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US futures are teetering amid caution about the Fed’s response: markets wrapping

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(Bloomberg) — US stock index futures fluctuated between gains and losses as investors debated whether inflation has eased enough to encourage the Federal Reserve to slow monetary policy tightening.

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Contracts on the S&P 500 and Nasdaq 100 rose about 0.1% each after a Tuesday rally in US stocks on the back of a fifth month of decline in consumer price growth. Treasury bonds rose for a second day, while the dollar fell. The Stoxx Europe 600 fell for the second time in three days. Charter Communications Inc. down 5.8% in premarket trading in New York on concerns that the capital spending plan could hamper cash flow.

While a weaker-than-expected US CPI figure sent stock and bond prices higher, gains were held back by caution that the Federal Reserve may remain resolute in continuing rate hikes. After a 50 basis point rate hike was priced into Federal Reserve policy later on Wednesday, traders remained on edge over what signals policymakers might give as to when the hikes will stall and whether a rate cut is possible next year.

“The question is, with inflation still at a generational high, will the Fed walk through that door?” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “After the enthusiastic initial response, stocks’ relatively muted reaction can likely be attributed to pre-risk event locating, prevailing bearish growth sentiment, technical factors, and the devil is in the details.”

Europe’s stock index fell after posting its biggest one-day advance since November 10 as caution prevailed over Fed messages later in the day as well as expectations of an interest rate hike by the European Central Bank and Bank of England on Thursday.

Short-dated Treasury notes posted the biggest gains on Wednesday. Two-year-olds and five-year-olds get rid of 4 basis points each. Traders are betting that the Fed, after today’s move, will opt for an additional 50 basis points of hikes, then a cut of similar size by the end of next year.

Charter Communications, the second-largest provider of cable TV in the United States, fell in early trading after saying it would spend $5.5 billion to bring high-speed broadband connections to customers. Bloomberg Intelligence analysts said that higher capital spending and lower cash flow create uncertainty in the near term, but that expanding the footprint could boost subscriber growth.

In the UK, the pound traded near its strongest level since June. Inflation in the country has fallen from a 41-year high in November, raising the possibility that the worst of the cost-of-living pressures may be over. The dollar strength index fell 0.3%.

Stocks rose in Hong Kong, Japan and Australia, pushing the MSCI Asia Pacific Index towards a three-month high and closing 19% above its October low.

Concern about the Fed’s policy reverberated in the oil market, as WTI futures halted an advance for two days. Traders also weighed the demand outlook amid the rapid relaxation of Covid restrictions in China against the impact of new cases on economic activity in the country.

Main events this week:

  • FOMC interest rate decision and Fed Chair’s press conference, Wednesday

  • Chinese medium-term lending, real estate investment, retail sales, industrial production, unemployment surveyed, Thursday

  • ECB interest rate decision and ECB President Lagarde’s briefing, Thursday

  • Rate decisions for the Bank of England, Mexico, Norway, the Philippines, Switzerland and Taiwan on Thursday

  • Investing Across US Borders, Business Inventory, Manufacturing Empire, Retail Sales, Initial Jobless Claims, Industrial Production, Thursday

  • Eurozone S&P PMI, CPI, Friday

Some of the major movements in the markets:

Stores

  • S&P 500 futures were little changed as of 5:39 a.m. New York time.

  • Nasdaq 100 futures have changed little

  • Futures contracts on the Dow Jones Industrial Average changed little

  • The Stoxx Europe 600 fell 0.6%.

  • The MSCI World Index rose 0.1%.

currencies

  • The Bloomberg Spot Dollar Index fell 0.3%.

  • The euro rose 0.3 percent to $1.0661

  • The British pound rose 0.2 percent to $1.2395

  • The Japanese yen rose 0.6% to 134.73 per dollar

Digital currencies

  • Bitcoin rose 0.4% to $17,824.45

  • Ether rose 0.2% to $1,322.72

bonds

  • The yield on the 10-year Treasury fell 1 basis point to 3.49%.

  • Germany’s 10-year yield advanced four basis points to 1.97%.

