News Column

MARKET COMMENT: Wall Street Seen Flat Despite "Goldilocks" Economy

June 19, 2014

Jon Darby

LONDON (Alliance News) - US stocks are set to open relatively flat Thursday, following the strong gains seen on Wednesday, after the Federal Reserve struck exactly the tone that markets had been hoping for. The Fed indicated that the economy is recovering, but not fast enough to warrant a tightening of monetary policy.

Indeed, some commentators are referring to the current situation as a "Goldilocks scenario" for equity markets, not too hot and not too cold.

With the US economy recovering and monetary policy remaining ultra accommodative, the S&P 500 pushed up to a new all-time high Wednesday, closing up 0.8% at 1,956.98, while the DJIA closed up 0.6% at 16,906.62, about 60 points off its recent all-time high, and the Nasdaq Composite also closed up 0.6%.

However, with little in the data calendar Thursday, and the price of oil remaining at elevated levels amid continues tension in Iraq, the rally seems to have lost momentum and futures trading indicates a fairly flat open on Wall Street, with both the S&P 500 and the DJIA set to open broadly flat.

Workers were evacuated from Iraq's key Baiji refinery Thursday, local sources told dpa, as it remained unclear who was actually in control of the plant which accounts for almost a third of the country's refining capacity. US Congressional leaders continue to weigh their options in dealing with the growing crisis, after being asked by officials in Iraq to mount air strikes to help the Iraqi government to maintain control of its country and its oil refineries.

The oil price has been relatively stable over the session so far, remaining elevated at about USD114.50 per barrel, up from about USD110.0 per barrel before the crisis began.

The US smartphone makers may be in focus after the US opening bell, with BlackBerry announcing a first-quarter loss of USD0.11 per share, better than the USD0.25 that had been expected. Blackberry shares are up more than 10% in the pre-market.

Amazon also may be in focus, having entered the smartphone market itself by unveiling its own phone, Fire, on Wednesday evening.

UK stocks are continuing firmly higher heading towards the US open. The FTSE 100 is up 0.7% at 6,828.00, the FTSE 250 is up 1.0% at 15,778.10, and the AIM All-Share is up 0.4% at 786.62.

The pound continues to hold onto gains against the dollar, having risen above the key psychological barrier of USD1.70 in the wake comments from both the UK and US central banks, with the latter sounding the more dovish of the two.

Whereas Fed Chair Janet Yellen indicated on Wednesday that interest rates in the US could stay very low even after inflation has returned to its target, Tuesday's minutes from the Bank of England's latest policy meeting said committee members were surprised that the markets was only pricing in a low possibility of a rate rise this year.

"The pound is boosted above all by a hawkish Bank of England, and a stronger UK economy, while the dollar continues to be shot down by a dovish Federal Reserve," said analyst Fawad Razaqzada.

Still to come Thursday, US initial jobless claims for the week ended June 13 are expected to fall to 314,000 from 317,000 in the previous week, with the data due at 1330 BST. This would be another strong figure, providing further evidence of the ongoing improvement in the labour market, says Alpari market analyst Craig Erlam.

The Philadelphia Fed manufacturing survey is due at 1500 BST. According to the survey, business sentiment has picked up strongly since February's -6.3 reading, which along with much US data at the time, was partly driven by poor weather. Economists expect the reading to moderate slightly to 14.0 in May after reaching 15.4 in April.

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Source: Alliance News

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