U.S. stock index futures pointed to a higher start for Wall Street on Wednesday, as investors debated whether the Federal Reserve will later deliver the largest interest rate hike in 30 years.
How are stock-index futures trading?
-
S&P 500 futures
ES00,
+0.98%
rose 0.8% to 3,769.75. -
Dow Jones Industrial Average futures
YM00,
+0.74%
were up 194 points, or 0.6%. -
Nasdaq-100 futures
NQ00,
+1.31%
jumped 114.75 points, or 1%.
Stocks ended mostly lower on Tuesday, with the Dow
DJIA,
and S&P 500
SPX,
posting their lowest closes since early 2021, while the Nasdaq Composite
COMP,
rose 0.2%.
What’s driving the market
The Federal Reserve will announce a decision on interest rates at 2 p.m. Eastern Time, followed by a news conference with Chairman Jerome Powell at 2:30 p.m. ET.
Investors are juggling expectations for an interest rate hike of 50 basis points or even 75 basis points, which Goldman Sachas and JP Morgan economists are now expecting. The latter would mark the biggest such increase in nearly 30 years.
Surprisingly strong May consumer-price inflation data released last week, struck a blow to those hoping that price rises had peaked. It also sparked a fresh rout for stock markets and other assets, pushing the S&P 500 index into bear-market territory, amid concerns more aggressive Fed action would drive the U.S. into a recession.
“If the Fed surprises with a 50bp hike, the market will certainly rebound on relief. But the Fed’s primary goal is to tame inflation right now, and not to boost the equity markets. And depressed market conditions seem necessary in achieving that goal,” said Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients.
“Now that the 75bp pill has been swallowed by the market, it would be irrational for the Fed not to go ahead with a bigger hike,” she said.
Not everyone is convinced investors would be relieved by a half-point move.
A 50 basis point move, in theory, should cause a rally in stocks, “but this is genuinely unclear,” said Chris Weston, head of research at Pepperstone in Australia. “The market could easily see a risk that the Fed is falling further behind the inflation curve and going into further risk aversion mode.”
Read: A 75-basis-point hike? Here are 3 ways the Fed can sound more hawkish this week
Also see: A 75-basis point Fed move is not a slam dunk, former staffer says
Data showed U.S. retail sales fell by 0.3% in May, below forecast, while sales minus autos rose 0.5%. Excluding autos and gas, sales rose 0.1%.
The S&P 500 has lost 10.2% over the past five trading days, the worst percentage such decline since March 2020, when the pandemic was unfolding in the U.S.
Stealing some spotlight from Fed decision day was a surprise announcement by the European Central Bank, which held an emergency meeting on Wednesday to “discuss current market conditions.”
The ECB said it would use reinvestments from its expired pandemic emergency purchase program, or PEPP, combat the widening of spreads between yields of highly indebted countries and core countries like Germany, while working to fashion a new instrument designed to fight “fragmentation” of its monetary policy efforts. Economists had widely predicted that markets would test the ECB after policy makers last week failed to concretely address fragmentation worries.
See also: ECB failure to address ‘fragmentation’ threat raises risk of steep bond-market selloff: economists
News of the rare ad hoc ECB gathering, which comes just a week after the central bank’s meeting, helped drive Italian bond yields lower and rallied the euro
EURUSD,
and European stocks
SXXP,
The Governing Council’s meeting reportedly began around 11 a.m. CET, 5 a.m. Eastern.
U.S. Treasury yields were also pulling back, with that of the 10-year note
TMUBMUSD10Y,
down 11 basis points to 3.37%.
Gold prices
GC00,
rose $12.20, or 0.7%, to $1,825.70 an ounce and oil prices
CL00,
fell 1.3% to $117.32 a barrel.