Five things you need to know before the market opens on Thursday June 15:
1. — Stock Futures Edge Lower Following Fed Pause, China Data
U.S. equity futures edged lower Thursday, while the dollar held firm against its global peers and Treasury yields nudged higher, as investors reacted to hawkish rate signaling from the Federal Reserve and softening economic data from China.
The Fed held its key lending rate steady last night, snapping a run of ten consecutive increases, but cautioned markets that elevated levels of inflation, a resilient job market fading recession risk would likely elicit at least two more rate hikes between now and the end of the year.
Stocks fell sharply in the wake of the decision, as well as the new economic projections that suggest at least another 50 basis points worth of rate hikes, but ended mixed as Chairman Jerome Powell struck a more balanced tone with reporters during his press conference in Washington.
In China, a series of data releases indicated a notable slowdown in the world’s second-largest economy, which has struggled to gain any growth momentum since abruptly pivoting from its ‘zero Covid’ policies late last year.
Retail sales were up 12.7% from last year’s pandemic lows, but missed analysts’ forecasts of a 13.5% gain. Industrial output also undershot expectations, rising just 3.5%, according to data from the national Bureau of Statistics.
The weakness could add fuel to speculation that China’s central bank will offer a policy response next week, following its decision to cut one of its key short-term lending rates for the first time in nearly a year last month.
U.S. Treasury bond yields were still elevated, however, heading into the start of the Thursday session in New York, with benchmark 2-year note yields changing hands at 4.720% following last night’s volatile post-Fed action and 10-year notes pegged at 3.817%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.16% higher at 103.11.
On Wall Street, futures contracts tied to the S&P 500 were priced of a 10 point opening bell dip while those linked to the Dow Jones Industrial Average was looking at a 44 point move to the downside. The tech-focused Nasdaq is looking at a 93 point decline as Treasury yields remained elevated.
In overnight trading, Asian stocks edged higher on hopes of easing policy support, or a new fiscal stimulus, from China, with the region-wide MSCI ex-Japan index rising 0.69% into the close of trading. Japan’s Nikkei 225, meanwhile, closed 0.05% lower at 33,485.49 points.
European stocks, meanwhile, were moving lower into the European Central Bank’s June rate decision, expected later this morning, with the Stoxx 600 down 0.28% in Frankfurt. Britain’s FTSE 100 fell 0.03% in London.
2. — Markets Still Fighting Fed As Powell Says July Meeting ‘Live’
The Federal Reserve is plotting at least two more rate hikes this year, according to data from the economic projections it released yesterday, even as it felt the need to pause its current tightening cycle in order to assess the impact of its prior increase.
The Fed, which was lifted rates 10 ten times over the past 15 months, adding 500 basis points to its benchmark Fed Funds rate, left that rate unchanged at between 5% and 5.25% late Wednesday, with Chairman Jerome Powell noting a lack of progress in bringing down core PCE inflation rates amid resilient economic growth.
That said, Powell was keen to assure reporters in Washington that the Fed would remain ‘data dependent’, and insisted that each subsequent meeting, including in July, would be assessed independently, but wouldn’t call Wednesday’s decision to hold rates steady a ‘skip’.
As we get closer and closer to the destination (with respect to the 2% inflation target) — and according to the (summary of economic projections), we’re not so far away — t’s reasonable, it’s common sense to go a little slower,” Powell said. “I think it allows the economy a little more time to adapt as we—as we make our decisions going forward.”
Markets, however seem ready for a quick return to tightening, with the CME Group’s FedWatch suggesting a 72% chance that the Fed will lift the Fed Funds rate by 25 basis points next month in Washington, but don’t see rates rising further into the end of the year.
3. — ECB Rate Decision Up Next Amid Recession Slip, Inflation Spike
The European Central Bank will add to the market’s policy-heavy focus this week with its June interest rate decision later today in Frankfurt amid a regional economy that just slipped into recession an inflation rate that is more than triple the preferred target.
Analysts expected President Christine Lagarde to delivery a 25 basis point rate hike at 8:15 am eastern time, a move that would life the ECB’s key refinancing rate to 4% and extend the steepest increase in monetary policy since the single currency was adopted in 1999.
Europe’s economy slipped into technical recession last quarter, following revised data showing a contraction in Germany over the first three months of the year, but the ECB’s mandate — unlike that of the Fed — only allows it to focus on price stability, and with inflation running at 6.1%, against the ECB’s ‘below or close to’ 2% target, Lagarde and her colleagues will be left with little choice but to boost their three key rates later today in Frankfurt.
“President Lagarde has reiterated that inflation ‘is too high and is set to remain so for too long’, adding that the ECB will ‘keep moving forward’ as the bank is still behind the curve,” Saxo Bank strategists wrote Thursday. “However, the growth trajectory is also worrisome with Germany and Eurozone in a technical recession, and if the ECB decides to (like Bank of Canada) remove all forward guidance, it could weigh on the euro.”
4. — Adobe Earnings Will Focus On AI Potential For Cloud Software Group
Analysts expect the group to post an adjusted non-GAAP bottom line of $3.79 per share, essentially in line with the company’s own forecast of between $3.75 and $3.80 per share, on revenues of $4.77 billion.
Investors will also likely focus on the fate of its $20 billion purchase of privately-held design startup Figma, unveiled last September, which was forecast to close this year but is facing an investigation from Britain’s Competition and Markets Authority as well as reported antitrust concerns from the U.S. Justice Department.
Analysts will also want to hear from the group with respect to demand for its new Firefly AI tool, which could help it tap into a new and expanding market for AI-linked technology.
Adobe shares were marked 0.42% lower in pre-market trading to indicate an opening bell price of $477.50 each.
5. — Kroger Earnings On Deck With Albertsons Merger Progress Expected
Kroger is expected to post a modest gain in adjusted earnings, which are forecast to come in at $1.46 per share, on revenues of around $45.245 billion for the three months ending in April, the group’s fiscal second quarter. Stronger-than-expected spring figures from Walmart WMT, however, could boost Kroger’s second quarter and near-term outlook as food price inflation keeps customers searching for ‘trade down’ bargains on food staples.
Analysts will focus on progress in Kroger’s plans to merge with rival Albertson’s, a $25 billion deal that would combine the nation’s two biggest grocery store chains and create a stand-alone giant with nearly 5,000 stores and annual revenues of more than $220 billion, which faces an antitrust review from the Federal Trade Commission.
Kroger has pledged to invest another $1.3 billion towards upgrading Albertsons stores — which include brands such ACME, Safeway and Vons — as well as another $1 billion to improve benefits and wages for the group’s employees in an effort to offset regulatory and consumer advocacy concerns.
Kroger shares were marked 4.85% higher in pre-market trading to indicate an opening bell price of $49.50 each.