Wall Street manages to close in the green ahead of the FOMC
|- The S&P 500 was mostly unchanged at 2,546.
- The Dow Jones Industrial Average advanced 83 points, or 0.4%, to 23,678.
- The Nasdaq Composite finished higher by 0.4% to 6,784.
Wall Street on Tuesday was looking like it was on the way to the worst levels of 2018 at one stage, but somehow, the indexes managed to eke out gains, elevated by ahead of the FOMC outcome on Wednesday.
Oil was a major catalyst for the stock market's performance although the possibility of a partial government shutdown was potentially averted which helped to stabilise US stocks. There was also a newswire related to trade whereby Mnuchin expected trade talks with China in January to continue. As for the US 10yr treasury yield, with stock in decline, the yield fell from 2.85% to 2.82%, while the 2yr yield fell from 2.68% to 2.65%.
All eyes are now on the FOMC
All heads turn to the outcome of the FOMC two day meeting that got underway on Tuesday that will conclude on Wednesday. The Fed funds rate futures continued to price a rate rise this week around 70% chance, but yields for 2019 fell sharply, now only about 50% priced for a hike next year. We see the FOMC statement and quarterly forecasts, followed by Chairman Powell’s press conference on Wed.
"The tone of the statement should be positive, given the tight labour market, growth above trend and the need to justify raising rates at this meeting. But there is a discussion about changing the long-standing phrase about expecting “further gradual increases in the target range for the federal funds rate.”
There has been plenty of market talk about the median forecast for the 2019 funds rate falling from implying three hikes to 2, with perhaps the “longer term” dot also falling 25bp, to 2.75%. The 2019 GDP forecast of 2.5% could also be trimmed. So overall, there is a great deal to absorb, and markets are likely to be volatile. A “dovish hike” seems to be the consensus view," analysts at Westpac explained.
DJIA levels
The index was capped by the bearish 10 4hr SMA and unable to breach the pivot as technical indicators extend their bearish biases. Bears can target the 2018 lows at 23114. On the flip side, bulls need to get above the 23.6% Fibo located at 24775.
- Support levels: 23399 23044 22636
- Resistance levels: 24161 24569 24924
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