As the two-day October FOMC meeting begins, there is little doubt that the attention of investors will be focused on the outcome tomorrow afternoon.
By Peter Martin
Wednesday, October 29, 2014
Today the stock market is being guided instead by the fundamentals of strong macroeconomic data and upbeat earnings, helping the Dow Jones into positive territory for a fourth straight session.
Earnings lift stock indices
The leading stock indices were all well up for the day by early afternoon in New York, with the S&P 500 Index gaining 0.66% or 13.0 points to stand at 1974.6 and the NASDAQ 100 surging 1.08% to 4089.7. The Dow Jones rose 0.48% or 80 points to 16,898.
Tuesday boasted another raft of strong corporate earnings mixed with optimistic guidance: shares in Amgen jumped more than 5% after the biotechnology company hiked its full-year outlook, T-Mobile US climbed 1.9% after announcing record subscriber growth in the third quarter, and Dow Jones component DuPont ($DD) rose 0.2% after beating earnings estimate but missing with revenue.
On the macro front, durable goods orders unexpectedly declined in September, falling 1.3% versus a consensus estimate for a 0.9% rise, though the drop was less pronounced when excluding the very volatile component of transportation, shrinking 0.2% at the core level. While the drop is not good news, durable goods is a notoriously volatile report from month to month. We saw a huge surge back in July and just as it would have been foolish to get too bullish on the back of that result then, it would be similarly unwise to become too bearish on the back of some retracement in August and September.
Consumer confidence, though, is sky high, if the latest report from the Conference Boards is to be believed. Its consumer confidence index rocketed to a reading of 94.5 for October, setting a new post-recession high and comfortably exceeding estimates. September’s result was also upwardly revised from 86.0 to 89.0. Strength was concentrated in the expectations part of the index, with only a small rise reported in the current conditions component. In short, the report suggests consumers are feeling very optimistic and conventional wisdom would suggest this should feed into stronger consumer spending, which constitutes a large part of US GDP. It will be especially interesting to see how this consumer positivity translates into spending as we head into the key holiday season.
FOMC caution shapes FX trading
While the start of the FOMC meeting hasn’t held back the performance of US stock indices, there has been some notable dollar weakness in the FX market today. The euro gained 0.33% against the dollar to 1.2739, while USD/CAD slid 0.53% to 1.1190. The question mark regarding tomorrow’s announcement is not so much over what decision they’ll make – the consensus is for no change in the fed funds rate and an end to stimulus, though there is a marginal view that QE could possibly be extended – but over what the tenor of the forward guidance will be. Any substantial change in the wording of that familiar phrase ‘for a considerable time’ could lead to ructions in the market.
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