Indications from Federal Reserve Chair Yellen that a US rate hike is likely to come after the summer were met with jubilation in stock markets. The Dow Jones made a new record high helped by strong earnings and a share buyback from Home Depot Inc (NYSE:HD).
Wednesday’s open looks to be a little less enthusiastic; shares look to start mixed with Hewlett-Packard Company (NYSE:HPQ) set to see big losses. The tech giant reported a fall in quarterly profits and revenues and forecasted full-year earnings below expectations. The drop in earnings raises the importance of the planned separation of HP into two listed companies. In similar fashion to IBM and Microsoft, HP blamed the stronger dollar for reduced earnings.
HP and the other affected US multi-nationals will be hoping that the weaker dollar seen yesterday and again today is the beginning of a new trend. Janet Yellen testifies for a second day on Wednesday but nothing is expected to be added or taken away from the dovish overtones offered yesterday.
The FOMC is clearly more worried about tightening monetary policy too early rather than too late. There have been big improvements in the US labour market but inflation is still well below target and that gives the Fed the excuse it needs to stick with ZIRP as long as possible.
Oil prices have not recovered from the losses surrounding last week’s US oil inventory report. Oil prices are higher on Wednesday ahead of what is expected to be a smaller build of 5.00m compared with the 7.716m seen last week. The build has often been bigger than expected in the past few weeks so if that happens again, oil prices and the energy sector of the stock market may come under pressure.
Target, Cablevision, Campbell Soup, Lowes, Dollar Tree, TJX and Salesforce.com are set to announce quarterly earnings on Wednesday.
Futures suggest the:
S&P 500 will open 2 points lower at 2,113 with the
Dow Jones expected to open unchanged at 18,209 and the
Nasdaq 100 9 points lower at 4,442.
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