Stocks - Europe to See Limited Gains Ahead of Fed Decision

29/01/2020 07:09:09 Stock MarketStock Market

By Peter Nurse

European stock markets are set to edge higher at the open Wednesday, helped by the strong close on Wall Street overnight. However, gains are likely to be limited as worries over the spread of the deadly coronavirus in China remain.

At 02:10 ET (0710 GMT), the FTSE 100 futures contract in the U.K. traded 15 points, or 0.2% higher. France's CAC 40 futures were up 5 points, or 0.1%, while the DAX futures in Germany fell 18 points, or 0.1%. Futures on the pan-eurozone Euro Stoxx 50, gained 2 points, or 0.1%. That followed modest upside surprise from German consumer confidence numbers and the strongest monthly growth in U.K. house prices since November 2018, according to the lender Nationwide.

Overnight the death toll from the outbreak reached 132 people, with close to 6,000 infected. Chinese authorities have closed transport systems in and out of Wuhan, where the virus was first noticed, and at least 10 other cities, effectively quarantining millions of people.

British Airways decided early on Wednesday to suspend all flights to China, Reuters reported. CNBC had reported on Tuesday that the White House had also considered imposing a ban on U.S. flights to China.

There are at least 47 cases confirmed in 16 other countries, including in Thailand, France, the U.S. and Australia.

“So far, the spreading outside of China still seems limited and no deaths have been reported outside of China,” said Danske Bank, in a research note. “We expect the epidemic to be particularly hard on the service sector in China, but retail sales could also suffer, which could hurt imports.”

Overnight the S&P 500 rose 1%, the Nasdaq 1.4% and the DJIA gained 0.7%, rebounding from the worst daily decline in four months on Monday, as investors turned their attention to earnings season and improving economic data.

The Conference Board measure of consumer confidence rose to 131.6 in January's preliminary report, up from a revised 128.2 in December. This is the best reading since August and is not far from the all-time high of 137.9 seen in October 2018.

“The fact that the report has come in so strong shouldn't be too much of a surprise given the U.S. has the lowest unemployment rate since the late 1960s, record high home and equity prices and the lowest national gasoline prices since last March,” said ING's James Knightley in a research note. “As such, households have job security, their balance sheets are in a great position and they perhaps have a bit more cash in their pocket after filling up at the gas station.”

While earnings were mixed, with 3M (NYSE:MMM) and Pfizer (NYSE:PFE) dropping sharply after weaker than expected quarterly results, Apple (NASDAQ:AAPL) boosted the major indexes by closing higher amid expectations its fourth quarter release would impress. And after the market close the tech giant duly delivered, reporting better-than-expected profits for the fourth quarter and forecast revenue in the current quarter above Wall Street expectations.

The earnings season continues Wednesday, with most eyes on Facebook (NASDAQ:FB). The online social media and social networking service is expected to post earnings growth of 6.2%. That said, Goldman Sachs (NYSE:GS) will also be in the spotlight as the banking giant offers up its first-ever investor day. In Europe, Novartis (SIX:NOVN) is likely to drop back after reporting a slight miss to its fourth quarter numbers, although it did predict 2020 growty, while Banco Santander (MC:SAN) posted a 35% increase in fourth-quarter net profit, boosted by a solid underlying performance in its main market Brazil.

The Federal Reserve concludes its two-day policy setting meeting Wednesday, and will announce its decision in a policy statement at 14:00 ET (1900 GMT), with the chairman holding a press conference 30 minutes later.

The Fed is widely expected to keep interest rates steady following December forecasts that showed no change in 2020, and is expected to reinforce the signal that policy is on hold.

Elsewhere, oil has posted gains. At 2:15 AM ET (0715 GMT), U.S. crude futures traded 0.9% higher at $53.98 and the international benchmark Brent contract rose 0.9% to $59.36. Gold futures for February delivery on New York’s COMEX were 0.2% lower at $1,567.45.