US stocks sell-off ahead of FOMC decision

Wednesday, January 28, 2015

US stocks faced extensive selling pressure yesterday after disappointing earnings and weaker than expected macroeconomic data prompted investors to pull out of benchmark stock indices ahead of today’s FOMC rates decision. The S&P 500 lost 1.34% throughout the session while the DJIA closed 1.65% lower after market participants were spooked by a surprise fall in durable goods orders in December. Expectations of a modest rebound to 0.3% were quickly shattered after durable goods orders dropped -3.4% in December, extending the previous month’s revised decline of -2.1%. Despite an improvement in US consumer confidence, with the index increasing to 102.9 in January against expectations of 95.5, risk appetite took a substantial knock from earnings results as investors once again began to question the strength and stability of US economic growth. Caterpillar, Microsoft and Procter & Gamble were among the many blue chip companies that revised forecasts lower, citing a stronger dollar and plunging oil prices as key drivers for trailing previous estimates.

Investors will be paying close attention to today’s FOMC meeting with significant focus on the policy statement, due for release after European markets close. Market participants polled by Bloomberg expect policymakers to keep the Fed funds target rate unchanged with investors anticipating a continuation of the previous rhetoric of a slow and steady rise when it eventually does happen. Fed Chair Janet Yellen made clear in the December statement that investors would need to be “patient” regarding the timing of a rates rise, leading many to infer that a rates rise would not be expected for at least the next few meetings. As always, the phrasing of the statement will be scrutinised in the hopes that it will offer additional insight into the thought process of committee members.

Asian markets were trading with mixed sentiment overnight ahead of today’s Fed statement following the mixed US macroeconomic data released yesterday. Japanese benchmark indices managed to push into positive territory towards the end of the session while Chinese mainland stocks fell for a second session as a clampdown on borrowing heightened concerns that inflows into equities and other risk assets could begin to slow. Policymakers in Beijing have taken further measures to temper gains in the stock market as banks reduced the leverage for certain trust products invested in shares prompting what seems like the start of a correction in both the CSI 300 and Shanghai Composite, as they both closed 1.4% lower with financial shares bearing the brunt of the sell-off.

Durable goods orders post surprise fall in December

DGNOCHNG Index US Durable Goods 2015 01 28 07 47 36

Consumer confidence in the US continues to improve

CONCCONF Index Conference Board 2015 01 28 07 47 16

Events for today

1530

US

w/e

EIA Energy Stocks

1900

US

Jan

FOMC Rate Decision

Topics: US Fed, Equities
More from: Kash Kamal