US Stock Market Overview – Stock Trade Mixed Ahead Central Bank Decisions

US stocks were mixed on Monday as the Nasdaq and S&P 500 moved lower and the Dow Industrials bucked the trend. Traders are preparing for a deluge of central bank decision this week, headlined by the US Federal Reserve. The Fed is widely expected to cut interest rates for the first time since 2008. The Fed has faced consistent criticism from US President Donald Trump who balance the lack of growth on Federal Reserve restrictive policy. The BOJ will also meet and is expected to keep rates unchanged, but could take its cues from the Fed.

The Fed is Boxed in a Corner

Despite stronger than expected economic data released in the US over the past 2-weeks, the Fed appears to be boxed into cutting rates by 25-basis points. The press conference following the meeting is likely to be the catalyst that will drive the markets. Uncertainty was the key word used to describe the economic backdrop. Global markets are sliding likely to US tariffs, which eventually became bilateral. With the number one and number two economies dueling for supremacy, Trump has pulled out all the guns to try to rectify the issue ahead of the campaign season.

While growth has been solid the Fed cant point to the fact that inflation and market-determined interest rates are still lower than some of their models would have forecast, given years of strong hiring and solid economic growth. The Feds mandate is full employment and price stability. With inflation below the target of 2% the Fed does have some room to ease slightly. Moreover, some officials believe the rate needs to be even lower now to provide an extra cushion as the global economy sputters.

Former Federal Reserve Chair Janet Yellen was on the tape on Monday saying that she supports a 25-basis-point cut in the central bank’s benchmark interest rate . That’s despite recent economic data indicating that the U.S. economy is still going strong. GDP rose by 2.1% Friday which was more than expected.

Pfizer and Mylan Merge Drug Business

Pfizer Inc. agreed to merge its off-patent drugs business with Mylan Labs creating a new company that will be one of the world’s biggest sellers of lower-priced medicines. Shareholders of Pfizer will own 57% of the new, business, and the rest of it will be owned by shareholders of Mylan. Sales have slowed at each of the two businesses. Mylan said its own second-quarter sales totaled $2.85 billion, an increase of 2% from a year ago.

The Bank of Japan is Expected to Leave Rates Unchanged

The BOJ meets on Tuesday and expected to keep rates unchanged. There is speculation that Governor Kuroda could reinforce the forward guidance.  Inflation remains subdued but June Japanese retail sales held in a bit better than expected.  Sales were flat in June though economists expected around a 0.3% decline. The sales tax will be hiked in October, which could put additional pressure on sales.