US stock futures stabilize as fears of inflationary fallout resurface

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U.S. equity futures signaled a slow start on Thursday as investor concerns about central bank rate hikes resurfaced.

How stock index futures are traded
  • S&P 500 ES00 futures contracts,
    +0.13%
    fell 5 points, or 0.1%, to 4,271

  • Futures contracts Dow Jones Industrial Average YM00,
    +0.09%
    fell 13 points, or 0.1%, to 33,950

  • Nasdaq 100 NQ00 futures,
    +0.15%
    fell 8 points, or 0.1%, to 13,486

On Wednesday, the Dow Jones Industrial Average DJIA,
-0.50%
fell 172 points, or 0.5%, to 33,980, the S&P 500 SPX,
-0.72%
fell 31 points, or 0.72%, to 4,274, and the Nasdaq Composite COMP,
-1.25%
fell 164 points, or 1.25%, to 12,938. The Nasdaq Composite is up 21.5% from its mid-June low but remains down 17.3% for the year nowadays.

What drives the markets?

The S&P 500, Wall Street’s benchmark, mid-week was up more than 17% from its mid-June low as investors grew more optimistic that a deceleration in the upside consumer prices could allow the Federal Reserve and its peers around the world to be less aggressive. in rising borrowing costs.

However, the rebound has seen stock indices look overbought, according to momentum gauges like the S&P 500’s 14-day relative strength index, and that has left them vulnerable to disappointment.

Effectively, the resurgence of concern over the central bank’s monetary policy tightening is being used as an excuse to take profits.

“After a very strong run into risky assets thanks to a narrative that we may have seen ‘spike inflation’, Wednesday brought that to an end as several headlines crossed that poured cold water on the prospect that central banks were about to let go of a rate hike,” said Henry Allen, macro strategist at Deutsche Bank.

A hawkish interest rate decision by New Zealand’s central bank on Wednesday was followed by UK inflation rising above 10% for the first time in more than 40 years, the latter triggering a rout in short-dated, price-sensitive bonds. policy as traders assessed more rate hikes by the Bank of England.

Then, later in the global trading session, traders scrambled to absorb the Fed’s final minutes. Investors who were hoping for any indication that Chairman Jay Powell and his colleagues might be a little more accommodating were disappointed. The Fed will continue to tighten policy until it finds that inflation is “firmly on the way back to 2%,” according to the minutes.

“The best approach is for the FOMC to stay on message with its forecast until that forecast changes. Failure to do so allows the market to run wild with its own imagination. The central bank has spent the last three weeks trying to drive the market back from dovish pivot speculation,” Mike O’Rourke, chief market strategist at Jones Trading, said in a note to clients.

These factors continued to reverberate on Thursday, with Norway’s central bank giving the narrative a further boost by raising rates by 50 basis points to 1.75%.

Yields on US government bonds, which jumped on Wednesday as inflation worries grew, were a little lower at the start of the new session, the 10-year TMUBMUSD10Y,
2.886%
down 1 basis point to 2.89%.

The data to be released Thursday includes initial jobless claims as of 8:30 a.m. Eastern time and existing home sales as of 10 a.m. Eastern time.

Nathan Sheets, chief global economist at Citi, said that while financial markets have become more positive lately, “we remain concerned about the underlying fundamentals of the global economy. Our view is that economic performance will be likely undermined by high inflation, slowing real GDP growth and rapid monetary policy tightening for some time to come.

Related: Expect continued recessions as Citi cuts economic forecast

How are the other assets doing?
  • Oil futures were higher with US crude CL.1,
    +1.32%
    up 1% to $88.98 a barrel.

  • The ICE Dollar DXY Index,
    +0.09%
    rose 0.2% to 106.75, although gold GC00,
    +0.34%
    ignored that to add 0.2% to $1,779 an ounce.

  • BitcoinBTCUSD,
    +0.64%
    advanced 0.2% to $23,463.

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