US Market
The major U.S. index futures are currently pointing to a modestly higher open on Wednesday, with stocks likely to regain ground following the sell-off seen in the previous session.
Traders may look to pick up stocks at reduced levels on the heels of the steep drop seen on Tuesday, although trading activity may be subdued ahead of the Federal Reserve’s highly anticipated monetary policy announcement this afternoon.
With the Fed widely expected to raise interest rates by another 25 basis points, traders will pay close attention to the accompanying statement for clues about the outlook for rates.
CME Group’s FedWatch Tool is currently indicating an 85.4 percent chance the Fed will raise rates by 25 basis points and an 82.39 percent chance the central bank will subsequently leave rates unchanged in June.
“The Federal Reserve will announce its latest interest rate decision later today and investors will be hanging on their every word in light of recent banking sector instability,” said Craig Erlam, Senior Market Analyst at OANDA.
He added, “Today was always likely to mark the end of the US central bank’s tightening cycle – not that it has explicitly signaled this – but we’ve now reached a stage in which every rate hike could have unwanted and unintended consequences.”
Stocks moved sharply lower during trading on Tuesday, with the major averages adding to the slim losses posted during Monday’s session. The major averages all showed significant moves to the downside on the day.
The major averages recovered from their worst levels of the day but still posted steep losses. The Dow tumbled 367.17 points or 1.1 percent to 33,684.53, the Nasdaq slumped 132.09 points or 1.1 percent to 12,080.51 and the S&P 500 plunged 48.29 points or 1.2 percent to 4,119.58.
The sell-off on Wall Street came as some traders looked to cash in on recent strength in the markets ahead of the Federal Reserve’s monetary policy announcement.
Concerns about lawmakers’ struggles to reach an agreement on raising the U.S. debt ceiling also weighed on Wall Street.
U.S. Treasury Secretary Janet Yellen has warned the Treasury might run out of money to cover obligations as soon as June 1.
In U.S. economic news, the Commerce Department released a report showing new orders for U.S. manufactured goods increased by slightly more than expected in March.
The Commerce Department said factory orders advanced by 0.9 percent in March after slumping by a revised 1.1 percent in February.
Economists had expected factory orders to climb by 0.8 percent compared to the 0.7 percent decrease originally reported for the previous month.
A separate report released by the Labor Department showed job openings in the U.S. fell by more than expected in the month of March.
The Labor Department said job openings decreased to 9.590 million in March from an upwardly revised 9.974 million in February. With the drop, job openings fell to their lowest level since April 2021.
Economists had expected job openings to decline to 9.775 million from the 9.931 million originally reported for the previous month.
Energy stocks moved sharply lower on the day, with another steep drop by the price of crude oil weighing on the sector.
Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 5.1 percent and the NYSE Arca Oil Index dove by 4.5 percent.
Banking stocks also showed a substantial move to the downside on the day, with the KBW Bank Index tumbling by 4.5 percent to its lowest closing level in over two years.
Networking, brokerage and steel telecom stocks also saw significant weakness, while gold stocks were among the few groups to buck the downtrend amid a spike by the price of the precious metal.
U.S. Economic Reports
Payroll processor ADP released a report on Wednesday showing private sector employment in the U.S. increased by much more than expected in the month of April.
ADP said private sector employment surged by 296,000 jobs in April after climbing by a revised 142,000 jobs in March.
Economists had expected private sector employment to advance by 148,000 jobs compared to the addition of 145,000 jobs originally reported for the previous month.
At 10 am ET, the Institute for Supply Management is scheduled to release its report on service sector activity in the month of April.
The ISM’s services PMI is expected to inch up to 51.8 in April from 51.2 in March, with a reading above 50 indicating growth in the sector.
The Energy Information Administration is due to release its report on oil inventories in the week ended April 28th at 10:30 am ET.
Crude oil inventories are expected to decrease by 1.0 million barrels after tumbling by 5.1 million barrels in the previous week.
The Federal Reserve is scheduled to announce its monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.
Europe
European stocks are in positive territory on Wednesday amid speculation the Federal Reserve, which is expected to raise interest rates by 25 basis points later in the day, might signal a pause in its tightening cycle.
Investors are tracking quarterly earnings announcements for some direction. Materials stocks are faring well, while bank and energy stocks are weak.
