Investors assessed hawkish comments from Federal Reserve officials. In addition, they awaited remarks from Chairman Jerome Powell for clues on the path of interest rates. This resulted in a drop in Wall Street equity futures and European stock markets.
The S&P 500 and Nasdaq 100 both saw at least a 0.5% decrease in contracts. After a failed effort to launch Britain’s first satellites into orbit from its own land, Richard Branson’s Virgin Orbit Holdings Inc. fell in US premarket trading. The retail sector pulled down the Stoxx Europe 600 Index, which had been up for eight months.
Treasury yields rose as the Bloomberg Dollar Spot Index increased. This could imply several things for stock investors and equity futures.
Fed Officials Imply Further Rate Hikes Before Pausing Above 5%
On Monday, traders looking for a quick stop to high tariff increases got a reality check. According to San Francisco Fed President Mary Daly, the central bank should increase rates to around 5%. Policymakers should raise above 5% in the early part of the second quarter, then remain dormant for “a long time,” according to her Atlanta counterpart Raphael Bostic. The outcome won’t come as a surprise for equity futures.
Thursday’s US inflation numbers will be released almost a week after the most recent employment numbers indicated slowing pay growth. They will be among the final such readings Fed policymakers will see before their meeting on January 31-February 1.
Economists at Goldman Sachs, meanwhile, no longer believe in a euro-zone recession, especially following the economy’s continued resilience through the end of 2022. China dropped the COVID-19 limits sooner than anticipated as natural gas costs plummeted.
Compared to an earlier prediction of a contraction of 0.1%, the gross domestic product is now projected to grow by 0.6%. In a report to clients, economists led by Jari Stehn predict slow growth over the winter because of the energy crisis. In addition, they believe headline inflation will be lower than previously projected by the end of 2023, at around 3.25%. The future of equity futures seems rather gloomy at this point.
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