U.S. Stocks Could Open Higher Ahead Of FOMC Meeting As Summers No Longer A Potential Candidate For Fed Chair

 
on September 16 2013 6:46 AM
NYSE
The New York Stock Exchange logo stands above a board displaying stock prices shortly after the beginning of trading on July 30, 2013. Reuters/Lucas Jackson

U.S. stock futures rallied on Monday, signaling a significantly higher open to markets after former Treasury Secretary Lawrence Summers withdrew from contention to head the U.S. Federal Reserve, and as investors look forward to the Federal Reserve Open Market Committee, or FOMC, meeting on Tuesday and Wednesday, which could decide the future of its massive stimulus program.

Futures on the Dow Jones Industrial Average were up 1.13 percent, while futures on the Standard & Poor's 500 Index were rose 1.12 percent and those on the Nasdaq 100 Index were up 1.11 percent.

Summers, who reportedly had few supporters among liberal Democrats and certain special interest groups, opted out from the race to become the next Fed chairman, on Sunday. In a letter to President Barack Obama, Summers said that the “confirmation process [that] for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation’s ongoing economic recovery,” MarketWatch reported.

His withdrawal from the race is expected to clear the path for Janet Yellen, the Fed’s vice chairwoman, to take over from Ben Bernanke when he vacates the post in January. Yellen is considered to be moderately hawkish and she reportedly supports a delayed and slow-paced withdrawal of monetary stimulus measures.

“Investors are of the belief that Yellen may not scale back QE as aggressively as her rival Summers would,” said Max Cohen, financial sales trader at SpreadEx, in a note to investors, MarketWatch reported.

The two-day FOMC meeting is expected to take a decision on winding down its $85-billion-a-month asset-purchase program, and the central bank is expected to scale down its monetary stimulus, albeit marginally, to acknowledge the recent growth momentum in the U.S. economy.

“The Fed is most likely to make only a small but symbolic reduction to the stimulus program, perhaps reducing the asset purchases by $5bn per month, due to the fragility of the upturn. Importantly, any tapering is likely to be accompanied by a statement of reassurance that any further tightening of policy will be carefully considered to ensure it does not set the recovery back,” Chris Williamson, an economist with Markit, wrote in a research note.

Investors will also focus on the Industrial Production and Capacity Utilization report to be published before the opening bell. Industrial production, which measures the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities, is expected to show a reading of 0.4 percent in August, after recording flat growth in July. The capacity utilization rate, which is the percentage of production capacity being utilized in the U.S, is estimated to have risen to 77.9 percent from 77.6 percent registered in the previous month.

The Empire State Manufacturing Survey for August is also due to be released at 9:15 a.m. EDT. Economists polled by Bloomberg predict that the index, which rates the relative level of the general business conditions in New York State, is likely to show a reading of 0.5 percent -- a slight improvement in comparison to a flat reading recorded in July.

In Europe and Asia markets traded higher on Monday, after it was reported that Summers had dropped out of contention as Bernanke's successor. The Stoxx Europe 600 index rose 0.73 percent, London’s FTSE 100 was up 0.77 percent, Germany's DAX-30 was up 1.18 percent and France's CAC-40 was trading up 0.86 percent.

In Asia, Japan’s Nikkei ended up 0.12 percent at a six-week high, while Australia’s S&P/ASX 200 ended up 0.54 percent. In China, the Shanghai Composite index ended down 0.22 percent, while Hong Kong’s Hang Seng Index gained 1.47 percent.

South Korea’s KOSPI Composite index added 0.96 percent and India’s BSE Sensex ended flat after trading up 0.64 percent in late-afternoon trade.

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