Futures are higher into Fed Day where consensus is for a 25bp hike, the first since July 2023, with unknown levels of communication, and the question is what the dot plot shows (see preview here). S&P 500 futures are up by 0.3%, finding relief after days of selling as traders wait Kevin Warsh to deliver an expected interest-rate hike that will help ease fears that inflation may spiral.
Nasdaq futures are up 0.6%, with Intel shares jumping 3% in pre-market trading on a report it’s in talks with Korea’s SK Hynix on making memory chips in the US; Software is lower; cyclicals are outperforming defensives as the AI theme is pushing both Tech and Industrials higher. As JPM notes, the market looks to climb the latest Wall of Worry across Fed, AI, and Iran-induced energy inflation.
Bond yields are down 2-3bp with USD flat. Commodities are higher led by Metals (Precious over Base) and Ags while crude/fuels are seeing some profit-taking (don't expect it to last). US economic data slate includes September New York Fed services business activity, August retail sales and import/export price indexes (8:30 a.
m.), July business inventories and September NAHB housing market index (10am) and July TIC flows (4pm). In premarket trading, Mag 7 stocks are mostly higher: Meta shares are up 0.
6% after Citi opened a 90-day upside catalyst watch on the Facebook parent, seeing a positive roadmap ahead, especially on AI-related products (Alphabet +0.02%, Amazon +0.2%, Apple +0.
1%, Microsoft -0.3%, Nvidia +0.4%, Tesla +0.
1%)Cryptocurrency-linked stocks are soft a day after the Clarity Act’s failure in a procedural vote sent them tumbling.Alvotech (ALVO) rises 7% as Barclays double upgrades the biotech company to overweight ahead of the FDA’s upcoming decision.Intel (INTC) is up 3% after Reuters reported that SK Hynix is in talks with the chipmaker about a deal that would see it manufacture memory chips in the US for the first time.
JB Hunt (JBHT) slides 11% after the trucking company flagged rising costs and issued a rare earnings warning at a Morgan Stanley conference.Rocket Pharmaceuticals (RCKT) rises 4% after Needham upgraded the drug developer to buy, citing the FDA’s alignment to continue its rare-disease trial.SimilarWeb Ltd.
(SMWB) gains 4% after Needham upgraded the web services firm to buy, citing recent meetings with the company’s management team.In other corporate news SK Hynix is in talks with Intel about a deal that would see it manufacture memory chips in the US for the first time, Reuters reports. Brookfield has agreed to buy Reliance Worldwide in an all-cash deal that values the Australian plumbing supplies company at around A$4.
1 billion ($2.9 billion). OpenAI is holding early talks with investors about a fresh funding round that would value the company at more than $1.
2 trillion ahead of an IPO.Bond markets are steady and stocks are nudging higher as traders prepare for the Federal Reserve decision later.The Fed is expected to lift rates for the first time since 2023, with policymakers increasingly doubtful that inflation will cool sufficiently without tighter policy (see our preview here).
Spiking oil prices have added to fears that price pressures are accelerating, contributing to a rise in bond yields to the highest in decades and weighing on stocks.Money markets see a more than 90% chance of a quarter-point hike, with another move fully expected by December. The combination of above-target inflation, rising energy prices, strong employment and a robust economy all call for policy tightening, wrote Kevin Thozet at Carmignac.
“The Federal Reserve has little choice but to hike rates on Wednesday, especially since the bond market has been signaling for weeks that higher rates are warranted,” said Carol Schleif at BMO Wealth Management. “The stock market would be disappointed if the Fed didn’t hike.”The Fed’s guidance has “boxed it” into a rate increase that may do relatively little for inflation, according to Bloomberg Economics.
The hot August CPI report cemented market expectations of a hike, though much of the inflation gain was due to a single category, wireless phone services. At the same time, Chair Warsh’s preferred gauge suggests inflation breadth has narrowed. The Fed’s quarterly outlook will prove more interesting, with updated economic forecasts and interest-rate projections.
However, don’t hold your breath for Warsh’s input as he didn’t join in when officials last submitted expectations in June.Iain Stealey, fixed-income international chief investment officer at JPMorgan Asset Management, said he would be watching for dissent among policymakers, even though his base case is that officials will put up a united front.“If you started to see some dissenters it might call into question how much credibility they’ve got around this sort of fight against inflation,” Stealey told Bloomberg Television.
Energy could be back in the headlines later, with the EIA crude oil inventory report due at 10:30 a.m. New York.
Norfolk Southern’s CFO compared fuel prices to something out of “science fiction” as the rail freight company warned of a huge cost headwind from diesel.The cost of hiring VLCC tankers to ship US crude to Asia has surged to fresh records this week. The energy shock is becoming a political hot potato — from natural gas prices caught in a perfect storm to AI becoming a midterm test as data centers suck up power supplies.
BNEF expects 2035 power-sector gas demand to jump around 50% from 2025 levels.Debates around AI continue at pace. BlackRock’s Larry Fink warned delays in the build-out of AI because of public opposition will make the technology the “domain of large firms,” limiting access.
Meanwhile, South Korea’s deputy prime minister said the country can’t afford to slow down the pace of AI development. Intel Corp. outperformed in US premarket trading, rising 3%.
The firm is in talks with SK Hynix Inc. for the South Korean chipmaker to produce memory chips in the US for the first time, Reuters reported. Software makers and oil producers lagged.
Equity markets will remain choppy over the next few weeks until earnings season arrives, giving investors something more fundamental to trade on, said BMO’s Schleif. “In the meantime, investors will only have the angst kicked up by midterm election rhetoric and inflation data to watch for hints about whether or not we might see additional rate hikes,” she said.Elsewhere, the US and China are discussing slashing tariffs on goods including American energy and agricultural products ahead of the leaders’ summit next week, while Nvidia’s CEO is slated to attend Trump’s state dinner with China’s Xi.
Retail sales data before the US market open will likely give the Fed little reason to worry about demand, according to Bloomberg Economics. The August report is expected to show a strong rebound in nominal sales, with higher prices and seasonal effects adding to the strength, wrote economist Eliza Winger.The Stoxx 600 rises 0.
2% as banks bounced back from two days of declines, with miners and utilities leading the way, while autos and consumer stocks are the laggards. Here are the biggest movers Wednesday:Soitec gained as much as 14% as JPMorgan upgraded the shares to overweight and more than doubled the price target, saying raised expectations for the company’s photonics business more than compensate for concerns in mobileBarratt Redrow shares rose as much as 9%, the most since April, after the homebuilder delivered annual adjusted profits ahead of expectationsEuropean banks advanced after two days of declines as JPMorgan forecast third-quarter gains for trading revenue and investment-banking fees, a contrast from Bank of America’s warning earlier this weekEngcon gained as much as 7.9% after Danske Bank initiated coverage of the Swedish construction equipment firm with a buy rating, saying it is well-positioned to benefit from a recovery in demand as it refocuses on core European marketsISS gained as much as 3.
6% after