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Sep 21, 2016

U.S. Stock Market Future Indications: U.S. stock Futures Climb on Fed Day; BOJ's Stimulus Shift Rallies Banks - September 21, 2016

marketwatch.com
 
Barbara Kollmeyer
Wall Street stocks were poised for opening gains Wednesday, keying off rises in global equities after the Bank of Japan overhauled its monetary policy framework, and with a Federal Reserve interest rate decision ahead.

Stronger oil prices also helped underpin gains for stock futures.
Dow Jones Industrial Average futures YMZ6, +0.39%  rose 60 points, or 0.3%, to 18,107, while S&P 500 futures ESZ6, +0.41%  added 7.65 points, or 0.4%, to 2,138.75. Nasdaq-100 futures NQZ6, +0.52%  gained 20.75 points, or 0.4%, to 4,819.25.
Stocks pared gains to end flat ahead of the central bank decisions on Wednesday. The S&P 500 index SPX, +0.03%  finished up less than a point at 2,139.76.
Financial stocks rallied in Tokyo, with the Nikkei 225 index NIK, +1.91%  closing 1.9% higher after the BOJ kept its deposit rate unchanged at negative 0.1%. It also introduced a zero interest-rate target for 10-year government bonds, part of what analysts are calling “yield curve control.” Japan’s 10-year sovereign bond yields hit 0% Wednesday, for the first time since March.
Read: Bank of Japan keeps rates steady, tweaks policy framework
“A steeper yield curve provides the motivation for banks to encourage customers to borrow, and is typically associated with a strengthening economy,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, in a note.
As financial companies tend to borrow short and lend long, the BOJ announcement provided “rocket fuel” for Japan banks to rally, she added.
BOJ sparks global gains: That upbeat sentiment spread to Europe, were banks also rallied, lifting the Stoxx Europe 600 SXXP, +0.98%  0.8%. U.S. stock futures rose in tandem.
“The risk here was that no change would be seen, but the subtle tweaks have been enough to bolster market sentiment across the board, and as it stands, this is going to help drive Wall Street notably higher at the open,” said Paul Webb, deputy CEO and head of retail (Europe) at ADS Securities, in a note.
The Japanese yen initially sold off, then pared losses, though that came after the close of Tokyo markets. Against the dollar, the yen USDJPY, -0.30%  last traded at ¥101.80, not far from where it closed late Tuesday in New York at ¥101.72.
“All told, I believe the BOJ’s pledge to keep policy loose not only until they achieve their inflation target, but until they overshoot their target on a sustainable level, is the most radical thing I’ve heard from a central bank,” said Marshall Gittler, head of investment research at FXPRIMUS, in a note to clients.
In the long term, Gittler said, that should weaken the yen because it “promises they will just keep on trying and trying. But in the short term, I’d say a lot depends on what the Fed decides tonight.”
Fed in the spotlight: With most analysts not expecting a change in U.S. interest rates, the talking point will be the Federal Open Market Committee’s accompanying statement. Another will be whether the Fed hints at future policy changes, now the odds of a December Fed rate increase have risen to 58%, said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
The big risk to a more hawkish Fed is the dovish stance seen across the globe, she argued.
“As the Bank of Japan, the European Central Bank and the Bank of England display an ultra-expansive stance, the Reserve Bank of Australia and New Zealand leave the door open for more action if needed, it is difficult for the Fed to act alone,” said Ozkardeskaya.
The decision from the Fed is due at 2 p.m. Eastern Time, followed by a press conference with Chairwoman Janet Yellen. No other key economic data is scheduled.
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Stocks to watch: General Mills Inc. GIS, -0.78%  and CarMax Inc. KMX, -1.45%  are scheduled to release earnings reports ahead of the market open, while Bed, Bath and Beyond Inc. BBBY, -0.67%  will report after the close.
Microsoft Corp. MSFT, -0.21%  late Tuesday said it will increase its quarterly dividend by 8% over the previous quarter, and it approved a share buyback program of up to $40 billion. Shares of the technology group rose 1.1% in after-hours action.
Other markets: WTI crude CLX6, +2.13%  added 92 cents, or 2%, to $44.97 a barrel, on hopes that major oil producers could be nearing agreement on a deal to cap output. Oil prices were also lifted after the American Petroleum Institute said late Tuesday that its own data for the week showed a 7.5-million-barrel decrease in crude supplies.
API data comes ahead of the all-important Energy Information Administration report on U.S. supplies later Wednesday.
Gold prices GCZ6, +0.43%  saw moderate gains, up $5.10, or 0.4%, to $1,323.30 an ounce.