Wall Street is set to open modestly lower Tuesday ahead of a key question-and-answer session from Fed Chair Jerome Powell later in the session.
Updated at 8:42 am EST
U.S. equity futures traded lower Tuesday, while the dollar held steady on foreign exchange markets are Treasury yield nudged higher, as investors hit pause on a two-day sell off on Wall Street ahead of a key address from Fed Chairman Jerome Powell later in the session.
Global markets are, for the most part, still reeling from Friday’s blowout jobs report, which showed a net new 517,000 positions created last month and a fresh five-decade low unemployment rate of 3.4%.
The reading, alongside stronger-than-expected activity in the services sector — the principal driver of GDP growth — forced traders to re-set both their near term inflation forecasts as well as their assumptions for Fed rate hikes, which markets now suggest could take the terminal Fed Funds rate to as high as 5.15% over the coming months.
That view was echoed by Atlanta Fed President Raphael Bostic last night, when he told Bloomberg TV that, should firmer economic data persist, the Fed will “probably mean we have to do a little more work” in terms of rate hikes.
The CME Group’s FedWatch suggests both a 96.7% chance of another 25 basis point rate hike from the Fed next month in Washington, with bets on a follow-on move in May — that would take the Fed Funds rate to a range of between 5% and 5.25% — rising to around 70%.
An overnight hike from the Reserve Bank of Australia, its ninth in succession, paired with hawkish comments from policymakers in the U.K. and Europe, was also a reminder that central banks have not given up on their inflation fight, putting extra emphasis on Powell’s speech later in the session.
Bond yields were back on the rise in early New York trading, with benchmark 10-year notes trading at 3.662%, the highest since January 6, while 2-year notes pegged at 4.454%.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was up 0.2% at 103.826 and helping stock futures bump slightly higher ahead of President Joe Biden’s State of the Union address later this evening in Washington.
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Powell will participate in a question-and-answer session at the Economic Club of Washington, D.C., at 12:40 pm eastern time as markets look to validate their conversion to the central bank’s months-long rate path signals.
The Fed Chairman has long insisted that investors have underestimated the level at which the central bank will need to raise rates in order to tame some of the fastest inflation rates in decades, noting that wage increases and prices pressures in the services sector remain unaffected by its early rate hikes.
However, Powell also chose not to push back against market expectations last week, when the Fed lifted its benchmark rate for an eighth consecutive meeting, preferring instead to highlight the various pockets of ‘disinflation‘ now emerging in various sectors of the economy.
Futures tied to the S&P 500 were marked for a 6 point opening bell decline while those linked to the Dow Jones Industrial Average are set for a 92 point dip. The tech-focused Nasdaq was marked 2 points lower.
Oak Street Health (OSH) – Get Free Report shares were a notable early mover, soaring more than 32% following a report that the primary care center operator is close to agreeing a $10.5 billion takeover by drug store and pharmacy benefits giant CVS Health (CVS) – Get Free Report.
Bed Bath & Beyond (BBBY) – Get Free Report, meanwhile, slumped 32.6% after the struggling home retailer said it will raise around $1 billion from a preferred stock sale as it looks to avoid an imminent Chapter 11 bankruptcy filing.
Activision Blizzard (ATVI) – Get Free Report shares were also active, rising 2.6% after the video game maker posted stronger-than-expected fourth quarter sales, thanks in part to the success of its ‘Call of Duty’ franchise over the holiday season.
In overseas markets, Europe’s Stoxx 600 was marked 0.25% higher in early Frankfurt trading while a big gain for oil giant BP, which posted record 2022 profits of $27.6 billion helped lift the FTSE 100 by around 0.52% in London.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.2% higher into the close of trading while the Nikkei 225 slipped 0.03%.