  • The yield on the 10-year UK Bund advanced 1 basis point to 3.31%.

goods

  • West Texas Intermediate crude rose 1% to $76.14 a barrel

  • Gold futures fell 0.3 percent to $1,820 an ounce

This story was produced with help from Bloomberg Automation.

— With assistance from Richard Henderson, James Heray, and Georgina McKay.

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Stock, bond and cryptocurrency investors remain on edge after a rough year for the markets

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This version is for personal, non-commercial use only. Distribution and use of this material is subject to our Subscriber Agreement and copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.

https://www.wsj.com/articles/stock-bond-and-crypto-investors-remain-on-edge-after-brutal-year-for-markets-11672403124

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Dow Jones losses are heading towards the closing bell as US stocks approach their worst year since 2008

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US stocks were trimming losses heading towards the closing bell on Friday, but were still on track to post their worst annual loss since 2008, as the harvest of tax losses combined with concern over the outlook for US corporate and consumer earnings took its toll.

How are stock indices traded?
  • Dow Jones Industrial Average
    DJIA,
    -0.22%

    It fell about 182 points, or 0.6%, to 33,039 points.

  • S&P 500 index
    SPX,
    -0.25%

    It fell nearly 26 points, or 0.7%, to about 3,824.

  • The Nasdaq Composite Index fell 72 points, or 0.7%, to about 10,406 points.

Stocks posted their biggest gains of the month on Thursday, with the Dow Jones rising 345 points, or 1.05%, to 33,221 as major stock indexes rebounded after losses incurred earlier in the week that pushed the Nasdaq Composite to a new closing low for the year. . The S&P 500 was on track on Friday to wrap up its fourth consecutive losing week, the longest streak of weekly losses since May, according to FactSet data.

What drives the markets

US stocks traded lower on Friday afternoon, on pace to close the last trading session of 2022 with weekly and monthly losses.

Stocks and bonds have been crushed this year as the Federal Reserve raised its benchmark interest rate more aggressively than many expected, as it sought to crush the worst inflation in four decades. The S&P 500 is on track to end the year with a loss of nearly 20%, its worst annual performance since 2008.

“Investors were on edge,” Mark Heppenstahl, chief investment officer at Penn Mutual Asset Management, said in a phone interview Friday. “It seems as if being able to bring prices down might be a little easier given how bad the year has been.”

Stock indices have fallen in recent weeks as the recent rally inspired by hopes in the Fed’s policy focus faded in December after the central bank indicated it would likely wait until 2024 to cut interest rates.

On the last day of the trading year, the markets were also hit by selling to capture losses that could be written off from tax bills, a practice known as tax harvesting, according to Kim Forrest, chief investment officer at Bouquet Capital Partners. .

Forrest added that an uncertain outlook for 2023 has also weighed in, as investors worry about the strength of corporate earnings, the US economy and consumer as the fourth-quarter earnings season approaches early next year.

“I think the Fed, and then earnings in mid-January — they’ll set the tone for the next six months. Until then, it’s anyone’s guess.”

The US central bank has raised its benchmark interest rate by more than four percentage points since the start of the year, pushing borrowing costs to their highest levels since 2007.

The timing of the first Fed rate cut will likely have a significant impact on markets, according to Forrest, but the outlook remains uncertain, even as the Fed tries to signal that it plans to keep interest rates higher for longer.

On the economic data front, the Chicago PMI for December, the latest major data release for the year, Came stronger than expected. Climbing to 44.9 from 37.2 in the previous month. Readings below 50 indicate contraction.

In the coming year, Heppenstahl said, “we are likely to shift toward concerns about economic growth rather than inflation.” “I think the decline in growth will eventually lead to an even greater drop in inflation.”

Read: Stock market investors face 3 recession scenarios in 2023

Eric Sterner, chief information officer at Apollon Wealth Management, said in a phone interview on Friday that he expects the US to fall into a recession next year and that the stock market could see a new bottom as companies likely review their earnings. “I think the earnings outlook for 2023 is still very high,” he said.

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite were all on pace Friday afternoon posting weekly losses of around 1%, according to FactSet data, at last check. For the month, the Dow was down about 5%, the S&P 500 was down about 7% and the Nasdaq was about to crash down about 10%.

