U.S. Futures steady as Fed decision looms

The Fed is set to unveil a quicker tapering of bond purchases, paving the way for the first interest-rate increases since 2018 as it pivots to restraining the hottest inflation in almost 40 years.

U.S. Futures, Stocks, inflation, Federal Reserve, U.S. listed Chinese firms
U.S. futures steadied as traders braced for the Federal Reserve to accelerate its removal of monetary stimulus.

Bloomberg: U.S. futures steadied as traders braced for the Federal Reserve to accelerate its removal of monetary stimulus. Treasury yields and the dollar were little changed.

Contracts on the Nasdaq 100 index slipped, while the S&P 500 was little changed. Shares in U.S.-listed Chinese firms retreated in premarket trading after the Biden administration was said to be considering tougher sanctions.

Europe’s Stoxx 600 Index gained after five days of losses, while MSCI Inc.’s Asia-Pacific share gauge slipped for a fourth session, as a range of Chinese data suggested slowing growth amid a deepening property market slump and Covid disruptions.

Traders are looking to a wave of central bank decisions for clarity on the timing of a pullback, with the Fed decision due later on Wednesday, followed by the Bank of England and European Central Bank Thursday. The Fed is set to unveil a quicker tapering of bond purchases, paving the way for the first interest-rate increases since 2018 as it pivots to restraining the hottest inflation in almost 40 years.

The mix of intense price pressures — U.S. producer-price inflation hit a record of almost 10%, while U.K. inflation surged to its highest level in more than a decade — diminishing central bank support and economic uncertainty around the omicron virus variant is testing markets.

The pound rallied and money markets boosted bets on BOE rate hikes after data showed U.K. inflation topped 5% in November. With new government restrictions adding to economic uncertainty, investors and economists still expect the Monetary Policy Committee to delay any move until February.

Meanwhile, the ECB’s new projections show inflation below the 2% target in both 2023 and 2024, according to officials familiar with the matter, giving President Christine Lagarde ammunition to argue against a swift increase in interest rates.

“Even if other central banks opt for less hawkish communication this week, the Fed’s hawkish shift today will make it easier for its peers to follow suit,” ING Groep NV analysts led by Padhraic Garvey wrote in a note to investors. “The trend is resolutely towards higher rates globally.”

Oil fell for a third day as further restrictions were imposed to counter the spread of omicron, while the outlook for demand in China dimmed and the International Energy Agency said the global market had already returned to surplus. European natural gas gained on Wednesday but there are signs that the rally that has sent prices surging 23% this week is starting to slow.

Geopolitical tensions also continue to bubble. Leading nations of the European Union are resisting a push to quickly draw up specific sanctions and other punishments to impose on Russia if it invades Ukraine, even as the Kremlin shows no sign of backing off a massive troop buildup near its neighbor.

Among individual movers in Europe, DCC Technology shares rose as much as 6.5% after the firm completed the acquisition of Almo Corporation. Cineworld Group Plc shares plunged after a Canadian court ordered it to pay C$1.24 billion ($965 million) in damages to Canada’s Cineplex Inc., after the British chain walked away from a takeover because of the coronavirus outbreak.

On the virus front, the omicron variant will likely be dominant in Europe by mid-January, European Commission President Ursula von der Leyen told the European Parliament on Wednesday, adding that the case numbers appear to be doubling every two or three days.

Initial lab findings showed the vaccine made by Sinovac Biotech Ltd., one of the most widely used in the world, doesn’t provide sufficient antibodies in two doses to neutralize omicron and boosters will likely be needed to improve protection.

Meanwhile, a bill to raise the U.S. debt ceiling by $2.5 trillion headed to President Joe Biden for his signature after being cleared by lawmakers.

Here are some key events this week:

China releases November industrial output, retail sales data, Wednesday.
Fed rate decision, Wednesday.
U.S. business inventories, retail sales, empire manufacturing, Wednesday.
BOE rate decision, Thursday.
ECB rate decision, Thursday.
U.S. housing starts, initial jobless claims, industrial production, Thursday.
BOJ monetary policy decision, Friday.
S&P Dow Jones Indices quarterly rebalance effective after markets close, Friday.
“Quadruple witching” day in the U.S. market, when options and futures on indexes and equities expire, Friday.

Some of the main moves in markets:

Stocks

Futures on the S&P 500 were little changed as of 7:15 a.m. New York time
Futures on the Nasdaq 100 fell 0.1%
Futures on the Dow Jones Industrial Average were little changed
The Stoxx Europe 600 rose 0.4%
The MSCI World index fell 0.7%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.1271
The British pound rose 0.2% to $1.3257
The Japanese yen was little changed at 113.81 per dollar

Bonds

The yield on 10-year Treasuries was little changed at 1.45%
Germany’s 10-year yield advanced two basis points to -0.35%
Britain’s 10-year yield advanced four basis points to 0.76%

Commodities

West Texas Intermediate crude fell 1.2% to $69.87 a barrel
Gold futures were little changed

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