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US shares end flat-to-lower, Fed watch continues

US stocks ended flat-to-lower on Tuesday as the Fed rate vigil engulfed rational thought and led investors to a conclusive stalemate

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US housing starts further curb rate hike fears

US stocks ended flat-to-lower on Tuesday as the Fed rate vigil engulfed rational thought and led investors to a conclusive stalemate.

The S&P 500 index ended unchanged at 2,139 while the S&P Midcap 400 was down 0.5% at 1525 and the S&P Smallcap 600 finished down 0.3% at 742.

The wider small-cap Russell 2000 shed 0.3% to 1228.

Firmer oil prices hardly got a look-in, at best supporting the market bellwether S&P 500 from falling. The WTI ended up 0.3% at $43.44.

Although markets price out any rate hike from the Fed on Wednesday, markets have learned never to assume too much where Fed policy is concerned, especially after a rollercoaster of views from an increasingly divided Fed policy committee.

But at very least markets will be looking for hawkish clues as to whether a November or December rate hike are on the cards, if at all.


Midsession

Top US stocks traded higher at midsession on Tuesday as they derived solace from disappointing housing starts data which fuelled expectations the Federal Reserve will leave rates alone on Wednesday, but smaller stocks were under pressure.

The S&P 500 index was up 0.2% at 2,143 and led by Royal Caribbean Cruises Ltd (NYSE:RCL) up 4.7% at $68.53.

But smaller caps were feeling pressure ahead of both the Fed and Bank of Japan monetary meetings both due on Wednesday.

The S&P Midcap 400 was down 0.2% at 1530 and led by Ascena Retail Grp (NASDAQ:ASNA) down 28.7% at $5.79 after reporting forecast-missing fourth quarter and 2016 financial results.

The S&P Smallcap 600 was down 0.1% at 743 and led by Tidewater Inc (NYSE:TDW) down 8.8% to $2.79.


Open

US stocks rose on Tuesday as investors took an at-ease attitude in their vigil for Wednesday’s Federal Reserve rate decision after softer housing data becalmed investors fretting over a hike.

After ending Monday’s session largely unchanged, equities opened firmly in positive territory, with the three main indices all clocking in a 0.4% advance – as futures trading implied.

Fed fund futures are pricing in only a 22% chance that US policymakers will hike rates again on Wednesday at around 1815 GMT.

Markets have struggled for direction this week as traders await a series of decisions from the world’s major central banks. Ahead of the Fed, the Bank of Japan is due to release a review of its quantitative easing and negative interest rate efforts alongside its policy decision early on Wednesday.

The S&P 500 market bellwether was up 0.5% at 2149 and led by Royal Caribbean Cruises Ltd (NYSE:RCL) up 4.4% at $68.36 after the cruise vacation operator declared a 28% increase in its quarterly dividend to 48 cents per share. The dividend will add up to an annual dividend of $1.92 per share.

The biggest faller on the S&P 500 was Lennar Group (NYSE:LEN) down 2.8% to $43.82 after unveiling forecast-topping third quarter numbers but its shares fell following worse-than-expected housing data. Read more.

It was US housing starts data that disappointed and this had a knock-on effect on Lennar.

US housing starts shrank 5.8% to a seasonally adjusted annualised rate of 1,142,000 in August from July, after rising a downwardly revised 1.4% in the previous period. It was expected higher at 1,190,000. The numbers won’t fuel the case for a rate hike.

The S&P Midcap 400 was up 0.05% at 1533 and led by Fti Consulting (NYSE:FCN) was up 2.4% to $42.98 on no fresh news.

Tech Data (NASDAQ:TECD) was another top gainer of 2.2% to $86.66. The stock rose on Monday snapping up the Technology Solutions business from Avnet, Inc. (NYSE:AVT) for $2.4bn in cash and 2.785mln shares of Tech Data common stock.

The S&P Smallcap 600 was up 0.1% at 745 and led by DTS Inc (NASDAQ:DTSI) up 23.1% to $42.25 after Tessera Technologies, Inc. (NASDAQ:TSRA) agreed to acquire the firm. The all-cash transaction is valued at approximately $850mln.

US natural gas futures were at a 16-month high on Tuesday, as warm weather – which increases power demand – boosted buying.

After rallying by 5% last week the front-month contract broke above $3 on Tuesday, jumping 2.5% to $3.01.

The natural gas supply glut is shrinking faster in the United States than that of oil following unseasonally warm weather this year.


Pre-Open

US stocks are expected to open firmer on Tuesday at 2,148 as the vigil for the Federal Reserve rate meeting gets underway after softer housing starts data was released.

The S&P 400 future was indicating a 5.7 points gain to 1534.

US housing starts shrank 5.8% to a seasonally adjusted annualised rate of 1,142,000 in August from July, after rising a downwardly revised 1.4% in the previous period. It was expected higher at 1,190,000. The numbers won’t fuel the case for a rate hike.

The S&P 500 future is pricing in a 7.6 points, or 0.4%, gain to 2,148 when the market opens in an hour.

Although oil prices are weaker, with the WTI down 1.1% to $42.83 the top pre-market risers include Murphy Oil Corp (NYSE:MUR) up 5.4% at $27.03 as well as Marathon Oil Corp (NYSE:MRO) up 3.3% to $14.56.

Traders on both sides of the pond were feeling the effects of the vigil for the Federal Reserve’s decision late on Wednesday on US rates.

Although a hike is largely priced out by markets forex markets took a more discriminating view, with sterling hitting $1.2970, down 0.5%, on Tuesday, indicating that markets are keeping a hike decision in reserve. That’s the second-lowest reading since Britain voted to quit the European Union in June. The 2016 low was $1.2883 on August 16 – its lowest level since 1985.

Expect some quarterly reports, with Lennar (NYSE:LEN) kicking things off ahead of the open. Adobe Systems (NASDAQ:ADBE) and FedEx (NYSE:FDX) will release results after the close.

Walmart (NYSE:WMT) is in the spotlight after completing its purchase of Jet.com last night. The takeover cost $3.3 billion.

The deal may help Walmart reinvigorate growth in its online shopping business and challenge Amazon (NASDAQ:AMZN).

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