9.40am: Caution ahead of Fed minutes
US stocks edged modestly higher at the open on Wednesday ahead of the highly-anticipated release of the minutes from the Federal Reserve’s latest rate-setting meeting, which investors hope will provide additional clues as to the path of future interest rate hikes.
Just after the market opened, the Dow Jones Industrial Average had added 55 points or 0.2% at 33,184 points, the S&P 500 was up 8 points or 0.2% at 4,004 points, and the Nasdaq Composite had gained 45 points or 0.4% at 11,542 points.
FOREX.com market analyst Fiona Cincotta said, while January proved to be a strong month for US equities, February has been a flop with the S&P 500 down almost 2% so far this month.
“A series of stronger-than-expected US economic data, including hotter-than-expected inflation, a blowout jobs report, and a rebound in business activity to an eight-month high, has fuelled bets that the Federal Reserve will need to raise interest rates higher for longer in order to tame inflation,” Cincotta said.
She added that investors would be scrutinizing the Fed minutes for clues as to how much support there was for a 50 basis point rate hike at the February meeting.
“This comes after two hawkish policymakers have recently said they would prefer a return to outsized hikes,” she said. “Any sense of a more hawkish stance at the Fed could pull stocks and gold lower while lifting the USD.”
Cincotta also highlighted that it was worth keeping in mind that the stronger economic data was released after the February Fed meeting took place. “As a result, the market may consider that the meeting minutes are already outdated,” she explained.
6.30am: All eyes on the Fed
US stocks are expected to start little changed on Wednesday, nursing the previous session’s sharp falls as traders brace for the release of minutes from the Federal Reserve’s latest meeting and more insight on the central bank’s future policy agenda.
Futures for the Dow Jones Industrial Average (DJIA) added just 0.01%, while those for both the S&P 500 and Nasdaq-100 fell marginally, down 0.01%.
The Nasdaq Composite led the losses on Tuesday, falling 2.5%, while the S&P 500 slumped 2.0%, and the DJIA dropped 2.1% and turned negative for the year.
Mounting concerns that the Fed will continue hiking rates spooked investors and pushed stocks to their worst day of 2023. A slew of earnings reports, including disappointing results from Home Depot, also sparked concerns about the health of the consumer.
Attention now shifts toward the Fed minutes due out at 2.00pm ET on Wednesday, which investors will pour over for clues to the central bank’s future rate hiking path after its recent 25 basis point increase.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank commented: “We know that the Fed officials will sound concerned with the strong jobs market and will point at the resilience of the economy to continue hiking the rates.
“So, the chances are that the minutes will be hawkish, and could further weigh on sentiment. But there is always a chance that the market sees the glass half full than half empty.”
“But,” she added, “the negative correlation between stocks and bonds, after stocks rallied and bonds fell – the exact opposite of what we have predicted at the start of the year – may be coming to an end, as in the absence of recession talk, the Fed expectations will continue driving markets, and the increasingly hawkish Fed expectations are bad for both stock and bond valuations.”
The US corporate earnings season rolls on with results due later from Etsy, Nvidia and Baidu.
Among the early movers pre-market, shares of Palo Alto Networks rose after the cybersecurity company lifted its earnings forecast for the year and crypto exchange platform Coinbase was flat to lower despite topping revenue expectations.