Futures edge lower as investors await Fed rate hike clues

By Thomson Reuters Aug 24, 2022 | 6:26 AM

(Reuters) – U.S. stock index futures slipped on Wednesday as recent economic data fueled fears of a slowdown ahead of the Federal Reserve’s annual conference this week where the central bank is expected to reinforce its commitment to getting inflation under control.

Wall Street indexes posted losses in the past three sessions after a summer rally in markets was halted by growing concerns of a hawkish stance by the Fed, an energy crisis in Europe and signs of economic slowdown in China.

Investor focus will be on the Jackson Hole symposium which begins on Thursday and remarks from Fed Chair Jerome Powell the day after for clues on whether the central bank can achieve a “soft landing”.

“We expect Powell and the other main central bankers are going to take a rather hawkish tone,” said Joseph Little, chief global strategist at HSBC Asset Management.

“They have to acknowledge the fact that the economy is slowing and the pathway to a ‘soft landing’ in the U.S. is getting narrower and narrower by the day, but the primary focus is making sure that inflationary pressures are pushed out of the system.”

Traders are split between expecting a 50-basis point hike and a 75-basis point hike by the central bank. [FEDWATCH]

Markets had bounced back from bear market lows on better-than-expected results from corporate America and data suggesting that inflation may have peaked, but fears of an aggressive Fed snapped the summer rally last week.

The S&P 500 has recovered 13% from its mid-June lows. The benchmark index will end the year a little above its current level, according to a Reuters poll.

Meanwhile, surveys on Tuesday showed the global economy is increasingly at risk of sliding into recession as consumers faced with generation-high inflation rein in spending, while central banks are tightening policy aggressively.

U.S. private-sector business activity contracted for a second straight month in August to its weakest in 27 months with particular softness in the services sector as demand weakened.

At 06:39 a.m. ET, Dow e-minis were down 9 points, or 0.03%, S&P 500 e-minis were down 0.5 points, or 0.01%, and Nasdaq 100 e-minis were down 5.5 points, or 0.04%.

“Traders are reluctant to raise their exposure, afraid of getting run over by a more forceful Fed,” Marios Hadjikyriacos, senior investment analyst at XM, said.

U.S. Treasury bond yields have retreated slightly after rising for three straight sessions, but remain near multi-week highs weighing on many megacap growth and technology stocks in trading before the bell.

Nordstrom Inc tumbled 14% after the retailer cut its annual revenue and profit forecasts, a sign that decades-high inflation was squeezing consumer spending on its high-end clothing and footwear.

Intuit Inc gained 5.5% after the accounting software maker forecast upbeat fiscal 2023 revenue.

Oil majors Exxon Mobil Corp and Chevron Corp rose 0.8%, tracking crude prices, after Saudi Arabia suggested this week that OPEC could consider cutting output.

(Reporting by Bansari Mayur Kamdar, Devik Jain and Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)