Read: Value stocks are outperforming growth stocks in 2022 by a large margin historically

As for bonds, Treasury yields rose on Friday as the US sovereign debt market was set to post its worst year since at least the 1970s.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.879%

It rose about four basis points on Friday at 3.88%, according to FactSet data, in the latest check. Ten-year yields jumped about 2.34 percentage points this year through Thursday, on track for the biggest annual gain ever based on data going back to 1977, according to market data from Dow Jones.

Meanwhile, the yield on the two-year note
TMUBMUSD02Y,
4.423%

Up about 3.64 percentage points in 2022 through Thursday to 4.368%, 30-year return
TMUBMUSD30Y,
3.971%

It jumped 2.03 percentage points over the same period to 3.922%. That marks the largest increase in a calendar year for each based on data going back to 1973, according to market data from Dow Jones.

Outside the US, European stocks capped their biggest percentage drop in a calendar year since 2018, with the Stoxx Europe 600
xxxp,
-1.27%
And the
It is an index of euro-denominated stocks, down 12.9%, according to market data from Dow Jones.

Read: A downturn in the US stock market is trailing these international ETFs as 2022 draws to a close

Companies in focus

Steve Goldstein contributed to this article.

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Fed’s reverse repo facility reaches $2.554 trillion by Reuters

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© Reuters. FILE PHOTO: The Federal Reserve Building in Washington, US, January 26, 2022. (Reuters)/Joshua Roberts/File Photo

Written by Michael S Derby

NEW YORK (Reuters) – A key facility used by the Federal Reserve to help control short-term interest rates saw record inflows on Friday, the last trading day of the year.

The New York Fed said its reverse repo facility took in $2.554 trillion in cash from money market funds and other eligible financial firms, beating the previous high seen on Sept. 30, when inflows totaled $2.426 trillion.

The cash rally was almost certainly tipping into record territory in the usual end-of-quarter pattern that could worsen further towards the end of the year. On those dates, for a variety of reasons, many financial firms prefer to deposit money in the central bank rather than in the private markets.

The Fed’s reverse repo facility has been very active for some time. After seeing almost no absorption for a long time, money began to gravitate toward the central bank in the spring of 2021 and then grew steadily. Daily reverse repo usage has been steadily above the $2 trillion mark since June.

The reverse repo facility takes cash from qualified financial firms in what is an actual loan from the Federal Reserve. The current rate is 4.3%, a yield that is often better than rates for short-term private sector lending.

The reverse repo facility is designed to provide a soft floor for short-term rates and the federal funds target rate, and is the Fed’s primary tool for achieving its function and inflationary mandates. To mark the higher end of the range, the Fed is also pushing deposit-taking banks to deposit cash at the central bank, where the interest rate on reserve balances is now 4.4%.

The federal funds rate is currently set between 4.25% and 4.5% and is trading at 4.33% as of Friday, sandwiched between the reverse repo rate and interest on reserve balances.

There are no signs of shrinkage

Even with the heavy use of reverse repo, Fed officials have always remained unconcerned about large outflows, even as some in financial markets worried about the potential for the Fed to drain the borrowing and lending lives of private money markets.

Fed officials also expected that as the central bank continues to raise interest rates with the goal of bringing down very high levels of inflation, the use of the reverse repo facility should decrease. But that hasn’t happened yet, and some in the markets now believe that the consistently high utilization of the Fed facility will be around for some time to come.

Research by the Federal Reserve Bank of New York indicated that banking regulation issues make demand for the Fed’s reverse repo instrument high. Meanwhile, the Kansas City Fed added its view that large inflows are related to limited private market investment opportunities and policy uncertainty.

Strong cash flows to the central bank may not have alarmed central banks, but they have driven their operations to an actual loss. The Federal Reserve finances itself through interest on the bonds it owns as well as the services it provides to the financial community. It usually makes a noticeable profit and by law returns it to the treasury.

Currently, the cost of paying interest on reverse repo agreements and reserve balances outweighs income. The Fed reported Thursday that as of Dec. 28, the accounting metric it uses to track losses was $18 billion. Many observers expect that the Fed’s plans to raise interest rates further and keep them at high levels will mean fairly large losses for the central bank over time, even if these losses will not affect the action of the Fed’s monetary policy.

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