Why Rising Oil SPDR Indices Offset Negative Fed Policy Expectation



US markets moderate ahead of FOMC release

US stocks gained this morning after better-than-expected earnings results as investors were trading cautiously ahead of tomorrow’s FOMC (Federal Open Market Committee) meeting. The tone of the upcoming policy will offer hints about further interest rate movements as investors get ready to trade on the market guidance for the June meeting. A big question for investors will be how many times rates are anticipated to rise in 2016.

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As of 12:30 PM EST on April 26, the S&P 500 VIX Index had dropped 1.5% while the S&P 500 Futures Index had risen 0.21%. The NASDAQ Futures and the Dow Jones Industrial Average were trading flat as of the same time. The markets were trading lower yesterday on the dovishness expected from the Fed meeting. A rise in global commodity markets was positive against the negative sentiment. The US dollar index fell 0.25%, leading to gains in crude prices. The United States Oil ETF (USO) rose 2.4% during the day at 12:30 PM EST.

Service PMI rises, consumer confidence falls

The services PMI (purchasing managers’ index) released by Markit came in at 52.1 for April, slightly below estimated forecasts of 52.3 but higher than the previous month’s release of 51.3. However, consumer confidence from the Conference Board fell to 94.2 in April versus 96.1 in March, underlying concerns in the economy with respect to growth momentum in the short term.

Impact on ETFs across sector SPDR indexes

That being said, the majority of the SPDR ETFs were trading positively as of 12:30 PM EST today, following the recovery in crude prices and rising services PMI. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) was the outperformer among the major sector-specific ETFs, rising 2.3%. The Energy Select Sector SPDR ETF (XLE) rose 1.3% as of the same time on Tuesday.

Meanwhile, the SPDR S&P Metals & Mining ETF (XME) and the Industrial Select Sector SPDR ETF (XLI) rose 0.93% and 0.61%, respectively, while the Financial Select Sector SPDR ETF (XLF) rose 0.68%.


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