By IFCMarkets
US stocks closed marginally higher on Tuesday as investors were cautious to make big bets ahead of the conclusion of Federal Reserve’s two day policy meeting. The 4.5% drop in McDonald’s shares after it reported lower than expected earnings weighed on Dow Jones industrial average which slipped 0.1% to 18473.75. The dollar weakened as the yen rose to two-week high against the dollar after a report indicated additional government stimulus measures would be smaller than expected. The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, slipped 0.08% to 97.146. The S&P 500 inched up less than 0.1% closing at 2169.18, led by materials and industrial stocks while telecom and utilities sectors declined. The Nasdaq index closed 0.2% higher at 5110.05, the highest close in 2016. Short term Treasury yields inched higher on Tuesday after positive economic reports: the yield on the two-year note rose 2.9 basis points to 0.762%. Stronger than expected economic reports strengthen the case for a rate hike later in the year while no change in monetary policy is expected by conclusion of Federal Reserve meeting on Wednesday. Currently markets are pricing in only a 42% chance of a rate hike in December, according to CME Group’s FedWatch tool. A hawkish Federal Reserve statement, which is not unlikely given positive US economic data recently, may prompt a decline in equities if earnings reports disappoint, underlining the importance of a positive trend in corporate earnings for sustained market rally. In other economic news sales of new homes jumped in June to seven year high and the Case-Shiller home price index gained 0.9% in May, recording a 5.2% advance on year. And the consumer confidence index measured by Conference Board held steady in July indicating consumers expect that the US economy will continue to grow. Today at 13:00 CET mortgage applications will be released by the Mortgage Bankers’ Associations in US. At 14:30 CET June Durable Goods Orders will be published, the tentative outlook is negative for dollar. At 16:00 CET June Pending Home Sales will come out, the tentative outlook is positive for dollar. And at 20:00 CET Federal Reserve will announce its interest rate decision.
European stocks inched higher on Tuesday as investors waited for central bank decisions. The euro weakened against the dollar. The Stoxx Europe 600 index rose 0.1%. Germany’s DAX 30 gained 0.5% settling at 10247.76 despite a 4.5% drop in Commerzbank after the German lender reported net profits fell by about two third and its capital ratio declined due to higher pension liabilities and regulatory changes. France’s CAC 40 and UK’s FTSE 100 added 0.2%. Today at 10:30 CET preliminary Q2 GDP will be released in UK. The tentative outlook is positive for Pound.
Asian stocks are mixed today with Hong Kong’s Hang Seng Index up 0.5% while Shanghai Composite Index is down 1.9% after reports China’s banking regulator is considering limiting investments of wealth-management products in stocks, and Australia’s S&P ASX 200 up 0.04%. Nikkei ended 1.7% higher today as yen slipped against the dollar after Prime Minister Shinzo Abe said the government would compile a stimulus package of more than $265 billion, which exceeds the initial estimates of 20 trillion yen and contains 13 trillion yen in fiscal measures. Exporters outperformed with Toyota Motor Corp gaining 2.9% and Honda rising 2.2%.
Oil futures prices are retreating today after falling the previous day as continued glut in crude oil and gasoline pressured prices lower. September West Texas Intermediate crude settled Tuesday at a three-month low of $42.92 a barrel on the New York Mercantile Exchange. At 16:30 CET today US Crude Oil Inventories will be released by the Energy Information Administration.
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