U.S. Stocks Open Lower Ahead of Fed Decision
September 18 2019 - 10:07AM
Dow Jones News
By Anna Isaac
U.S. stocks opened lower ahead of an interest-rate decision from
the Federal Reserve, amid political tensions and a volatile week
for oil prices.
The Dow Jones Industrial Average fell 72 points, or 0.2%, to
27038 shortly after the opening bell. The S&P 500 dropped 0.3%
and the Nasdaq Composite declined 0.2%.
The Fed on Tuesday had to step in to address a problem in the
market for repurchase agreements, or "repos." It was the first time
since 2008 that the central bank had to inject cash to keep
interest rates down for short-term borrowing, and it is unclear how
long the market intervention will last.
The easiest fix "would be to revive quantitative easing (QE), to
create excess reserves," said Bastien Drut, senior strategist at
CPR Asset Management, in a note. This would "ease the tensions on
the interbank market," he said, adding the impact of such a move on
financial markets would be "very strong" and trigger a depreciation
of the U.S. dollar.
On Tuesday afternoon, the Fed said it would inject a further $75
billion Wednesday morning to ease the cost of overnight
borrowing.
The Fed later Wednesday is expected to cut its short-term
benchmark interest rate by a quarter percentage point, following a
cut of the same amount in July. The central bank is seeking to
balance domestic concerns, such as a relatively tight labor market,
against a slowdown in global trade.
"Whatever has happened in the last week or two hasn't changed my
view that there will be a 25 basis-point cut today. To not
introduce a cut would introduce volatility to the market that it
can't afford," said Seema Shah, chief strategist at Principal
Global Investors.
After its Wednesday meeting, the Fed is also expected to release
more details on the likely future course of interest rates
Shares of FedEx Corp. dropped 12.3% after the delivery firm late
Tuesday reported a sharp fall in its profit forecast.
The Stoxx Europe 600 fell less than 0.1% in midday trading after
a mixed session in Asia. The Shanghai Composite rose 0.3% and
Korea's Kospi gained 0.4%, while Japan's Nikkei slipped 0.2%.
Japan's exports dropped 8.2% on year last month, a more rapid
fall than expected, adding to speculation that the central bank may
seek to cut interest rates deeper into negative territory. The weak
data came as global uncertainty has boosted the yen, regarded as a
haven by investors, by around 1.4% against the U.S. dollar so far
this year.
Global oil benchmark Brent crude slipped 0.9% to $63.95 on
Wednesday, following days of sharp swings after an attack on
production facilities in Saudi Arabia. The tick downward came after
the Saudi energy ministry said the kingdom would recover output in
weeks.
The attack caused the Brent price to rise 15% on Monday, the
biggest leap in a single day since 1988, before dropping back by
6.5% on Tuesday. The volatility spread to other asset types,
including junk bonds. Energy firms account for about 6% of debt
outstanding in the high-yield market.
.
Data on construction in the U.S. was also released Wednesday.
The figures showed home building had risen last month to the
highest level since June 2007, following three straight months of
decline.
The yield on 10-year U.S. Treasurys ticked down to 1.772%, from
1.805% Tuesday. Yields fall as bond prices rise.
Write to Anna Isaac at anna.isaac@wsj.com
(END) Dow Jones Newswires
September 18, 2019 09:52 ET (13:52 GMT)
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