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The major U.S. index futures are pointing to a lower opening on Thursday. Just when the markets were becoming complacent about a recovery in the making, the Fed’s skepticism relayed through the minutes of the April FOMC meeting came as a rude shock. Adding fuel to the fire, the news about the downgrade of U.K.’s rating by S&P spread panic among traders, resulting in a large scale sell-off in the European markets. Earlier in the day, the Asian averages also closed on a weak note, as traders in the region sifted through and digested the FOMC minutes.
Jobs data continues to be downbeat, with a Labor Department report released earlier showing a smaller than expected decline in the first time claims for unemployment benefits. Continuing claims surged to another record high, accentuating the weakness in the job market. Sentiment over the course of the session may also hinge on the manufacturing survey results of the Philadelphia Fed and the Conference Board’s leading indicators index, scheduled to be released shortly after the markets open, as traders look for clarity on the economic outlook.
U.S. stocks, which opened Wednesday’s session higher and saw incremental gains in early trading on the back of the commodity rally, surrendered much of their gains by early afternoon trading and dipped momentarily below the unchanged lined, coinciding with the release of the minutes of the April FOMC meeting. Although some buying interest emerged thereafter, the gains could not be sustained, with the major averages dipped back sharply below the unchanged line in late trading.
The Dow Industrials ended down 52.81 points or 0.62% at 8,422, the S&P 500 Index receded 4.66 points or 0.51% at 904 and the Nasdaq Composite Index fell 6.70 points or 0.51% to 1,728.
Hewlett-Packard (HPQ) retreated 5.22% in reaction to the bleak outlook issued by the company, while Home Depot (HD), JP Morgan Chase (JPM) and American Express (AXP) lost more than 3% each. Alcoa (AA), Citigroup (C) and AT&T (T) moved down about 2% each. On the other hand, General Motors (GM) rallied 14.17%, while Bank of America (BAC0 rose in excess of 2% following its announcement that it has raised $13.47 billion in a public offering. McDonald’s (MCD) was up 4.42%.
Among the sector indexes, the KBW Bank Index fell 2.81% and the Philadelphia Housing Index moved down 2.71%, while the S&P Retail Index and the Dow Jones Utility Average fell over 1.5% each. However, the Amex Gold Bugs Index rallied 5.18%, while Hewlett-Packard’s dismal results weighed on the Amex Computer Hardware Index, which fell 3.28%.
In response to the recent moves on Wall Street, Marc Pado from Cantor Fitzgerald said that the consolidation trend we have been witnessing will likely continue, as pessimism continues to fade. The CBOE Volatility Index closed below the 30 level for the second straight day, which reinforces the idea of a slow and steady recovery. Typically, a trading range of 10-30 for the index signals bullish market conditions. On the upside, the index has resistance around 33.
On the economic front, the minutes of the April FOMC meeting revealed that the members of the Federal Reserve’s policy-setting body seem to concur that the pace of decline in some components of final demand has slowed, with consumer spending firming up in the first quarter and housing activity leveling off in February and March.
On the flip side, businesses continued to trim production and employment market continued to deteriorate. Headline and core consumer prices were up moderately in the first three months of the year.
The Fed updated its forecast of growth, inflation and unemployment rate, with the central tendency growth forecast for 2009 pitched at a 1.3% to a 2% GDP decline compared to its earlier estimate for a mere 0.5% to 1.3% contraction. The central bank also nudged up its unemployment rate forecast for 2009 to 9.2%-9.6% from 8.5%-8.8%. The Fed also toned down its growth estimate for 2010 to 2%-3% rate compared to 2.5%-3.3% growth it estimated in January, while it expects an unemployment rate of 9%-9.5% for 2010 versus its January projection of 8%-8.3%. The longer-run forecasts were left unchanged.
The downgrade came despite the Fed noting that conditions have improved in the inter-meeting period. Some economists believe that the tempered outlook is due to a contraction in credit creation, as commercial bank credit contracted both in March and April.
Analyzing the minutes, Barclays commented that the Fed seemed to have decided to wait till the June meeting to assess the impact of the asset purchase and decide if additional action needs to be taken.
Dikutip dari ADVFN Newsdesk for Saham Indonesia.
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