Wall Street Opens Higher on Rate Cut Optimism

June 13, 2019
Wall Street Opens Higher on Rate Cut Optimism

By Investors Hub

The major U.S. index futures are pointing to a higher opening on Thursday, with stocks likely to rebound following the modest pullback seen over the two previous sessions.

A report from the Labor Department showing bigger than expected decreases in U.S. import and export prices may add to recent optimism that tame inflation will lead the Federal Reserve to cut interest rates in the near future.

After helping to lead the markets lower in the previous sessions, energy stocks may rebound along with the price of crude oil.

Crude for July delivery is jumping by more than $2 a barrel amid reports of a possible terrorist attack on oil tankers in the Gulf of Oman near the Iranian coastline.

Stocks turned in a relatively lackluster performance during trading on Wednesday before ending the session modestly lower. The major averages added to the slim losses posted on Tuesday, although selling pressure remained subdued.

After snapping a six-day winning streak on Tuesday, the Dow edged down 43.68 points or 0.2 percent to 26,004.83. The tech-heavy Nasdaq fell 29.85 points or 0.4 percent to 7,792.72 and the S&P 500 dipped 5.88 points or 0.2 percent to 2,879.84.

The modest weakness on Wall Street came as traders weighed lingering trade concerns against optimism about an interest rate cut by the Federal Reserve.

The U.S.-China trade conflict largely took a back seat to President Donald Trump’s threatened tariffs on Mexico but has moved back into the spotlight ahead of the G20 summit later this month.

In remarks to reporters on Tuesday, Trump suggested he has “no interest” in negotiating unless China agrees to come back to the table to discuss previous terms of a deal he has claimed was nearly complete.

Trump said he expects to meet with Chinese President Xi Jinping at the G20 summit and has warned that he will impose new tariffs on Chinese goods if his counterpart does not attend.

Partly offsetting the negative sentiment about trade, another report showing tame inflation has further fueled expectations that the Federal Reserve will cut interest rates in the near future.

The Labor Department said its consumer price index inched up by 0.1 percent in May after rising by 0.3 percent in April. The uptick in prices matched economist estimates.

Excluding food and energy prices, core consumer prices also edged up by 0.1 percent for the fourth consecutive month. Economists had expected core prices to rise by 0.2 percent.

The report also showed a slowdown in the annual rate of consumer price growth, with the headline index up by 1.8 percent year-over-year in May compared to the 2.0 percent increase in April.

The annual rate of core consumer price growth also slowed to 2.0 percent in May from 2.1 percent in the previous month.

“Tariff changes may eventually push up some goods prices, while apparel prices should soon rebound,” said ING Chief International Economist James Knightley. “But for now, inflation pressures in aggregate remain benign.”

He added, “As such, financial markets will see little reason for the Federal Reserve to hold back from rate cuts in coming months to combat the perceived threat of a slowdown caused by intensifying trade tensions.”

Energy stocks moved sharply lower over the course of the session, dragged down by a steep drop by the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 5.1 percent, the NYSE Arca Natural Gas Index tumbled by 3 percent and the NYSE Arca Oil Index slumped by 1.4 percent.

Considerable weakness also emerged among semiconductor stocks, as reflected by the 2.3 percent nosedive by the Philadelphia Semiconductor Index.

Financial, tobacco, and computer hardware stocks also saw notable weakness on the day, while significant strength was visible among gold, utilities and pharmaceutical stocks.

Dipo Olowookere

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

Mr Olowookere can be reached via [email protected]

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