US equity futures struggled for direction on Wednesday after a stellar start to the year for stocks, as traders braced for the Federal Reserve policy meeting amid misgivings about the outlook for interest rates.
(Bloomberg) — US equity futures struggled for direction on Wednesday after a stellar start to the year for stocks, as traders braced for the Federal Reserve policy meeting amid misgivings about the outlook for interest rates.
Futures on the S&P 500 pared declines, while contracts on the Nasdaq 100 fluctuated after the tech-heavy gauge jumped more than 10% in a January rebound unseen in more than two decades. An index of global stocks excluding the US is making history with a gain of 8.6% last month — the best start to a year on record.
The rally has set equity markets up for a showdown with the Fed as traders position for a pivot which Chair Jerome Powell and his colleagues may not be ready to deliver. Wage cost data that undershot forecasts, a cooling housing market dwindling consumer confidence suggest the Fed’s rate hikes over the past year have begun to curtail inflation, but still-loose financial conditions are complicating the central bank’s task.
“The question is will the Fed emphasize a pause or push back against the easing being priced in for this year and the next,” said Steve Donzé, deputy head of investment at Pictet Asset Management in Tokyo. “The market is worried about this, because a lot of this rally was helped by softer yields and the dollar and if the Fed starts to fight the easing that’s priced in it will have consequences for the yield curve and equities.”
The 10-year Treasury yield fell about three basis points and a gauge of the dollar dipped before the Fed statement, where it’s forecast to unveil a 25 basis point rate increase.
Investors are also digesting a raft of company earnings. Among notable movers, Electronic Arts Inc. slumped more than 10% in premarket trading after cutting its full-forecast. Advanced Micro Devices Inc. climbed after robust earnings.
The Stoxx Europe 600 index held a modest gain after a report showed inflation in the euro area slowed more than economists’ expectations in January. The core measure remained sticky, however, suggesting heated debate to come at the European Central Bank over how much more interest rates must rise. The central bank is expected to lift its policy rate by 50 basis points on Thursday.
“Headline inflation continues to fall across the eurozone but core inflation, which strips out food and energy, flatlined,” said John Leiper, Chief Investment Officer at Titan Asset Management. “Price pressure, particularly in the services sector, will remain elevated for some time. Given the economy is holding up far better than predicted we expect the ECB to hike interest rates again on Thursday by a widely anticipated 50 basis points.”
Meanwhile, Adani Group stocks resumed their selloff after the share sale by the Indian conglomerate’s flagship firm failed to turn sentiment from Hindenburg Research’s fraud allegations. In one bright spot for the group, nearly all dollar bonds issued by Adani companies extended gains into a second day.
Elsewhere in markets, Bitcoin added slightly to its near 40% rally this year, with a test ahead when the Fed decision comes. Iron ore held near a seven-month high as major exporter Vale SA announced lower-than-expected fourth-quarter production, while oil edged higher. Crude oil edged higher.
Key events this week:
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- FOMC rate decision, Fed Chair Jerome Powell press conference, Wednesday
- Earnings Wednesday include: Meta Platforms and Peloton Interactive
- Eurozone ECB rate decision, President Christine Lagarde press conference, Thursday
- UK BOE rate decision, Thursday
- US factory orders, initial jobless claims, US durable goods, Thursday
- Earnings Thursday include: Alphabet, Apple, Amazon, Qualcomm and Deutsche Bank and Santander
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 7:27 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average fell 0.4%
- The Stoxx Europe 600 rose 0.3%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.0893
- The British pound was little changed at $1.2323
- The Japanese yen rose 0.3% to 129.73 per dollar
Cryptocurrencies
- Bitcoin rose 0.6% to $23,086.27
- Ether rose 0.2% to $1,581.3
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.49%
- Germany’s 10-year yield was little changed at 2.29%
- Britain’s 10-year yield declined three basis points to 3.31%
Commodities
- West Texas Intermediate crude rose 0.6% to $79.35 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson and Sujata Rao.
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