U.S. markets opened lower on Wednesday while trading in tight ranges throughout the session as Wall Street prepared for the latest Fed minutes while digesting ongoing trade rhetoric.
The major indexes made an attempt towards positive territory after the Fed said it would remain patient when evaluating rate moves but it wasn’t enough to avoid a lower close.
The Russell 2000 dropped 0.9% after testing an intraday low of 1,528.
Near-term support at 1,535-1,520 was split on the close below the latter with risk towards 1,500 on a move below the latter.
The Nasdaq gave back 0.5% following the intraday backtest to 7,738.
Current and upper support at 7,750-7,700 was breached but held with weakness towards 7,650-7,600 on a move back below the latter.
The Dow declined 0.4% after trading to an intraday low of 25,755.
Prior and upper support at 25,750-25,500 held with risk towards 25,250-25,000 on a close below the latter and the 200-day moving average.
The S&P 500 was down 0.3% with the late day low reaching 2,851.
Crucial and major support at 2,850 held with downside potential towards 2,825-2,800 on a close below this level.
Utilities led sector strength after rising 0.8%. Healthcare was up 0.6% while Real Estate and Consumer Staples gained 0.5%.
Energy paced sector laggards after sinking 1.6%. Consumer Discretionary tanked 1% and Industrials and Materials were down 0.8% and 0.7%, respectively.
Global Economy – European markets settled mixed as Prime Minister Theresa May outlined her latest deal which includes a vote on whether to hold another referendum if her EU Withdrawal Agreement Bill is backed lawmakers.
Germany’s DAX 30 climbed 0.2% and UK’s FTSE 100 nudged up 0.1%. The Belgium20 slipped 0.2% while France’s CAC 40 and the Stoxx 600 Europe dipped 0.1%.
Asian markets closed mostly higher despite comments from Chinese President Xi Jinping that there would be no end to the trade war with the U.S. in the near future.
South Korea’s Kospi, Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 gained 0.2% while Japan’s Nikkei edged up 0.1%. China’s Shanghai declined 0.5% and
MBA Mortgage Applications rose 2.4%, after dipping 0.6% in the prior week. The gain was led by an 8.3% pop in refis. The purchase index fell 2%.
The bonce in refinancings was supported by the drop in the 30-year fixed rate to 4.33% from 4.4% previously. The 5-year ARM plunged to 3.57% from 3.82%.
FOMC Minutes showed that members raised their expectations for full-year economic growth and said that earlier concerns they had about a slowdown had abated.
Despite their general optimism, the committee held the line on interest rates, primarily citing a lack of inflation pressures that allow the central bank to watch how events unfold before making any further moves.
The minutes also expressed a more upbeat tone as a number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations.
Market Sentiment – New York Fed John Williams reiterated he sees no strong argument to move rates one way or another currently while adding monetary policy is really well positioned and near his neutral interest rate.
He went on to say the economy is still in a very good place, and he still sees a strong labor market and a low unemployment rate.
Williams said some of the risks from abroad have receded somewhat. On inflation, he said pressures are essentially nonexistent and added some factors may be holding prices down.
Boston Fed Eric Rosengren said the economy is better than people were expecting but tariffs are one of the biggest risks. He said there is a lot of uncertainty over the outcome of the trade war, and uncertainty is bad for the economy.
It is his assumption that the U.S. and China will eventually come together, but he’s not sure when and it wouldn’t have a large impact on his forecast on the economy.
Rosengren said if that assumption is wrong, analysts will have to think differently about monetary policy.
Tariffs are a tax on imported goods, and so that will increase the price of those imports, he added.
St. Louis Fed President James Bullard said the Fed may have raised rates too much last year, adding rates are at a good place in the U.S. right now, if anything the Fed is a little restrictive.
He said he was concerned that the Fed may have slightly overdone it with the December rate hike but that he was pleased that the committee pivoted.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after testing an intraday high of $126.33. Lowered resistance at $126-$126.50 was cleared and held .
A close above the latter gets the 52-week peak at $126.69 in play with near-term upside towards $127.50-$128 on a breakout.
Near-term support remains at $125.50-$125.
Market Analysis – The Spider S&P 500 ETF (SPY) was down for the 3rd time in 4 sessions following the backtest to $285.10 and 4th-straight close below the 50-day moving average.
Upper support at $285-$284.50 held with move below $283 being a more bearish signal.
Resistance remains at $286.50-$287.
Continued closes above the latter would be a slightly bullish signal for additional strength.
RSI is back in a downtrend with support at 45-40.
A close below the latter would be a bearish signal for additional weakness towards 35-30 and the monthly lows. Resistance is at 50.
The Technology Select Sector Spiders (XLK) also fell for the 3rd time over the past 4 sessions after testing a low of $74.45. Current and upper support at $74.50-$74 was breached but held.
A close below the latter and Monday’s low of $73.71 would be a renewed bearish development with further risk towards $73-$72.50.
Near-term resistance is at $75-$75.50.
Continued closes above $75.75 and the 50-day moving average would be a more bullish signal for continued strength.
RSI is in a slight downtrend with support at 40. A move back below this level would signal additional weakness 35-30 with the latter representing the monthly low.
Resistance is at 45-50 with a move above the latter signaling additional strength.
All the best,