4.6%, implying one more 25bp rate hike early next year.”

In his post-meeting press conference, Fed Chair Jerome Powell reiterated the central bank’s strong resolve to bring inflation down to 2 percent, pledging to “keep at it until the job is done.”

Powell suggested the Fed will need to raise rates to a “restrictive level” and keep them there “for some time” in order to combat elevated inflation.

The Fed chief also said reducing inflation will likely require a “sustained period of below trend growth,” which he acknowledged could lead to “some softening of labor market conditions.”

The occasional bouts of buying seen after the Fed announcement may have reflected optimism that the markets now have a clearer roadmap for future rate hikes.

Airline stocks moved sharply lower over the course of the session, resulting in a 3.4 percent nosedive by the NYSE Arca Airline Index. The index tumbled to a nearly two-month closing low.

Substantial weakness was also visible among biotechnology stocks, as reflected by the 2.5 percent plunge by the NYSE Arca Biotechnology Index, which hit its lowest closing level in nearly three months.

Banking stocks also came under pressure following the Fed announcement, dragging the KBW Bank Index down by 2.1 percent to a two-month closing low.

Chemical, oil service, steel and retail stocks also finished the day’s extremely volatile session firmly in negative territory.

Commodity, Currency Markets

Crude oil futures are jumping $1.33 to $84.27 a barrel after sliding $1 to $82.94 a barrel a barrel on Wednesday. Meanwhile, after rising $4.60 to $1,675.70 an ounce in the previous session, gold futures are climbing $7.80 to $1,683.50 an ounce.

On the currency front, the U.S. dollar is trading at 140.88 yen versus the 144.06 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $0.9874 compared to yesterday’s $0.9837.

Asia

Asian stocks declined on Thursday after U.S. Federal Reserve officials announced another big rate hike and reiterated their support for further interest rate hikes to curb rampant inflation.

The U.S. central bank now sees its benchmark interest rate reaching 4.4 percent by end of 2022 and rising even further in 2023 despite growing headwinds to economic growth and the labor market.

Fears over China’s slowdown and Russia’s warning to escalate the war in Ukraine also spooked markets.

The dollar index rose against a basket of currencies on elevated yields and gold stayed under pressure amid the Fed’s hawkish outlook on rates, while oil extended overnight losses in choppy trading.

China’s Shanghai Composite Index slipped 0.3 percent to 3,108.91 on lingering concerns over the economic impact of China’s zero-COVID policy.

Hong Kong’s Hang Seng Index tumbled 1.6 percent to 18,147.95 as the Hong Kong Monetary Authority raised its base rate charged through the overnight discount window by three-quarters of a percentage point to 3.5 percent.

Japanese shares hit over two-month closing lows even as the Bank of Japan held interest rates at ultra-low levels and maintained its dovish outlook to support economic growth.

At his post-meeting press conference, BOJ Governor Haruhiko Kuroda said that recent rapid decrease by the yen is driven in part by speculative moves, and the central bank will watch the impact market moves have on the economy and prices.

The Nikkei 225 Index closed 0.6 percent lower at 27,153.83 after having dipped below the 27,000-mark for the first time since July 19 earlier. The broader Topix settled 0.2 percent lower at 1,916.12 ahead of Friday’s national holiday.

Seoul stocks ended lower, though initial losses were trimmed on bargain hunting. The Kospi ended down 0.6 percent at 2,332.31 as the won fell through the 1,400 mark for the first time since March 20, 2009.

Semiconductors and other tech issues led losses. Market bellwether Samsung Electronics dropped 1.6 percent to close at a two-year low of 54,400 won, while no. 2 chipmaker SK Hynix plummeted 2.3 percent. Naver and Kakao lost 3-4 percent.

Australian markets were closed for National Mourning Day. Across the Tasman Sea, New Zealand’s benchmark S&P NZX-50 Index rose 0.2 percent to 11,518.32, with heavyweights Meridian Energy and Fisher & Paykel Healthcare pacing the gains.

Europe

European stocks have moved mostly lower on Thursday after the U.S. Federal Reserve and Swiss National Bank both hiked their key policy rates by 75 basis points, as widely expected, to tackle surging inflation. The Bank of England also raised rates by 50 basis points following a split 3-way vote.

Norway’s central bank also raised its main interest rate to its highest level since 2011, adding to worries of a global economic slowdown.

In economic news, confidence among French manufacturers eased further as expected in September, though marginally, survey results from the statistical office Insee showed.

While the U.K.’s FTSE 100 Index has edged down by 0.2 percent, the German DAX Index and the French CAC 40 Index are both down by 0.6 percent.

Credit Suisse has moved to the downside. The Swiss bank is weighing plans to resurrect a “bad bank” to hold risky assets, according to the Financial Times.

Holcim has also moved lower. The building materials maker said it has closed the acquisition of Cantillana, a specialty building solutions market leader in Belgium with 2022 estimated net sales of 80 million euros.

GSK has also fallen in London after announcing an exclusive license agreement with Spero Therapeutics for tebipenem pivoxil hydrobromide, an oral carbapenem antibiotic to potentially treat complicated urinary tract infections.

Precious mining company Polymetal has plummeted after saying it is considering moving its main corporate base out of Russia.

Sportswear giant JD Sports Fashion has also plunged after a warning that higher energy costs will dampen consumer spending.

French hospitality firm Accor has also slumped after investment bank JP Morgan cut its rating on the stock from neutral to underweight, saying the group would not be able to return to its previous level of profitability.

Meanwhile, Finnish state-owned utility Fortum has jumped to extend gains from the session after it agreed to sell its 56 percent stake in German utility Uniper to the German government.

U.S. Economic Reports

After reporting modest decreases in first-time claims for U.S. unemployment benefits for five straight weeks, the Labor Department released a report on Thursday showing an uptick in jobless claims in the week ended September 17th.

The report showed initial jobless claims inched up to 213,000, an increase of 5,000 from the previous week’s revised level of 208,000.

Economists had expected jobless claims to edge up to 218,000 from the 213,000 originally reported for the previous week.

The modest increase came after jobless claims dropped to their lowest level since the week ended May 28th in the previous week.

At 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of August. The leading economic index is expected to come in unchanged in August after falling by 0.4 percent in July.

The Treasury Department is due to announce the details of this month’s auctions of two-year, five-year and seven-year notes at 11 am ET.

Stocks In Focus

Shares of Novavax (NVAX) are moving sharply lower in pre-market trading after J.P. Morgan Securities downgraded its rating on the drug maker’s stock to Underweight from Neutral amid concerns about the outlook for the company.

Financial information services provider FactSet Research (FDS) may also move to the downside after reporting fiscal fourth quarter earnings that missed analyst estimates.

On the other hand, shares of H.B. Fuller (FUL) are likely to see initial strength after the industrial adhesives maker reported better than expected fiscal third quarter earnings and raised the low end of its full-year earnings guidance.

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