Stocks are trending higher Wednesday, but volumes are likely to remain muted ahead of the Fed’s highly-anticipated interest rate decision at 2:00 pm Eastern time.
U.S. equity futures edged higher in pre-market trading Wednesday as investors dug in for what could be a crucial Fed rate decision while edging towards safe-haven assets following a Russian effort to mobilize troops for its war on Ukraine.
In a speech aimed at boosting the number of soldiers for the country’s military campaign in Ukraine, President Vladimir Putin accused western leaders of ‘nuclear blackmail’ and insisted that Russia had the weaponry to reply to any perceived threats.
The escalated rhetoric, less than a week after reports suggested a pullback of Russian troops in southern Ukraine, rattled global markets, triggering a jump in the U.S. dollar and a surge higher in oil prices.
WTI futures for November delivery were marked $2.50 higher at $86.44 per barrel in overnight trading, while the dollar index rose 0.31% against a basket of its global peers to trade at 110.561.
Benchmark Treasury bond yields, which move in the opposite direction of prices, were modestly lower as investors plowed cash into riskless assets, pulling 2-year notes 5 basis point lower to 3.944%.
Those moves may not last through today’s session, however, with the Federal Reserve slated to unveil its September rate decision at 2:00 pm Eastern time, following by a question-and-answer session with the media 30 minutes later in Washington.
The CME Group’s FedWatch tool suggests an 84% chance of a move that will take the Fed Funds rate to a range of between 3% and 3.25%, with much smaller bets on an outsized hike of 100 basis points, fueled in part by last week’s hotter-than-expected August inflation reading of 8.3%.
However, with the core measure of the Fed’s preferred inflation gauge, the PCE Price Index, showing signs of retreat, and the Fed’s rate signaling suggesting a least another 1% to 1.25% in hikes between now and the end of the year, investors may look for comments from Chairman Jerome Powell as to when, rather than if, the Fed will begin considering a pause in monetary tightening.
“The market is split on tonight’s FOMC decision but consensus among economists is still a 75 basis point rake hike,” said Saxo Bank strategists in their daily investor update. “We argued yesterday that if the Fed wants to tighten financial conditions a lot they need a surprise which argues for a 100 basis point hike. In any case, the guidance in the dot-plot and the subsequent press conference will be key for equity sentiment in the near-term.”
The prospect of hawkish rate signaling later this week from the Bank of England, the Swiss National Bank and the Bank of Japan, however, is likely to keep rate elevated and stocks on the back foot.
In Europe, however, the Stoxx 600 was marked 0.4% higher in early Frankfurt trading as the single currency eased to 0.9917 against the greenback. That followed a 1.4% decline for the MSCI ex-Japan index in Asia as stocks in China sunk to a four-month low on growth concerns in the world’s second-largest economy.
On Wall Street, futures contracts tied to the S&P 500 are indicating a 4 point opening bell bump while linked to the Dow Jones Industrial Average are priced for a 75 point gain. Futures tied to the tech-focused Nasdaq are indicating a 2 point move to the downside.
Beyond Meat (BYND) – Get Beyond Meat Inc. Report shares were a notable move in an otherwise quiet pre-market session, falling 1.7% after the plant-based food group suspended a senior executive following his arrest for a violent incident over the weekend.
Stitch Fix (SFIX) – Get Stitch Fix Inc. Report shares were also deeply in the red, falling nearly 9% trading after the online fashion retailer posted a wider-than-expected fourth quarter loss and forecast muted near-term revenue growth.
U.S. gasoline prices were also in focus after rising for the first time in more than three and a half months and snapping a near 100 day run of declines, amid an overnight leap in crude oil prices.
Data from the American Automobile Association indicates the national average pump price rose by less than a penny, to $3.681 per gallon, ending a streak of 98 consecutive days of declines, the longest downward stretch since 2005.
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This story was originally published September 21, 2022 7:13 AM.
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