Stock futures nudge higher as banks wobble, Treasuries rally; Fed set for 10th, and possibly final, rate hike as markets eye next move; ADP jobs data in focus as downbeat JOLTS hints labor market weakness; AMD slides as muted sales forecast clouds Q1 earnings beat and Ford slips as carmaker keeps outlook cautious amid falling prices.
Five things you need to know before the market opens on Wednesday May 3:
1. — Stock Futures Nudge Higher As Banks Wobble, Treasuries Rally
U.S. equity futures nudged higher Wednesday, while the dollar retreated against its global peers, as investors braced for what could be a pivotal interest rate decision from the Federal Reserve later today in Washington while closing tracking moves in beaten-down regional bank stocks.
Stocks were pulled sharply lower Tuesday, with the S&P 500 closing nearly 50 points in the red, amid a plunge in regional bank names that appeared to have no headline driver beyond broader concerns for balance sheet strength and deposit safety.
PacWest Bancorp (PACW) – Get Free Report, which lead markets to the downside with a 27.8% slump, extended those declines in pre-market trading despite a pullback in Treasury yields that should mitigate any unrealized losses in the bank’s bond portfolio. Western Alliance (WAL) – Get Free Report was also down around 7.8%.
With contagion worries looming over the banking sector following the sale of First Republic (FRC) – Get Free Report to JPMorgan (JPM) – Get Free Report over the weekend, and growing concerns for a near-term recession amid weakening employment data and slowdown in manufacturing activity, markets are likely to remain muted in the run-up to today’s Fed decision, which is expected at 2:00 Eastern time.
At present, traders have locked-in an 86% chance that the Fed will make its tenth and final rate hike of the current tightening cycle, with bets on rate cuts over the final months of the year quickly accelerating.
Benchmark 2-year Treasury note yields were marked 4 basis points lower in overnight trading at 3.941% while 10-year notes eased to 3.399% in safe-haven dealing.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, fell 0.39% to 101.563, reflecting the market’s anticipation of a Fed rate reversal later in the year.
Oil prices were also on the move ahead of the Energy Department’s weekly report on supply levels later in the session, with WTI futures for June delivery falling $1.52 to $70.14 per barrel, the lowest since late March, amid concerns that another Fed rate hike, muted jobs data and uneven factory activity suggest near-term recession risks.
Heading into the start of the trading day on Wall Street, futures tied to the the S&P 500 were priced for a modest 4 point opening bell gain while those linked to the Dow Jones Industrial Average are set for a 22 point bump. The tech-focused Nasdaq was marked 20 points higher.
Overnight in Asia, the region-side MSCI ex-Japan index was marked 0.63% higher into the close of trading, while Europe’s Stoxx 600 was marked 0.35% higher in early Frankfurt trading, tracking both today’s Fed rate decision and tomorrow’s European Central Bank meeting..
2. — Fed Set For 10th, And Possibly Final, Rate Hike As Markets Eye Next Move
The Federal Reserve may execute the last rate hike of its tightening cycle, the most aggressive in at least four decades, later today in Washington as it repeats its concern that inflation remains the biggest threat to U.S. economic growth.
The Fed tweaked the language in its last policy statement, published in March, indicating that ” some additional policy firming may be appropriate” after it lifted its benchmark Fed Funds rate to the current range of 4.75% to 5%.
However, with inflation slowing notably — although still well above the Fed’s 2% forecast — investors will be looking for clues as to whether rates will peak with today’s likely quarter point increase as the economy weakens and a series of bank failures rattles financial sector sentiment.
“The Fed, however, remains focused on the current inflation and activity data, paying only lip service to the idea that their previous actions will depress economic growth and inflation after a lag,” said Ian Shepherdson of Pantheon Macroeconomics. “Accordingly, they won’t start to cut rates until it becomes clear from the activity and inflation data that the economy is headed clearly in the direction they want to see.”
The Fed will publish its interest rate decision at 2:00 Eastern time, with Chairman Jerome Powell set to take questions from the media in Washington 30 minutes later.
3. — ADP Jobs Data In Focus As Downbeat JOLTS Hints Labor Market Weakness
Payroll processing group ADP will publish its National Employment report prior to the start of trading Wednesday as investors look further indications of weakness in the job market heading into Friday’s non-farm payroll report.
Analysts expect ADP to report private sector job creation of around 148,000 for the month of April, a modest increase from the 145,000 it estimate for March – a tally that undershot the Labor Department’s employment report by nearly 100,000.
Data from the Labor Department yesterday, however, showed a marked decline in March job openings, with the Job Openings and Labor Turnover Survey, better-known as the JOLTs report, indicating 9.59 million unfilled vacancies, a near record decline from last year’s total and down 384,000 from the upwardly-revised February total of 9.931 million.
Layoffs were also on the rise, surging by 248,000 in March to 1.8 million, the highest in two years.
Friday’s non-farm payroll report is expected to show a net gain of 180,00 new jobs with only a modest easing in wage pressures as average hourly earnings rise 4.2% on the year and 0.3% on the month.
4. — AMD Slides As Muted Sales Forecast Clouds Q1 Earnings Beat
Advanced Micro Devices (AMD) – Get Free Report shares slumped lower in pre-market trading after the chipmaker forecast muted near-term demand that clouded a stronger-than-expected first quarter earnings report.
AMD said non-GAAP earnings for the quarter came in at 60 cents per share, a 47% decline from the same period last year but 4 cents ahead of Street forecasts. Group revenues, AMD said, fell 9.2% to $5.35 billion, again topping analysts’ forecasts of a $5.3 billion tally.
Looking into the current quarter, AMD said it sees revenues in the region of $5.3 billion, plus or minus $300 million, compared to the Refinitiv forecast of $5.48 billion, amid ongoing weakness in the market for personal computer chips.
“We continue to see a mixed demand environment based on the uncertainties in the macro environment in the near term (but) we remain confident in our ability to grow in the second half of the year,” CEO Lisa Su told investors late Tuesday.
AMD shares were marked 5.8% lower in pre-market trading to indicate an opening bell price of $84.68 each.
5. — Ford Slips As Carmaker Keeps Outlook Cautious Amid Falling Prices
Ford Motor Co. (F) – Get Free Report shares slipped lower in pre-market trading after the carmaker hinted that narrowing margins, linked to a global price war, would tame near-term profits after a solid start to the year.
Ford’s overall revenues surged 20% from last year to $41.5 billion, well ahead of Street forecasts, as robust demand met unstuck supply chains for the first time in nearly three years. Ford also posted a Street-beating bottom line of 44 cents per share, up 15.8% from last year, but stuck to its full-year profit forecast that sees adjusted earnings in the region of $9 billion to $11 billion.
Ford also broke down profits from its two main divisions for the first time, noting that each EV it sold cost the company $60,000 as it ramps up investments and expands market share, compared to a $3,715 profit for each internal combustion engine car.
“We do not subscribe to a ‘win vehicle share at any cost’ approach,” CEO Jim Farley told investors on a conference call late Tuesday. “.We look at share of vehicles, of course, and share revenue. We also look at share profits and share of the customer lifetime value, and we believe this is the only way to ensure we drive appropriate return on capital over time”
Ford shares were marked 0.85% lower in pre-market trading to indicate an opening bell price of $11.70 each.