Thursday August 1st

1-08-2019

Stock futures give up earlier gains as traders remain confused about future rate policy

U.S. stock index futures gave up most of their gains on Thursday as traders digested comments from Federal Reserve Chairman Jerome Powell that tempered future rate-cut expectations. Around 8:45 a.m. ET, S&P 500 futures turned slightly negative while Dow Jones Industrial Average and Nasdaq 100 futures traded well off their morning highs. The U.S. central bank cut interest rates for the first time in more than a decade on Wednesday, citing “global developments” along with “muted inflation” as reasons for easing monetary conditions. However, Chairman Jerome Powell told reporters in a news conference following the Federal Open Market Committee’s rate decision that the central bank’s rate cut was a “midcycle adjustment,” hinting that further rate cuts later this year were not a sure thing. That comment led to a 333-point drop on the Dow, its biggest one-day drop since May 31. The S&P 500 and Nasdaq dropped 1.1% and 1.2%, respectively, to end July. In a series of posts on Twitter, President Donald Trump said Powell had “let us down ” by not clearly signalling more rate cuts. The Fed operates independently of the White House. During a press conference, Powell said the central bank would never move rates because of political factors or to prove its independence. Meanwhile, the U.S. and China ended a brief round of trade talks, without achieving much progress in ending their protracted dispute. The world’s two largest economies have been engaged in a trade war since last year. In that time, they’ve slapped tariffs on billions of dollars’ worth of each other’s goods. On the data front, the closely watched ISM manufacturing index for July, manufacturing Purchasing Managers’ Index (PMI) data for July, and construction spending figures for June are due out at 10 a.m. ET. The number of Americans filing applications for unemployment benefits increased last week, but the trend in claims remained consistent with tightening labor market conditions. Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 215,000 for the week ended July 27, the Labor Department said on Thursday. Data for the prior week was revised to show 1,000 more applications received than previously reported. Economists polled by Reuters had forecast claims increasing to 214,000 in the latest week. The Labor Department said no claims were estimated last week. Asia Pacific markets declined Thursday as a private survey showed Chinese factory activity contracted in July while official data revealed South Korea’s exports fell. Mainland Chinese stocks slipped on the day: The Shanghai composite fell 0.81% to about 2,908.77 and the Shenzhen component declined 0.63% to 9,268.05. The Shenzhen composite shed 0.524% to approximately 1,563.06. Hong Kong’s Hang Seng index shed 0.76% to close at 27,565.70. The benchmark Kospi in South Korea ended its trading day down 0.36% at 2,017.34. Elsewhere, Japan’s Nikkei 225 closed fractionally higher at 21,540.99 while the Topix index added 0.14% to at 1,567.35. Oil dropped below $65 a barrel on Thursday, declining for the first time in six days, after the U.S. Federal Reserve dampened hopes for a string of interest rate cuts and as rising U.S. output helped keep the market well supplied. The Federal Reserve reduced rates on Wednesday, but against expectations the head of the U.S. central bank said the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness. Brent crude, the international benchmark, fell 85 cents to $64.20 a barrel by 0856 GMT, having dropped more than $1 earlier in the session. U.S. West Texas Intermediate (WTI) crude was down 89 cents at $57.69. Gold slipped to a two-week low on Thursday, a day after the U.S. Federal Reserve cut interest rates for the first time in a decade but dampened expectations of future rate reductions, which sent the dollar to a 26-month peak. Spot gold fell 0.5% to $1,407.13 per ounce, after falling to its lowest since July 17 at $1,402.15. U.S. gold futures slid 1.3% to $1,407.60 an ounce.