Here are five things you must know for Wednesday, December 15:
1. — Stock Futures Steady Ahead of Crucial Fed Policy Decision
U.S. equity futures edged traded mixed Wednesday, with investors keeping risk appetite in check ahead of perhaps the the most crucial Federal Reserve policy meeting in at least two years.
Markets are expecting a hawkish tone to today’s statement, expected at 2:00 PM Eastern time, with bets on an accelerated timeline for reducing the pact of its $90 billion in monthly bond purchases and hints of a mid-2022 rate hike as inflation continues to surge past previous targets.
Investors have also had to navigate some conflicting overnight data, as well, including a big miss on November retail sales in China and the fastest reading of U.K. inflation in at least 10 years. Add more Omicron concerns to the mix — alongside a warning on its virulence from the World Health Organization — and its easy to understand why markets reluctant to extend risk ahead of the Fed statement.
“Omicron is spreading at a rate we have not seen with any previous variant,” WHO Director-General Tedros Adhanom Ghebreyesus told reporters. “Even if Omicron does cause less severe disease, the sheer number of cases could once again overwhelm unprepared health systems.
On Wall Street, futures contracts tied to the Dow Jones Industrial Average are indicating a modest 10 point opening bell gain while those tied to the S&P 500 are priced for a 2 point dip. Futures tied to the tech-focused Nasdaq Composite — which has fallen 2.5% over the past two days — are indicating a 50 point decline at the start of trading as benchmark 10-year Treasury note yields hold at 1.432% in overnight trading.
2. — Fed To Come Out Hard in Inflation Fight; Spring Rate Hikes In Sight
Federal Reserve Chairman Jerome Powell paired his re-nomination as the country’s top central banker last month with the most hawkish turn of his four-year term, a move that has investors betting on a faster pace of tapering, and quicker rate hikes, ahead of today’s policy meeting.
Both consumer price and factory gate inflation readings came in at the fastest pace in nearly 40 year last month, powered by a combination of energy price surges, supply chain disruptions and labor market tightness.
That’s not only pushed the Fed into changing its view on futures inflation readings — Powell himself said it was time to retire the word “transitory” — but also has traders betting on near-term rate hikes.
The Fed has already reduced its $120 billion in monthly bond purchases, first introduced at the peak of the pandemic, to $90 billion, and the announcement of a quicker reduction today would exhaust the program by March. If inflation rates remain well above the Fed’s 2% target by then — and they’re running at 6.7% now — then rate hikes are nearly assured by Spring.
3. –Toyota Unveils $70 Billion EV Investment Plans
Toyota Motor Co (TM) – Get Toyota Motor Corp. Report shares surged Wednesday after the world’s biggest carmaker unveiled a $70 billion investment commitment to boost its sales of electric vehicles by the end of the decade.
Toyota CEO Akio Toyoda said he wants to have a full line-up of 30 battery electric vehicles (BEVs) on sale by 2030, a figure that would double the total it expects for 2025, while adding another $4.5 billion to its battery development spending, which already includes a new plant in North Carolina.
Still, Toyoda was hesitant to make a complete commitment to a single EV strategy, telling reporters in Tokyo that “we want to leave all people with a choice, and rather than where or what we will focus on, we will wait a little longer until we understand where the market is going.”
Toyota’s U.S. listed shares were marked 2.9% higher in pre-market trading to indicate an opening bell price of $189.00 each. The stock ended the session in Tokyo 4.06% higher as one of the Nikkei 225’s top gainers.
4. — Treasury Set to Blacklist Eight Chinese Companies
The U.S. government is set to add several China-based companies to an investment blacklist, the Financial Times reported Wednesday, as economic tensions between Washington and Beijing continue to escalate.
Eight Chinese companies, across sectors that include biotechnology and artificial intelligence, will join a list of firms that the State and Treasury Departments consider both tied to China’s military-industrial complex and deeply involved in the surveillance of minority Uyghur Muslims, the paper reported, with a full blacklist expected to be published on Thursday.
In parallel, at least a dozen other firms are likely to be place on a so-called ‘entity list’ that would prevent them from exporting goods to the United States.
SenseTime Group, an AI start-up, was added to the Treasury’s blacklist earlier this month, causing it to postpone plans for a $767 million listing on the Hong Kong stock exchange.
5. — U.S. Government Debt Default Averted
Congressional lawmakers approved the lifting of the country’s debt ceiling by $2.5 trillion late Tuesday in an 11th-hour move that avoids what could have been an historic default on U.S. government debt.
The Democratic-controlled Congress passed the bill with a vote of 221 to 209, largely down partisan lines, following a Senate vote of 50 to 49 earlier in the day. The decision lifts the amount the U.S. government can borrow, without further authorization, to $31.4 trillion.
While many Republicans have argued that the debt ceiling bill will be used to fund the spending plans linked to President Joe Biden’s ‘Build Back Better’ program, the reality is that much of the added debt will be used to pay for tallies accumulated under the administration of former President Donald Trump.
“This is about paying debt accumulated by both parties, so I’m pleased Republicans and Democrats came together to facilitate a process that has made addressing the debt ceiling possible,” said Senate leader Chuck Schumer.