While the German DAX Index is up by 0.8 percent, the French CAC 40 Index is up by 0.6 percent and the U.K.’s FTSE 100 Index is up by 0.4 percent.
In the UK market, Pearson is surging nearly 8 percent. Burberry Group, Hikma Pharmaceuticals, Intertek, Rentokil Initial, Anglo American Plc, Bunzl, Diageo, Severn Trent, Halma, Prudential, Rolls-Royce Holdings, Spirax-Sarco Engineering, Scottish Mortgage, Melrose Industries and TUI are up 1 to 3 percent.
Lloyds Banking is down nearly 4 percent. IAG is lower by about 2.6 percent and Polymetal International is down 2.1 percent. Royal Mail, Croda International, Kingfisher, BP, Royal Dutch Shell, Barclays Group and Barratt Developments are down 1.2 to 2 percent.
In Paris, Kering, Eurofins Scientific, LVMH, Essilor, Hermes International, Capgemini, Dassault Systemes, Schneider Electric and Pernod Ricard are gaining 1 to 2 percent.
Bouygues is drifting down more than 4 percent. Vivendi, Renault and Teleperformance are down 1.2 to 1.6 percent.
Stellantis is lower by about 1.2 percent despite the company reporting a 14 percent increase in first-quarter revenues.
In the German market, Sartorius is climbing nearly 3.5 percent. Merck is up 2.7 percent, while Siemens, SAP, Siemens Healthineers, BASF, Munich RE, Hannover Rueck, Covestro and Puma are rising 1 to 1.6 percent.
Shares of Milan-headquartered UniCredit are up 3.6 percent after the lender reported a 56.5 percent jump in net revenue in its first quarter. The bank also upwardly revised its full-year guidance.
In economic news, data from Eurostat showed the seasonally-adjusted unemployment rate in the Euro Area decreased slightly to 6.5 percent in March 2023, marking the lowest rate on record and coming in just below market expectations of 6.6 percent. This latest figure represented a drop from last year’s rate of 6.8 percent.
Asia
Asian markets moved lower on Wednesday amidst Anxiety ahead of the Fed’s decision. Concerns over banking sector stress spilled over from Wall Street, adding to the negative sentiment.
Oil and gas stocks too plunged amidst a drop in crude oil prices. Gains in mining stocks helped limit losses. Markets in China and Japan were closed for holidays.
The Hang Seng Index of the Hong Kong Stock Exchange dropped 234.65 points or 1.2 percent from the previous close to finish trading at 19,699.16. The day’s trading range was between a high of 19,721.96 and a low of 19,538.72.
The Korean Stock Exchange’s Kospi Index lost 22.99 points or 0.9 percent to close trading at 2,501.40. The day’s trading range was between 2,500.22 and 2,514.37.
Australia’s S&P/ASX200 Index closed trading at 7,197.40 dropping 70.00 points or 1.0 percent amidst weak sentiment that followed Reserve Bank of Australia’s surprise rate hike earlier in the week.
Gold miners surged, with Gold Road Resources, West African Resources, Silver Lake Resources, all adding more than 4 percent and Evolution Mining and Bellevue Gold both adding more than 3 percent.
Packaging company Amcor shed close to 10 percent following release of quarterly results. Healthcare business Polynovo declined 6.2 percent, followed by ARB Corporation that dropped 5.7 percent. Ramsay Health Care and NRW Holdings both declined more than 4 percent.
The NZX 50 Index of the New Zealand Stock Exchange shed 129.82 points or 1.1 percent to close at 11,907.99. Trading ranged between 11,881.23 and 12,037.81.
Fonterra Shareholders Fund was the biggest gainer with an advance of 0.8 percent. Stride Property and Meridian Energy were the other scrips that gained more than half a percent.
Westpac Banking dropped 4.1 percent whilst ANZ Holdings lost 2.9 percent, tracking the banking stock sell-off in the U.S. Fletcher Building and A2 Milk both lost more than 3 percent. Oceania Health Care also lost 2.8 percent.
Commodities
Crude oil futures are tumbling $2.06 to $69.60 a barrel after plummeting $4 to $71.66 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,022.30, down $1 compared to the previous session’s close of $2,023.30. On Tuesday, gold surged $31.10.
On the currency front, the U.S. dollar is trading at 135.53 yen compared to the 136.55 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1038 compared to yesterday’s $1.0999.