U.S. equity futures moved higher Wednesday as investors braced for what is likely to be the largest Federal Reserve rate hike in more than two decades alongside further details of its policy tightening over the coming months as inflation continues to run at the hottest pace since the early 1980s.
Stocks around the world, in fact, have been hit by aggressive rate signaling from global central banks over the past few months as surging oil prices, supply chain disruptions and rising employment costs boost underlying inflation pressures. The Reverse Bank of Australia unveiled its first rate hike in more than a decade on Tuesday, while European Central Bank Executive Board Member Isabel Schnabel indicated Wednesday that rates are likely to begin rising as early as July.
Still, the Fed’s actions, as well as its plans to reduce its $8.9 trillion balance sheet — a move that will likely add upward pressure to market-based interest rates — has lifted the U.S. dollar index 7.75% so far this year, to a near 20-year high of 103.408 against its global peers, while benchmark 10-year Treasury bond yields are testing the 3% level for the first time since late 2018.
Interest rate traders are widely anticipating a 50 basis points hike from the Fed at 2:00 pm Eastern time today, a move that would take the benchmark Fed Funds rate to a range of 0.75% to 1%, with Chairman Jerome Powell set to provide further tightening rhetoric against a backdrop of slowing growth — the U.S. economy contracted 1.4% over the first quarter — and the worst four-month start to any year for U.S. stocks since 1939.
The higher rates are also offering alternatives to stocks and other assets, including gold and cryptocurrencies, that have largely outperformed benchmarks since the 2020 pandemic.
Gold is down more than 9% from its early March highs, last trading at $1,867.50 per ounce, while bitcoin has failed to regain the $40,000 mark since late April.
On the flip side, global crude prices resumed their surge in overnight trading after the European Commission — the region’s executive branch — proposed a ban on all Russian crude imports, phased over the next six months, with a complete embargo on refined oil products put in place for the end of the year. Member states will need to agree the proposals before their put in place,
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WTI crude futures for June delivery were marked $4.13 higher in overnight trading to change hands at $106.54 per barrel, while Brent contracts for July delivery jumped $4.09 to trade at $109.06 per barrel.
In Europe, the region-wide Stoxx 600 was marked 0.48% lower in mid-day Frankfurt trading as investors kept risk appetite in check ahead of today’s Fed rate decision while the MSCI ex-Japan index in Asia fell 0.56% heading into the close of trading.
On Wall Street, futures contacts tied to the Dow Jones Industrial Average indicating a 137 point opening bell gain while those linked the S&P 500 priced for a 17 point advance.
Futures linked to the tech-focused Nasdaq are looking at 60 point opening bell gain, thanks in part to stronger-than-expected earnings from chipmaker Advanced Micro Devices (AMD) – Get Advanced Micro Devices, Inc. Report, which also said 2022 revenues should come in north of $26 billion, with a second quarter tally in the region of $6.5 billion, thanks to what CEO Lisa Su called the “premium, gaming and commercial portions of the (global semiconductor) market where we see strong growth opportunities and expect to continue gaining overall client revenue share.”
Moderna (MRNA) – Get Moderna, Inc. Report shares were also on the move, rising 7.7% after the drugmaker posted much stronger-than-expected first quarter earnings while re-affirming its full-year forecast for Covid vaccine sales.
Uber Technologies (UBER) – Get Uber Technologies, Inc. Report were active, falling 0.14% after it posted a wider-than-expected first quarter loss, but said it doesn’t expected rising costs linked to driver retainment to hold back near-term growth for bookings or profits.
The move contrasted with the 25% collapse for its smaller rival, Lyft (LYFT) – Get Lyft, Inc. Class A Report, which cautioned that rising costs and uneven demand would eat into its bottom line over the next three months.
CVS Health Corp. (CVS) – Get CVS Health Corporation Report shares, meanwhile, rose 1.6% after it posted better-than-expected first quarter earnings, while boosting its full-year profit guidance, as Aetna continued to power gains in the group’s healthcare benefit division and retail traffic held up well despite slowing Covid testing and vaccinations.
Starbucks (SBUX) – Get Starbucks Corporation Reportshares surged 6.55% after the world’s largest coffee chain posted stronger-than-expected first quarter sales thanks to what returning CEO Howard Schultz called “relentless” domestic demand.