Fed expected to leave rates unchanged - 2.11.2016

US stocks fall for 6th straight session

US stocks closed lower on Tuesday with higher election uncertainty undermining market sentiment as Democratic presidential candidate Hillary Clinton’s lead in polls over Republican Donald Trump narrowed. The dollar fell ahead of Federal Reserve’s interest rate decision. The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, closed 0.65% lower at 97.736. The Dow Jones industrial average declined 0.6% to 18037.10.

The S&P 500 lost 0.7% settling at 2111.57 with nine of its ten sectors closing lower. The Nasdaq index dropped 0.7% to 5153.58 led by biotech stocks. In economic news the Institute for Supply Management manufacturing index rose to 51.9% in October from 51.5 in September, above the 51.7% expected level. The continued expansion of services sector supports the case for a rate hike at December Federal Reserve meeting. Investors are looking forward to the nonfarm payrolls report due on Friday. It is widely believed the Federal Reserve will hold off raising rates at conclusion of its two day policy meeting today. The likelihood the Federal Reserve will raise rates is just 7.2% with the chance of a rate hike in December at 73.6%, according to CME Group’s FedWatch tool. In other economic news construction spending declined 0.4% in September and car sales slipped in October on fewer selling days and falling fleet sales. Today at 12:00 CET Mortgage applications will be released by the Mortgage Bankers’ Associations in US. At 13:15 CET October Nonfarm Employment Change will be published by ADP, the outlook is positive for dollar. At 19:00 CET FOMC interest rate decision will be released. The Fed is expected to leave the Federal Funds Rate in 0.25%-0.5% range.

Financials shares lead European stocks lower

European stocks ended lower on Tuesday led by financial stocks as earnings reports continued to disappoint investors while political uncertainty in US causes more caution ahead of presidential elections next week. Both the euro and British Pound rose against the dollar. The Stoxx Europe 600 index fell 1.1%. The DAX 30 fell 1.3% to 10526.16. France’s CAC 40 lost 0.9% while UK’s FTSE 100 closed 0.5% lower at 6917.14 helped by 4% jump in Royal Dutch Shell shares after the oil major swung to a third-quarter profit from a year earlier.

Other energy stocks closed lower: BP shares fell 4.5% as the company reported over 5% drop in production year-on-year despite a 35% rise in profit. Today German final Unemployment Rate came in lower at 6.0% instead of 6.1% for October. And Markit reported final October Manufacturing PMI for euro-zone edged up to 53.5 from 53.3.

DAX30

Asian stocks follow Wall Street’s lead lower

Asian stocks are retreating today after an overnight ABC News-Washington Post tracking poll showed Trump had gained a one-point advantage over Democrat Hillary Clinton, leading 46% to 45%. Investors are concerned as Trump has repeatedly promised to adopt a more protectionist approach to global trade. The Shanghai Composite Index is 0.6% lower and Hong Kong’s Hang Seng index is down 1.4%. Nikkei fell 1.8% to a two-week low at 17134.68 today as yen grew stronger on waning risk appetite. Australia’s All Ordinaries Index fell 1.2% with Australian dollar weakening against the dollar.

Oil prices retreat on surprise US inventory build

Oil futures prices are extending losses today after the American Petroleum Institute industry group reported US inventories rose by 9.3 million barrels last week. Prices are under pressure as hopes fade major oil producers can agree on production quotas by November 30 OPEC summit to implement a preliminary September deal to limit production to 32.5 - 33 millions barrels a day. Goldman Sachs warned crude oil prices could fall more than 10% as Russian and overall OPEC production has continued to rise with no clear commitment from Russia, the world’s largest non-OPEC producer and Iran, Libya and Nigeria lobbying to be exempt from a production freeze or cut. Today at 16:30 CET Crude Oil Inventories will be released by the Energy Information Administration.