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US open: Stocks open lower as investors digest hawkish Fed statement

By Iain Gilbert

Date: Friday 09 Nov 2018

US open: Stocks open lower as investors digest hawkish Fed statement

(Sharecast News) - Wall Street trading began with losses on Friday as investors mulled over a hawkish post-meeting statement from the Federal Reserve and a higher than expected reading on October's producer price index.
At 1530 GMT, the Dow Jones was down 0.54% to 26,049.37, while the S&P 500 had lost 0.80% to 2,784.49 and the Nasdaq traded 1.39% softer at 7,426.55.

Overnight, the Fed stood pat on interest rates as expected, while signalling a rate hike next month and more next year were likely.

The Fed left the target range for the funds rate unchanged at 2% to 2.25% and said it expects "further gradual increases", depending on the economic expansion, labour conditions and inflation. Notably, there was no mention in the statement of recent financial market volatility, some analysts said.

"It would appear we're going to end an otherwise positive week on a negative note, with equity markets around the globe in the red following the Fed decision on Thursday," said Oanda analyst Craig Erlam.

"The Fed is not for turning, not yet at least. It was always a bit of a long shot that the central bank would choose a meeting that did not produce new economic projections or be followed by a press conference to change course, even a little, unless things had got especially bad. The recovery in the markets last week will have provided enough comfort to convince them it was not necessary and a decision can be made in December.

Energy-related shares were on the backfoot as oil prices extended their decline, with Brent crude down 1.4% to $69.66 a barrel.

"This downward grind should continue until we hit the $59-60 support level," said Konstantinos Anthis, head of research at ADSS.

In individual company news, Walt Disney shares rose 2.36% at the bell after the company posted better-than-expected fourth-quarter earnings late on Thursday.

Dropbox shot up 8.65% at the open after the cloud storage group's third-quarter earnings late on Thursday beat analysts' expectations.

It was a much less rosy picture for Yelp, however, down a whopping 27.36% at the bell after the online review site's third-quarter local advertising revenue came in weaker than expected and it cut its revenue forecast.

Elsewhere, General Electric was down nearly 3.91% in early trade following a downgrade from broker JPMorgan Chase.

On the data front, US wholesale inflation picked-up more quickly than expected last month amid a sharp increase in energy costs and as food prices bounced back.

According to the Bureau of Labor Statistics, so-called final demand prices jumped by 0.6% month-on-month in October, pushing the annual rate of gains from 2.6% to 2.9%.

Economists had anticipated a smaller increase in headline producer prices of 0.2% on the month and 2.7% on the year.

October's gains followed largely flat readings for over the prior three months.

Elsewhere, US consumer sentiment deteriorated less than expected in November, according to a preliminary reading from the University of Michigan.

The consumer sentiment index printed at 98.3 from 98.6 in October and 98.5 in November last year, beating expectations for a slightly bigger drop to 98.0.

The current economic conditions index ticked up to 113.2 in November from 113.1 the month before and 113.5 in November 2017.

Meanwhile, the index of consumer expectations slipped to 88.7 this month from 89.3 in October and 88.9 last November.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "We thought the drop in stock prices would make itself felt in the survey, especially in the expectations component, but we appear to have jumped the gun.

"Either way, sentiment remains very elevated, but it has substantially overstated spending - which is what we really care about - over the past couple of years, because income growth is just not strong enough to drive spending as quickly as the sentiment data suggest. Elsewhere in the report, one-year inflation expectations dipped a tenth to 2.8%, but five-to-10 year expectations rose by two tenths to 2.6%. The latter is at the top of the recent range but we see no reason to expect a sustained breakout anytime soon."

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