U.S. equity futures edged lower Thursday, while the dollar gave away ground to its global currency peers and a key market volatility gauge slipped further into the red, as investors retrenched following yesterday’s hawkish Federal Reserve rate decision while tracking developments in the war on Ukraine.
Progress in peace talks remains hopeful on paper, but elusive on the ground following the shelling of a theatre sheltering civilians in the city of Mariupol overnight, as well as reports of further casualties in the northern city of Chernihiv by Russian forces as fighting enters its fourth week.
Ukraine’s president Volodymyr Zelenskiy addressed Germany’s Bundedstag Thursday, following a speech to a joint session of Congress yesterday, and repeated his call for a halt to the assault of Mariupol, comparing it to the blockade of Leningrad during the Second World War.
Oil prices leaped higher, however, following a warning from the International Energy Agency, a Paris-based think-tank, that global markets could see a 3 million barrel per day shortfall from sanctions on Russian crude.
WTI futures for April delivery rose $4.36 to $99.40 in overnight trading while Brent contracts for May were last seen $4.75 higher at $102.77 per barrel.
That was set against market reaction to the Fed’s first rate hike since 2018, as well as the firm suggestion that the economy was strong enough to withstand another six more as it vowed to tame the hottest domestic inflation in more than four decades.
The Fed’s so-called ‘dot plots’, a term used to describe the interest rate projections of the Fed’s Open Markets Committee, suggest a Fed Funds rate of around 1.9% by the of this year, suggesting consecutive rate hikes until December, and 2.8% in 2023 and 2024, even as they expect inflation to moderate heading into the start of next year.
“The Fed has an extremely difficult path to traverse – inflation is at 40-year highs, while economic growth is threatened by higher energy prices and potentially much higher interest rates,” said Chris Zaccarelli, CIO for the Independent Advisor Alliance in Charlotte, North Carolina.
“We are in unprecedented territory in terms of the size of the Fed’s balance sheet, the inflationary pressures on the US economy and the increasing threats to economic growth; and a humble approach to investing, with less conviction in any one particular outcome, is warranted,” he added.
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Still, with the Fed hike behind it, a pledge from Chinese authorities to prop-up its Covid hit economy with extraordinary stimulus and a stalled Russian advance hopefully leading to a peaceful conclusion of the conflict, markets appear more calm heading into the start of trading Thursday.
Benchmark 10-year Treasury note yields, which spiked to 2.215% in the wake of yesterday’s Fed move, eased to 2.135% in overnight trading while the dollar index, which tracks the greenback against a basket of six global currencies, fell 0.35% to 98.282.
Futures futures contracts linked to the Dow Jones Industrial Average are indicating a modest 110 point opening bell dip while those linked to the S&P 500 are priced for a 17 point move to the downside.
The tech-focused Nasdaq Composite is called 70 points lower as benchmark 2-year Treasury note yields hold at $1.934% in early New York trading.
Occidental Petroleum (OXY) – Get Occidental Petroleum Corporation Report shares were a rare standout gainer in pre-market trading after billionaire investor Warren Buffett added to his stake in the oil major following the exit of activist Carl Icahn.
Dollar General (DG) – Get Dollar General Corporation Report shares jumped 5.5% after the discount retailer posted in-line fourth quarter earnings while boosting its dividend by more nearly a third and forecast stronger-than-expected full year sales.
GameStop (GME) – Get GameStop Corp. Class A Report shares fell 2% ahead of its fourth quarter earnings after the close of trading, with investors looking for long-awaited details underpinning the video game retailer’s turnaround plan.
FedEx is expected to post a 9% increase in overall revenues for the three months ending in February, the group’s fiscal third quarter, with an overall top line of $23.44 billion. Earnings are also expected to rise by more than a third to around $4.64 per share, as package volumes increase amid the easing of Covid restrictions in key markets around the world.
In overseas markets, Europe’s Stoxx 600 was marked 0.21% higher by mid-day trading in Frankfurt following a faster-than-expected reading of 5.9% for Eurozone inflation over the month of February.
Overnight in Asia, the region-wide MSCI ex-Japan index surged 4.07% higher in a follow-on rally from Wall Street last night and another move higher for tech stocks, while the Nikkei 225 in Tokyo closed 3.46% in the green at a two-week high of 26,652.89 points.