US stocks to open little changed; Rosengren remains hawkish

Summary:

• US indices to begin near recent highs

• Rosengren doesn’t see need to lower rates

• Home Depot to gain after earnings release

After a strong push higher before Monday’s opening bell, the cash session was fairly subdued for US benchmarks with the market chalking up a 3rd consecutive day of gains. During US hours the market ground higher before selling off a little into the closing bell. The recovery which began shortly after the large drop last Wednesday is now pretty much complete and traders will be watching closely to see whether there’s now a change in trend higher. A key line in the sand could be seen around 2944 and while the outlook has improved in recent trade, unless the market can move and end the day above there then it may be premature to say the worst of the sell-off is behind us.

Pullbacks to the 8/21 EMA have provided nice opportunities to get on board the prevailing trend on several occasions this year. While the 8 (Blue) remains below the 21 (Yellow) then the downtrend is still in tact. Prior swing resistance around 2944 a key level to watch. Source: xStation

Later this week the Jackson Hole Symposium could well provide the deciding factor in whether the weakness we got at the turn of the month is over or whether there is in fact another leg lower still to come. The focus will be on Fed chair Powell and in enforcing a media blackout going into the speech there’s some suggestion that we could be in for something big. The market has already fully discounted a 25 bps (basis points) cut at the next Fed meeting, with the probability of a 50 bps move sitting at just under 20% at the time of writing. This seems to be pretty dovish considering the current backdrop and represents a fairly high bar for the Fed to deliver an even stronger message. 

Rosengren remains hawkish

One of the last updates we got from Fed voting members ahead of the blackout came from Boston President Eric Rosengren who reiterated his view that interest rate cuts are unwarranted and could destabilize the financial sector. “We have to be careful not to ease too much when we don’t have significant problems,” he said. “We are supposed to focus on unemployment and inflation in the United States and so I think we are in a pretty good spot right now and there are costs to easing at a time when you don’t need to ease.” Rosengren was 1 of 2 dissenters at the last meeting when the Fed cut rates for the 1st time in over a decade and given these latest remarks it is unlikely he will support a move of 0.25% lower next time, let alone 0.5%.       

Home Depot set to gain on the open 

On the earnings front there’s been a few reports out since last night’s close with Home Depot one of the most interesting. The firm reported quarterly earnings per share of $3.17 vs a consensus forecast of $3.08 although sales did miss expectations. Revenue came in at $30.84B vs $30.99B exp while same store sales rose by 3% compared to 3.5% forecast. Home Depot is now calling for fiscal 2019 sales to be up about 2.3%, and same-store sales to be up about 4%. Previously, it was calling for total sales growth of 3.3% and same-store sales growth of 5%. The stock is called to open higher by around 2% at the bottom of the hour.

Home Depot shares are expected to start brightly this afternoon, moving above 210 in pre-market trade. Source: xStation