The major U.S. index futures are pointing to a slightly higher open on Wednesday but have pulled back well off their highs following the release of disappointing retail sales data.
Early buying interest may still be generated in reaction to continued optimism about a new fiscal stimulus plan following a meeting of congressional leaders on Tuesday.
After the meeting, both Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer expressed optimism that an agreement can be reached “soon.”
Traders have remained optimistic that lawmakers will eventually reach an agreement even though a deal on a new relief package has remained beyond their grasp for months.
The futures gave back ground following the release of a report from the Commerce Department showing retail sales slumped by much more than expected in the month of November.
Nonetheless, trading activity may be subdued ahead of the announcement of the Federal Reserve’s latest monetary policy decision this afternoon.
The Fed is widely expected to leave interest rates unchanged, but traders are hopeful the central bank will provide further accommodation by focusing more asset purchases on the long end of the Treasury yield curve.
After closing mixed for three consecutive sessions, stocks moved sharply higher over the course of the trading day on Tuesday. With the rally on the day, the tech-heavy Nasdaq ended the session at a new record closing high.
The major averages all finished the day firmly in positive territory. The Dow jumped 337.76 points or 1.1 percent to 30,199.31, the Nasdaq surged up 155.02 points or 1.3 percent to 12,595.06 and the S&P 500 shot up 47.13 points or 1.3 percent to 3,694.62.
The rally on Wall Street came amid unrelenting optimism lawmakers will eventually agree on a new fiscal stimulus bill,
Stocks accelerated to the upside following news that House Speaker Nancy Pelosi has scheduled a meeting with other congressional leaders to discuss a relief package.
In a post on Twitter on Monday, Pelosi’s Deputy Chief of Staff Drew Hammill noted the Speaker and Treasury Secretary Steven Mnuchin spoke by phone and “discussed the urgency of the committees finishing their work as soon as possible.”
Hammill said Pelosi reiterated Democrats’ concerns about liability provisions, which remain an obstacle to securing state and local funding.
The conversation between Pelosi and Mnuchin came as bipartisan group of lawmakers publicly released their latest proposal, which was largely in line with a report from Reuters on Monday.
The proposal calls for a previously unveiled $908 billion bipartisan relief plan to be split into two proposals that could be voted on separately in order to win approval.
One bill would be a $748 billion measure including money for small businesses, the jobless and COVID-19 vaccine distribution, while the other would include more controversial measures such as liability protections for business and aid for state and local governments.
Adding to the positive sentiment, the Federal Reserve released a report showing U.S. industrial production rose by slightly more than expected in the month of November.
The report said industrial production climbed by 0.4 percent in November following a downwardly revised 0.9 percent advance in October.
Economists had expected industrial production to rise by 0.3 percent compared to the 1.1 percent jump originally reported for the previous month.
Gold stocks showed a substantial move to the upside on the day, driving the NYSE Arca Gold Bugs Index up by 3.9 percent. The rally by gold stocks came amid a sharp increase by the price of the precious metal.
Significant strength was also visible among oil service stocks, as reflected by the 3.5 percent jump by the Philadelphia Oil Service Index. Oil service stocks moved higher along with the price of crude oil.
Computer hardware stocks also saw considerable strength on the day, resulting in a 3.1 percent advance by the NYSE Arca Computer Hardware Index. The index ended the session at a record closing high.
Steel, brokerage and airline stocks also showed notable moves to the upside, reflecting broad based buying interest on Wall Street.
Commodity, Currency Markets
Crude oil futures are edging down $0.05 to $47.57 a barrel after climbing $0.63 to $47.62 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,856.50, up $1.20 compared to the previous session’s close of $1,855.30. On Tuesday, gold jumped $23.20.
On the currency front, the U.S. dollar is trading at 103.43 yen compared to the 103.67 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.2185 compared to yesterday’s $1.2151.
Asian stocks rose broadly on Wednesday as investors clung to the possibility of new fiscal stimulus deal in the United States before previous benefits expire by the end of the year.
