US equities are expected to open slightly lower on Wednesday with apprehensions brewing over the possible removal of forward guidance from the latest statement by the Federal Reserve, possibly green-lighting the first rate-hike since 2006.
Consensus is for the “patience” language with respect to the timing of a rate rise to be removed. Should “patience” stay; a sell-off in the US dollar and stock market rally could be in order.
Janet Yellen’s Fed has shown itself to be very conscious of market reaction to its announcements, not surprising given the distortions its policies have caused. With its sensitivity to markets in mind, the Fed could choose to offset the removal of forward guidance by pushing out the dots on the “dot plot” to suggest a slower pace of rate increases once they do start.
Given that the ECB and Bank of Japan have boosted global liquidity conditions back close to levels seen during the Fed’s QE program, equity markets remain supported and could eventually ride out the Fed’s decision.
Should the Fed actually remove “patience” and imply a slower rate increase via the dot plot; then stock markets may accept their fate of a rate hike and take a slower rate of increases as a net positive. Should the Fed remove the patience language and keep the dots unchanged or imply higher rates sooner; all bets are off and we could be in for a big slump in stocks and a continuation of the dollar rally.
Oracle Corporation (NYSE:ORCL) reported earnings in-line with estimates and shares are expected to rise slightly on the open.
With earnings season all-but over, one of the last few important releases to pay attention to for the assessing the overall market is FedEx Corporation (NYSE:FDX). The delivery company is a bellwether for the health of the US economy with more deliveries signalling stronger consumer and business demand. Expectations are for $1.87 per share on revenues of $11.8bn.
Futures suggest the:
S&P 500 will open 2 points lower at 2,072 with the
Dow Jones expected to open 19 points lower at 17,830 and the
Nasdaq 100 2 points lower at 4,373.
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