Monday July 29th

29-07-2019

Dow futures flat as investors temper trade expectations, await Fed decision

U.S. stock index futures were little changed Monday morning as Wall Street tempered its expectations for this week’s trade negotiations between the Washington and Beijing and prepared for the latest monetary policy decision from the Federal Reserve. Around 8:53 a.m. ET, Dow futures indicated a drop of less than 5 points at the open. Futures on the S&P and Nasdaq were both seen slightly lower after each hit new all-time highs in the prior week. The Fed will announce its latest decision on whether to adjust interest rates at 2 p.m. ET Wednesday; Chairman Jerome Powell will also address the state of the economy in a press conference at 2:30 p.m. ET later Wednesday. Despite a healthy economy and an unemployment rate under 4%, investors widely expect the central bank to cut its benchmark lending rate for the first time since 2008 by 25 basis points. The Fed, which seeks to keep inflation around 2%, has had trouble sustaining price growth in recent months despite a healthy economy and low unemployment. That may hint that the current level of interest rates may be too high even though the benchmark is well below historical norms. Some economists and Fed officials think that rates need to be lowered in the face of decelerating GDP in the U.S. and a gloomier growth outlook overseas as Washington-led trade wars continue. Investors are also likely to closely monitor whether the central bank will signal more cuts over the coming months. Economists mostly anticipate anywhere from one to three rate cuts this year. President Donald Trump on Monday took to Twitter to jab the Fed ahead of its July meeting, criticizing the central bank for what he characterized as oppressive interest rates. U.S. and Chinese officials will convene in Shanghai this week in a latest attempt by the globe’s two largest economies to craft a trade deal and end their year-long trade dispute. While investors last week heralded news of the face-to-face discussion with optimism, people close to the talks warned that the appetite for a sweeping deal have waned since the spring. “The S&P 500 remains the pied piper for global risk markets yet it continues to struggle with current levels for the third time in the past 18 months,” Michael Wilson, chief equity strategist at Morgan Stanley, wrote in a note to clients. “We think this latest surge will fail again, as we don’t expect a Fed cut to rekindle growth the way market participants may be hoping, and now pricing.” “Thanks to the growth slowdown and the Fed’s pivot, interest rates have fallen a long way since then. This has made US stocks more attractive on valuation, but the fundamentals are no longer strong,” he added. Those familiar with the talks told the Wall Street Journal that major breakthroughs are unlikely on issues that led to a breakdown in talks in early May but that more modest goals could be within reach. American and Chinese officials have struggled to reach a compromise over the protection of intellectual property and Beijing’s subsidization of businesses. On the data front, Dallas Fed manufacturing figures for July will be released at around 10:30 a.m. ET. In corporate news, drugmaker Pfizer plans to divest its off-patent drug business and marry it with generic-drug maker Mylan. The combined company, which will market Mylan’s EpiPen and Pfizer’s Viagra, will be domiciled in the U.S. Beyond Meat, the hot meat alternative IPO with a market cap bigger than a quarter of companies in the S&P 500, reports earnings after the bell. Seventy-five percent of companies have beaten estimates so far and 60% beat revenue expectations. Stocks in Asia mostly slipped on Monday as investors awaited the resumption of U.S.-China negotiations in Beijing this week amid low expectations for a major breakthrough. Shares in mainland China were mixed on the day, the Shanghai compositeslipped 0.12% to 2,941.01, while the Shenzhen component and Shenzhen composite were fractionally higher at 9,354.28 and 1,574.95 respectively. Hong Kong’s Hang Seng index dropped 1.16%, as of its final hour of trading. Over in South Korea, the Kospi dropped 1.78% to finish its trading day at 2,029.48. The Nikkei 225 in Japan declined 0.19% on the day to 21,616.80, as index heavyweight and robot maker Fanuc’s stock fell 1.63%. The Topix also closed 0.19% to 1,568.57. Over in South Korea, the Kospi dropped 1.78% to finish its trading day at 2,029.48. The Nikkei 225 in Japan declined 0.19% on the day to 21,616.80. The Topix also closed 0.19% to 1,568.57. Oil prices fell on Monday as investors fretted over the outlook for global economic growth, while weekend talks between Iran and major powers ended on a generally positive note, suggesting an easing of tensions in the Middle East. Brent crude futures were down by 37 cents, or 0.6%, at $63.09 a barrel by 0717 GMT. Prices rose 1.6% last week. U.S. West Texas Intermediate crude was down by 20 cents, or 0.4%, at $56.00 a barrel. WTI gained 1% last week. Gold was little changed on Monday as caution set in ahead of this week’s U.S. Federal Reserve meeting, with investors likely to look beyond an expected rate cut to the central bank’s guidance on monetary policy for the rest of the year. Spot gold edged 0.1% higher to $1,419.45 per ounce. U.S. gold futures were flat at $1,419.30 an ounce.