US Futures Lower as Fed Worries Outweigh Earnings: Markets Overview

(Bloomberg) — U.S. stock index futures fell as concerns about aggressive interest rate hikes by the Federal Reserve outweighed robust corporate earnings and China’s stimulus plans.

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September contracts for the S&P 500 fell 0.3 percent after the stock benchmark posted modest gains on Tuesday amid a rally in retail stocks. Nasdaq 100 futures were down 0.5%, signaling that the sell-off in tech names will continue. The dollar and government bond yields rose as investors awaited minutes from the Fed’s latest policy meeting for clues about policymakers’ sensitivity to weaker economic data.

U.S. stocks rose after signs of peak inflation and an earnings season in which four out of five companies met or beat estimates. Still, the continued rise in interest rates and the likelihood of a recession in the world’s largest economy are weighing on sentiment. Meanwhile, concerns are growing that the Fed’s rate-setters will remain focused on fighting inflation rather than supporting growth.

“We expect the FOMC minutes to have a hawkish slant,” Carol Kong, strategist at Commonwealth Bank of Australia Ltd., wrote in a note. “We would not be surprised if the minutes show that the FOMC is considering a 100 basis point hike in July.”

Shares rose in Asia earlier on Wednesday amid speculation that China may implement more stimulus to prop up its ailing economy. After a string of weak data triggered by a slump in the property sector and Covid-19 curbs, Chinese Premier Li Keqiang asked local officials from six key provinces, which account for 40% of the economy, to step up growth measures.

Some of those equity gains were relinquished as European trade opened and the focus turned to the Fed, as well as UK inflation, which jumped to double digits for the first time in four decades. The European Stoxx 600 was trading weak.

The S&P 500 edged up slightly on Tuesday, helped by earnings reports from retailer Walmart Inc. and Home Depot Inc.

The dollar rose on Wednesday. Treasuries fell, with the 10-year yield adding 6 basis points and the two-year yield climbing five basis points. The spread between these two yields remained inverted at around 45 basis points.

Oil fluctuated between gains and losses and was in sight of a more than six-month low – reflecting lingering worries about a tough economic outlook amid high inflation and tightening monetary policy.

Inflation remains the most closely watched indicator in the second half of the year. Will it gradually decline or remain elevated, forcing the Fed to continue raising rates aggressively? Have your say in the anonymous MLIV Pulse survey.

Here are some key events to watch this week:

  • Federal Reserve minutes from July, Wednesday

  • UK CPI, US Retail Sales, Wednesday

  • Unemployment in Australia, Thursday

  • US existing home sales, initial jobless claims, leading Conference Board index, Thursday

  • Fed’s Esther George, Neal Kashkari speak at separate events, Thursday

Some of the major moves in the markets:

Stock up

  • The Stoxx Europe 600 was little changed at 9:11am London time

  • S&P 500 futures fell 0.3%

  • Nasdaq 100 futures fell 0.5%

  • Dow Jones Industrial Average futures fell 0.2%

  • MSCI Asia Pacific Index rose 0.4%

  • MSCI Emerging Markets rose 0.2%

Currencies

  • The Bloomberg Dollar Spot index rose 0.2%

  • The euro was little changed at $1.0161

  • The Japanese yen fell 0.4 percent to 134.82 per dollar

  • The offshore yuan was little changed at 6.7899 per dollar

  • The British pound was little changed at $1.2087

Bonds

  • The 10-year Treasury yield rose six basis points to 2.87%

  • Germany’s 10-year bond yield rose seven basis points to 1.04%

  • Britain’s 10-year bond yield advanced 10 basis points to 2.22%

Goods

  • Brent crude fell 0.6% to $91.80 a barrel

  • Spot gold fell 0.2% to $1,772.50 an ounce

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