Dow futures +0.2 % at 33211
S&P futures +0.2% at 4187
Nasdaq futures +0.16% at 13112
FTSE -0.2% at 7536
Dax +0.15% at 14034
Euro Stoxx -0.24% at 3750
50 basis points rate hike expected
US stocks are set to open modestly higher on Wednesday ahead of the Federal Reserve’s interest rate decision later in the session, which is likely to set the tone for the markets for the coming weeks.
The market has priced in a 50 basis point rate hike, so the focus is on the outlook. How aggressive will the Fed be hiking rates and trimming its balance sheet over the coming months? This is what will dictate where the market goes from here.
The labour market remains tight, which gives the Fed leeway to front-load the rate hikes. Data revealed over 11.5 million vacancies and with ADP private payrolls adding 247k news jobs. Although this was down from 479k in March and missed the 395k forecast, it is still a solid reading.
Should the Fed adopt a more hawkish stance with more outsized rate hikes, the USD could drive higher, and stocks are likely to come under pressure. Higher borrowing costs slow earnings and growth.
In corporate news:
Advanced Micro Devices jumped 6% premarket after reporting massive sales growth in the quarter.
Airbnb is also set to rise on the open after forecasting a robust second quarter on expectations that travel will rebound this summer.
Lyft is set to fall sharply on the open after a weaker than expected outlook amid plans to spend more on driver incentives.
Where next for the Nasdaq?
After rising to 15275, the Nasdaq has been trading in a falling channel, breaking below the 50 SMA and 14000 psychological levels. Sellers need to break below 12950 and 12800 to continue the bearish trend. On the flip side, any recovery would need to retake last week’s high of 13530 and the January low of 13730 to expose the 50 sma at 14000.
FX markets USD falls, EUR edges higher.
USD is edging lower for a second straight day as investors remain focused on the Fed interest rate announcement later today.
GBP/USD is rising but unconvincingly as investors await central bank decisions from both the Fed and the BoE tomorrow. There are concerns that the UK economy can’t absorb much more in terms of hikes without being pushed into a recession. These concerns are likely to keep gains in the pound limited.
EUR/USD is edging higher in lackluster trading around 1.05. News of the latest EU sanctions and weaker than excepted retail sales are limiting gains in the euro. Retail sales fell by -0.4% MoM in March after rising 0.4% in February, amid signs that record-high inflation is impacting consumer habits.
GBP/USD +0.08% at 1.2507
EUR/USD +0.06% at 1.0520
Oil jumps on EU oil embargo news.
On Wednesday, oil prices are charging higher after the EU proposed the sixth round of sanctions, including a phased oil embargo on Russia.
The Russian oil embargo would come in over six months with the exemptions for Hungary and Slovakia until 2023. Europe, which is highly dependent on Russian oil and gas, now must find alternative supplies.
The EU has finally pulled the trigger bringing into fruition what the market has been fearing since the start of the war. However, it has been done with a reasonable time frame in mind to prevent a supply shock. Even so, the latest developments will keep the oil prices on a trajectory towards $110.
Also, let’s not forget that the news comes following API data which revealed a larger than expected draw on inventories, underscoring concerns over supply.
WTI crude trades +3.5% at $105.35
Brent trades +3.4% at $108.52
15:00 US ISM services PMI
18:00 Fed rate decision