Equity Futures in the U.S. are once again lower after recapturing nearly 5% of its rapid 10% correction. Asian markets finished sharply higher overnight, but European equities are not following suit as the DAX, FTSE and CAC are all lower this morning. And this, for U.S. investors, comes ahead of the all-important Fed minutes to be released at 2:00pm EST today. The Fed minutes “should get their fair share of attention,” said Elsa Lignos, RBC’s global head of foreign-exchange strategy, in a note. “The minutes are likely to read hawkish overall.”
With the Dow giving up 1% and the S&P 500 more than .50% in yesterday’s trade, the major averages will likely trade in a tight range leading up to the 2:00pm hour. More importantly, next week the new Fed Chairman Jerome Powell will be appearing for the first time as chair before Congress on Feb. 28 and for his semi-annual testimony on the economy. His testimony before Congress will be highly anticipated, serving to guide markets thereafter and in a manner reflecting investor confidence or lack there of, in the Fed. Will the new Fed chair appear more hawkish or dovish on the economy and with regards to the rate hike path is the question investors are grappling with currently?
“I think we need to hear his testimony. That’s the biggest thing. The minutes could be important in firming up our understanding of how gradually he’s going to take away the stimulus,” said Chris Rupkey, chief financial economist at MUFG Union Bank.
The Fed minutes are being released at a time when markets are expressing some levels of anxiety over the direction on how the Fed is interpreting inflation and what it means for interest rates. There remain varying views and perspectives on the near-term direction for markets as the sharp correction and subsequent rebound seem to test investors patience and resolve. Some analysts and market spectators believe that in order for markets to find a more certain direction, the major averages need to retest the recent bottom. Today’s release of the Fed’s minutes and next weeks chair testimony before Congress could go a long way in determining the future market direction. Having said that, continued market commentary will speculate on the potential for the major averages near-term.
The recent, sharp pullback and volatility in global equity markets is not yet over, according to the chief executive of financial advisory firm Longview Economics, who said that market models show a “third wave” of the market correction is coming. Watling said that while he believed equities were still in a cyclical bull market, declining liquidity was “dangerous.”
“The idea that it’s all done in one sell-off is, I think, probably a triumph of hope over reality,” Chris Watling told CNBC Wednesday. “You get your vicious first wave sell-off that we had with the high on January 26 in the U.S., then you get your typical wave two relief rally which we had last week when the S&P was up 6 percent, the best weekly performance since 2011, then you tend to get a third wave to either new lows or testing the lows from the first wave of the sell-off.”
With the backdrop of the Fed minutes at-hand, economic data and corporate earnings will still trickle out through the week’s end. Mortgage applications are due at 7am EST, followed by flash US composite purchasing managers’ index (PMI) at 9:45am EST and existing homes sales at 10am EST. Earnings are due out from Delphi Technologies, Garmin, Wendy’s, Boston Beer, Cheesecake Factory, Pandora Media and Roku today. These earnings come on the heels of some disappointing results from Wal-Mart yesterday.
Wal-Mart surprised the market with an earnings miss, as adjusted per-share earnings came in at $1.33, below the $1.37 consensus of analysts polled by FactSet. The miss overshadowed a revenue beat. Wal-Mart reported strong holiday sales Tuesday, but said online sales growth slowed during the quarter. The retail giant reported same-store-sales (SSS) rose 2.6% in the latest quarter, the 14th consecutive quarter of growth. Ecommerce growth grew 24% during the quarter, down from over 50% the previous three quarters. The slowdown was largely expected as its sales from Jet contributed less to growth given the anniversary of the acquisition from a year ago. But as holiday goods like TVs and toys flooded ecommerce warehouses, those products squeezed room for everyday items, leading to some out-of-stocks online, hurting online sales, Chief Executive Doug Mr. McMillon said on the call. “Our in-stock for basic items suffered as a result.” The company is now expecting e-commerce growth of about 40% for 2018. Growth is expected to climb to that level through the year as discussed on the conference call with analysts and investors.
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