U.S. stock futures slip as hawkish Fed minutes weigh

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U.S. stock futures dipped Thursday as the prospect of the Federal Reserve keeping interest rates higher for longer smothered any of investors’ bullish impulses.

How are stock-index futures trading
  • S&P 500 futures
    ES00,
    -0.01%

    dipped 7 points, or 0.2%, to 3868

  • Dow Jones Industrial Average futures
    YM00,
    -0.04%

    fell 57 points, or 0.2%, to 3359

  • Nasdaq 100 futures
    NQ00,
    -0.03%

    eased 25 points, or 0.2%, to 10974

On Wednesday, the Dow Jones Industrial Average
DJIA,
+0.40%

rose 133 points, or 0.4%, to 33270, the S&P 500
SPX,
+0.75%

increased 29 points, or 0.75%, to 3853, and the Nasdaq Composite
COMP,
+0.69%

gained 72 points, or 0.69%, to 10459.

What’s driving markets

Equity futures were softer and government bond yields firmer as investors absorbed fresh hawkish rhetoric from the Federal Reserve and International Monetary Fund.

Fears that the Fed will persevere with interest rate rises to damp inflation, at the risk of triggering recession and hurting corporate earnings, has left Wall Street’s benchmark S&P 500 down 19.7% from its record close touched a year ago.

And minutes of the Fed’s December meeting, released Wednesday, showed the central bank pushing back against market expectations it might start cutting borrowing costs later this year.

Its stance was supported by Gita Gopinath, the IMF’s second-in-command, who told the Financial Times that U.S. inflation had “not turned the corner yet” and the Fed was right to “stay the course.”

The 2-year Treasury yield
TMUBMUSD02Y,
4.382%
,
which is particularly sensitive to monetary policy, sits near 4.4%, around its highest level in a month.

“The Federal Reserve repeated its determination to keep fighting inflation with further rate hikes, and warned that this determination should not be underestimated by investors,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“Yes, there are some data pointing at slowing economic activity in the U.S., but the jobs market – which is closely watched by the Fed – remains surprisingly tight – while the Fed keeps saying that bringing inflation back to the 2% target requires some ‘softening’ in the jobs market,” she added.

To that end, traders will be keeping a close eye on data, particularly jobs reports, in the next two days. On Thursday, the ADP private sector employment survey for December will be published at 8:15 a.m. Eastern, followed 15 minutes later by the weekly initial jobless claims numbers. Then Friday brings the December nonfarm payroll report.

“Investors remain overly concerned that Fed policy will eventually drive the global economy into a recession…[though] the scale and duration are far from certain,” said Stephen Innes, managing partner at SPI Asset Management.


Source: BofA Securities.

Meanwhile, some technical analysts remain wary of recent price action in the stock market. “Bullish December seasonality did not show up,” noted Stephen Suttmeier, chief equity technical strategist for BofA Securities.

“After rallies on the S&P 500 (SPX) of 8.0% and 5.4% in October and November, respectively, the SPX dropped 5.9% in December. The SPX did not decisively break above its key resistances at the declining 40-week MA (3965), year-long downtrend line (4020) and the August high (4325),” Suttmeier wrote in a note to clients.

This means that the cyclical bear market remains in place, with “supports near the 200-week MA at 3674 and the June and October lows at 3636 and 3491, respectively.”

Source