Wednesday June 15th


Stock futures rise as investors brace for a big Fed rate hike

U.S. stock index futures rose in early morning trading on Wednesday as investors anxiously awaited the Federal Reserve’s aggressive action to tame surging inflation. Futures on the Dow Jones Industrial Average were up 210 points, or 0.7%. S&P 500 futures edged up 0.9% and Nasdaq 100 futures jumped 1.1%. The S&P 500 suffered a five-day losing streak on Tuesday, dipping deeper into bear market territory. The equity benchmark has already fallen more than 4% this week already and is now off over 22% from its all-time time hit in early January. The blue-chip Dow slid about 150 points Tuesday, also falling for a fifth straight day Tuesday. The Nasdaq Composite ended Tuesday slightly higher. The moves come as investors await a decision on rate hikes from the central bank at the conclusion of its two-day meeting on Wednesday. The market is betting on a more than 95% chance of a 75-basis-point rate hike, the biggest increase since 1994, according to the CME Group’s FedWatch tool. (1 basis point equals 0.01%) The shift to price in a larger-than-usual rate hike came after headlines that Fed officials were contemplating such a move following a surprisingly hot inflation reading and worsening economic outlook. “The change in the headline from 50 basis points to 75 basis points reflects a stark reality but it also reflects the Fed’s determination to underscore its commitment to its mandate to maintain price stability,” said Quincy Krosby, chief equity strategist at LPL Financial. “It’s neither a trial balloon nor a lead balloon — it’s reality.” Fed Chair Jerome Powell will hold a press conference following the central bank’s policy decision. Investors will be monitoring his language and tone about the Fed’s tightening path forward. The central bank will also release its outlook for its benchmark rate, inflation and GDP. Treasury yields, which have jumped dramatically this week in anticipation of the big rate hike, pulled back on Wednesday. The two-year rate, most sensitive to changes in monetary policy, surged 40 basis points this week alone to hit its highest level since 2007. The benchmark 10-year yield popped more than 30 basis points to top 3.48%, a high not seen since April 2011. Some notable investors believe the central bank can regain credibility by acting aggressively to show its seriousness in combating inflation. The Fed “has allowed inflation to get out of control. Equity and credit markets have therefore lost confidence in the Fed,” wrote Pershing Square’s Bill Ackman in a tweet Tuesday. “Market confidence can be restored if the Fed takes aggressive action with 75 bps tomorrow and in July” and makes a commitment to aggressive increases until inflation “has been tamed.” Meanwhile, some traders anticipate more pain ahead for the markets. “We think risk assets will still have to correct lower and remain firmly risk-off in our tactical asset allocation,” wrote HSBC Global Research’s Max Kettner. “The very recent market obsession surrounding a “bear market rally” now appears to be something of a fad,” he added. Shares in China led gains in mixed Asia-Pacific trading on Wednesday following the release of better-than-expected Chinese economic data. The Shanghai Composite in mainland China climbed 0.5% to close at 3,305.41 while the Shenzhen Component advanced 0.948% to 12,137.76. Hong Kong’s Hang Seng index rose 1.14% to close at 21,308.21, as shares of Alibaba jumped 4.35%. Elsewhere in Asia-Pacific, the Nikkei 225 in Japan slipped 1.14% on the day to 26,326.16 while the Topix index dipped 1.2% to 1,855.93. South Korea’s Kospi fell 1.83% to 2,447.38. Oil prices fell on Wednesday on concerns about fuel demand and global economic growth before an expected big hike in interest rates by the U.S. Federal Reserve. Brent crude futures for August were down $1.27, or 1%, at $119.90 a barrel, in volatile trading. U.S. West Texas Intermediate crude for July fell $1.44, or 1.2%, to $117.49 a barrel. Gold prices rose 1% on Wednesday bolstered by a pullback in the U.S. dollar and U.S. Treasury yields, ahead of a potentially aggressive interest rate hike from the Federal Reserve. Spot gold climbed 0.9% to $1,824.80 per ounce by 1002 GMT while U.S. gold futures rose 0.8% to $1,827.30.