Sentiment was also underpinned after U.S. regulators said that Moderna’s vaccine is safe and effective for preventing Covid-19.
Chinese shares ended little changed after SMIC said it had become “aware” of co-CEO Mong Song Liang’s “intention of conditional resignation.”
Shares of the chipmaker plunged 5.5 percent ahead of its removal from MSCI indexes next month, while the benchmark Shanghai Composite Index ended marginally lower at 3,366.98. Hong Kong’s Hang Seng Index jumped 253.00 points, or 1 percent, to 26,460.29.
Japanese shares ended a tad higher, with Apple’s suppliers rising on a Nikkei report that the tech giant plans to increase iPhone production by about 30 percent in the first half of 2021.
The Nikkei 225 Index rose 69.56 points, or 0.3 percent, to 26,757.40, while the broader Topix closed 0.3 percent higher at 1,786.83. Alps Alpine soared 7.1 percent and TDK Corp. added 2.3 percent.
The manufacturing sector in Japan continued to contract in November, albeit at a slower pace, the latest survey from Jibun Bank revealed today with a PMI score of 49.7, up from 49.0 in the previous month.
Another report showed that Japan posted a merchandise trade surplus of 366.8 billion yen in November, well shy of expectations for a surplus of 529.8 billion yen and down sharply from 872.9 billion yen in October.
Australian markets rose notably, with gold miners and tech companies pacing the gainers on U.S. stimulus bets. Upbeat Australian manufacturing data also offered some support.
The benchmark S&P/ASX 200 Index climbed 47.90 points, or 0.7 percent, to 6,679.20, while the broader All Ordinaries index ended up 50.00 points, or 0.7 percent, at 6,916.70.
Tech stocks followed their U.S. peers higher, with Afterpay surging 4.2 percent and Xero climbing 2.2 percent. The big four banks rose between 0.8 percent and 1.4 percent.
Gold miners Regis Resources, Evolution Mining and Northern Star Resources surged 2-4 percent after a sharp increase in the price of the precious metal on growing hopes of further U.S. stimulus.
Mining heavyweights BHP and Rio Tinto rose about 2 percent as Dalian iron ore breached the 1,000-yuan mark after the release of strong manufacturing output data from China.
The latest survey from Markit Economics showed that the manufacturing sector in Australia expanded at a faster pace in December with a five-month high manufacturing PMI score of 56.0. The services PMI rose from 55.1 to 57.4.
Seoul stocks rebounded to snap a two-day losing streak amid hopes of a U.S. coronavirus stimulus deal and positive reports related to U.S. biotech company Moderna’s Covid-19 vaccine candidate.
The benchmark Kospi climbed 14.97 points, or 0.5 percent, to 2,771.79. Leading chemical maker LG Chem rallied 2.3 percent and rechargeable battery maker Samsung SDI added 2.2 percent.
Health authorities have warned of potential lockdowns to curb the spread of the coronavirus as South Korea reported another high in daily infections.
European stocks are rising for a third straight session on Wednesday, with optimism about a Brexit trade deal, hopes of effective coronavirus vaccines and the growing prospect of more U.S. fiscal stimulus helping underpin investor sentiment.
Markets await the outcome of a FOMC meeting later today to see whether the Fed will step up monetary policy accommodation by focusing more asset purchases on the long end of the Treasury yield curve.
While the German DAX Index has surged up by 1.4 percent, the U.K.’s FTSE 100 Index is up by 0.6 percent and the French CAC 40 Index is up by 0.2 percent.
Telecoms and cable group Altice Europe has skyrocketed after Next Europe increased its buyout offer for the company.
Barclays has also advanced. The Financial Conduct Authority has fined the bank 26 million pounds for failures in relation to their treatment of consumer credit customers who fell into arrears.
Retailer Travis Perkins has also surged higher after providing a trading update for the months of November and December.
