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Stock index futures were lower Wednesday as investors braced for the Fed decision and chief Jay Powell’s press conference.
S&P futures (SPX) -0.4%, Nasdaq 100 futures (NDX:IND) -0.4% and Dow futures (INDU) -0.5% fell after a risk-on rally in the previous session.
“After a very positive January, the start of February today marks a pivotal three days for markets that have the potential to decisively set the tone for the weeks ahead,” Deutsche Bank’s Jim Reid wrote.
“The last time we had a big round of central bank meetings like this in December, the rate hikes themselves were much as expected, but the hawkish rhetoric alongside them led to a big selloff,” Reid said. “Nevertheless, the mood going into this round is much more optimistic, with the S&P 500 closing at a 2-month high after the US Employment Cost Index numbers showed labor costs grew by less-than-expected.”
The market is pricing in a near-certainty the FOMC will cut rates by 25 basis points this afternoon.
The bigger question is whether this will be the last hike in the cycle. Given Tuesday’s late rip, traders are positioning for a one-and-done announcement.
Today’s hike should be the last, but there won’t be a clear Fed signal of that, Pantheon Macro’s Ian Shepherdson said.
A “wholesale retreat from the Fed’s hawkishness is unlikely; that will have to wait until the March meeting, by which time the Fed will have seen two more rounds of the key growth and inflation data,” Shepherdson added.
“In short then, we think the Fed will soon have no choice but to back away from its unrelentingly hawkish message.”
There will be more economic data to consider before the Fed releases its statement, with the big focus on the labor market.
From a Fed perspective the December JOLTS numbers, out shortly after the start of trading, likely hold the most interest given the stubborn labor market strength. Economists expect job openings to drop to 10.25M.
“The survey response rate for this (JOLTS) data has collapsed, making the quality questionable,” UBS’ Paul Donovan said. “The vacancy number does not report actual vacancies, only externally advertised vacancies. Hiring rates are very high, suggesting a lot of the ‘vacancy’ rise post pandemic has been about people changing company.”
Before the bell ADP issues its January private payrolls figures, with the consensus for a rise of 178K, down from 235K.
After the start of trading two manufacturing measures arrive. The S&P Global manufacturing PMI for January is forecast to stay steady at 46.8. The January ISM index is expected to dip to 48.
Among active stocks, AMD (AMD) rallied post-earnings. Meta (META) and Pinterest (PINS) fell in sympathy with Snap (SNAP) after the latter’s weak earnings and guidance.
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