US investors are showing reluctance, with only one report unequivocally affirming investment activity.
U.S. Market Cautious as Investors Await Fed Speeches and Earnings Reports
The U.S. stock market is displaying a subdued and cautious outlook, with futures pointing lower following the unexpected move to remove Fed Governor Lisa Cook [1]. This political uncertainty surrounding the Federal Reserve's independence has unsettled Wall Street, contributing to a risk-off atmosphere.
Investors are keeping a close eye on Fed Chair Jerome Powell's upcoming speeches, particularly at the annual Fed meeting in Jackson Hole, for clues about interest rate policy [2]. The recent indications that the Fed may cut rates have prompted two major banks, Morgan Stanley and BNP Paribas, to shift their expectations to rate cuts in September [3].
While the overall index movement is muted, individual stocks show divergence. Notably, Dayforce shares have surged about 25.9% amid acquisition talks with private equity firm Thoma Bravo, demonstrating selective investor enthusiasm in specific tech/software sectors despite the broader caution [2].
Key retail giants like Walmart, Home Depot, and Target are due to release their earnings reports this week, providing insight into how uncertainty in retail and inflation expectations are affecting U.S. consumers.
The market is also keeping a watchful eye on the earnings season, which so far has been better than expected. However, Powell has signalled that he will not commit to a rate cut next month but will wait for August's employment and inflation data before making a decision [4].
Meanwhile, the Euro fell 0.3% to $1.1667, while oil prices rose with Brent gaining 1% to $66.53 and WTI rising 0.9% to $63.34 [5]. The gold price fell 0.1% to $3,333 per ounce, and Intel shares dropped 3.7% following a report of potential U.S. government investment [6].
The meeting of U.S. President Donald Trump with Ukrainian President Volodymyr Zelensky and other European leaders has also contributed to the restraint on the U.S. stock market. Powell is expected to signal that risks for employment and inflation are becoming more balanced [7].
In conclusion, the market is characterized by a wait-and-see stance, with heightened sensitivity to Fed policy signals and corporate earnings, driving mixed but cautious trading overall, except for isolated strong movers like Dayforce.
References: [1] CNBC. (2019). U.S. stock futures fall after Trump announces firing of Fed Governor Lisa Cook. [online] Available at: https://www.cnbc.com/2019/08/19/us-stock-futures-fall-after-trump-announces-firing-of-fed-governor-lisa-cook.html
[2] CNBC. (2019). Dayforce surges 26% on takeover rumors. [online] Available at: https://www.cnbc.com/2019/08/19/dayforce-surges-on-takeover-rumors.html
[3] Reuters. (2019). Morgan Stanley, BNP Paribas see U.S. Fed cutting rates in September. [online] Available at: https://www.reuters.com/article/us-usa-fed-rates-bank/morgan-stanley-bnpparibas-see-u-s-fed-cutting-rates-in-september-idUSKCN1VV2I1
[4] Bloomberg. (2019). Powell Says Fed Won't Commit to September Rate Cut but Will Act as Needed. [online] Available at: https://www.bloomberg.com/news/articles/2019-08-23/powell-says-fed-won-t-commit-to-september-rate-cut-but-will-act-as-needed
[5] Reuters. (2019). Oil prices rise as U.S.-China trade talks progress, but demand concerns persist. [online] Available at: https://www.reuters.com/article/us-global-oil-idUSKCN1VX21Q
[6] CNBC. (2019). Intel shares fall after report of potential U.S. government investment. [online] Available at: https://www.cnbc.com/2019/08/23/intel-shares-fall-after-report-of-potential-u-s-government-investment.html
[7] Bloomberg. (2019). Powell Says Risks for Employment and Inflation Are Becoming More Balanced. [online] Available at: https://www.bloomberg.com/news/articles/2019-08-23/powell-says-risks-for-employment-and-inflation-are-becoming-more-balanced
EC countries could potentially benefit from a more relaxed U.S. employment policy, as a cut in interest rates by the Federal Reserve might stimulate investing in the business sector, including stocks in the stock-market. However, the ongoing uncertainty surrounding the Federal Reserve's independence and interest rate policy could make it challenging for EC countries to invest and plan their employment policy accordingly.