Alstom SA has also risen. The speed-train maker said it has received a contract to design, build and maintain the transport system for Toulouse Metropole’s third metro line.
Rail technology company Vossloh has also jumped. The company said it expects to achieve average annual sales growth of 4 to 5 percent in the medium term.
Continental AG has also rallied after presenting its realigned strategy with which it aims to achieve annual organic growth of around 5 to 8 percent on average in the mid-term.
BioNTech SE has also advanced. The German biotechnology firm and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. have announced an agreement to supply Mainland China with an initial 100 million doses of their BNT162 mRNA-based vaccine candidate against Covid-19 in 2021.
On the other hand, pharmaceutical company Galapagos has fallen sharply on a Reuters report that U.S. partner Gilead opted not to seek approval for a rheumatoid arthritis drug.
Petrofac has also tumbled. The oil services company said its financial performance in the second half of 2020 has continued to be impacted by Covid-19.
Distribution and outsourcing Group Bunzl has also slumped. The company said it expects group revenue for fiscal year 2020 to increase by about 8 percent at actual exchange rates and by approximately 9 percent at constant exchange rates.
In economic news, the euro area private sector moved close to stabilization in December as stronger manufacturing output growth helped to counter a further drop in service sector activity, flash survey results from IHS Markit showed.
The composite output index advanced more than expected to 49.8 in December from 45.3 in the previous month. The expected level was 45.8.
The survey revealed that the economic impact of the second waves of coronavirus infections has been far less severe than the first wave.
In the U.K., the IHS Markit/CIPS flash composite Purchasing Managers’ Index for the services and manufacturing sectors rose to 50.7 in December from November’s 49.0.
U.K. consumer price inflation weakened to a three-month low of 0.3 percent in November from 0.7 percent in October, the Office for National Statistics said. The rate was well below the economists’ forecast of 0.6 percent.
U.S. Economic Reports
Retail sales in the U.S. showed a steep drop in the month of November, according to a report released by the Commerce Department on Wednesday.
The Commerce Department said retail sales tumbled by 1.1 percent in November following a revised 0.1 percent dip in October.
Economists had expected retail sales to slip by 0.3 percent compared to the 0.3 percent increase originally reported for the previous month.
Excluding a decrease in sales by motor vehicle and parts dealers, retail sales still fell by 0.9 percent in November. Ex-auto sales were expected to inch up by 0.1 percent.
At 10 am ET, the National Association of Home Builders is scheduled to release its report on homebuilder confidence in the month of December.
The housing market index is expected to dip to 88 in December after climbing to a new record high of 90 in November.
The Commerce Department is also due to release its report on business inventories in the month of October at 10 am ET. Business inventories are expected to rise by 0.4 percent.
At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended December 11th.
Crude oil inventories are expected to decrease by 3.5 million barrels after jumping by 15.2 million barrels in the previous week.
The Federal Reserve is due to announce its latest monetary policy decision and provide its latest economic projections at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm.
Stocks In Focus
Shares of Tilray (TLRY) and Aphria (APHA) are moving sharply higher in pre-market trading after the companies entered into a definitive agreement to combine their businesses and create the world’s largest global cannabis company.
Hunting equipment maker American Outdoor Brands (AOUT) is also likely to see initial strength after reporting a fiscal second quarter profit compared to a year-ago loss amid a spike in net sales.
Shares of Twitter (TWTR) may also move to the upside after JPMorgan upgraded its rating on the social media giant to Overweight from Neutral. Twitter also announced plans to shut down live-streaming app Periscope.
On the other hand, shares of Penumbra (PEN) may come under pressure after the medical device maker announced the voluntary recall of all configurations of its Penumbra JET 7 Reperfusion Catheter with Xtra Flex technology.
United Airlines (UAL), JetBlue (JBLU) and Spirit Airlines (SAVE) may also move to the downside after JPMorgan downgraded its rating on the airline stocks to Underweight from Overweight.
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