Five things you need to know before the market opens on Wednesday December 14:
1. -- Stock Futures Bump Higher Ahead of Fed Rate Decision
U.S. equity extended modest gains Wednesday, while the dollar slipped lower against its global peers and Treasury bond yields steadied, as investors looked anxiously to the Federal Reserve's key interest rate decision later in the session.
A softer-than-expected inflation reading for the month of November triggered a big boost in investor sentiment Tuesday, as core consumer prices rose at their slowest pace in nearly two years while headline CPI declined for a fifth consecutive month amid a pullback in gas prices, used cars and airfares.
Traders immediately moved to re-price their bets on near term rate hikes from the Fed, including the chances of a so-called terminal Fed Funds rate -- the point at which the central bank will pause from its recent tightening cycle -- of below 5%. Today's Fed decision, however, is still likely to deliver a 50 basis point rate hike that will take the benchmark lending rate to a range of between 4.25% and 4.5%, according to futures tracked by the CME Group's FedWatch.
Bond markets are also pricing in a softer Fed stance, with benchmark 2-year Treasury notes yields slipping to 2.184% in overnight trading while 10-year notes were holding at around 3.487%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.11% lower at 103.819 after hitting a six-month low of 103.570 in yesterday's session immediately following the November CPI data.
On Wall Street, stocks are looking at modest opening bell gains ahead of the Fed decision at 2:00 pm Eastern time, with futures contracts tied to the S&P 500 indicating a 1 bump and those linked to the Dow Jones Industrial Average suggesting a 20 point advance. The tech-focused Nasdaq is looking for a 10 point decline.
Overnight in Asia, stocks were modestly higher amid optimism that China's ongoing loosening of Covid restrictions will rekindle consumer and business activity in the world's second-largest economy, although a closely-tracked survey of short-term economic projections from Japan showed a pullback in sentiment that suggests firmer headwinds in the region heading into the start of next year.
The region-wide MSCI ex-Japan index was marked 0.98% higher heading into the close of trading while the Nikkei 225 closed 0.72% higher in Tokyo.
In Europe the region-wide Stoxx 600 was marked 0.52% lower at the start of trading while London's FTSE 100 fell 0.42% as both markets braced for interest rate decisions from the European Central Bank and the Bank of England tomorrow in Frankfurt and London respectively.
2. -- Fed 'Dot Plots' In Focus As Markets Lock Bets On 50 Basis Point Hike
With markets locked-in on the chances of a 50 basis point rate hike from the Federal Reserve later today in Washington, focus is likely to shift to the central bank's near-term projections for growth and inflation heading into the start of next year.
The Fed will publish a series of projections from its Board of Governors later today showing where all 18 members (there is currently one vacancy) expect the mid-point of the Fed Funds rate to be at the end of each of the next three years. The so-called 'dot plots', which are published anonymously, provide markets with a broad indication as to where and when the Fed is likely to pause its current rate hike cycle.
Chair Jerome Powell hinted earlier this month that this so-called terminal rate could be higher than markets are currently forecast, and higher than the 4.625% predicted by the 'dot plot' published in September. However, Committee members have expressed the need for smaller rate increases as they track their cumulative impact on the economy, suggesting the prospect of a lower terminal rate from at least a portion of the group.
"We think the Committee is gradually splitting between members who expect a steep drop in inflation as the pandemic-driven surge in margins reverses, followed by a softening in the labor market holding down medium-term inflation, and those who are skeptical on one or both ideas," said Ian Shepherdson of Pantheon Macroeconomics. "The absence of precedent on the first question, and the uncertainty over the extent of the coming labor market slowdown, means that reasonable people can disagree on both questions."
3. -- IEA Report Sees Firming Oil Demand in 2023 As China Reopens
Global oil prices edged modestly higher Wednesday following a report from the International Energy Agency that indicated firmly global demand heading into next year as China's economy reopens and sanctions limit the sale of Russian crude.
The Paris-based IEA said global demand is likely to rise to around 101.6 million barrels per day next year, a level that falls largely in-line with forecasts published yesterday by OPEC. Global production, however, is likely to exceed demand over the first few months of next year, helping overall supplies thanks in part to record output rates from the U.S. and Saudi Arabia.
Brent crude contracts for February delivery, the global benchmark, were last seek 35 cents higher on the session at $81.05 per barrel while WTI contracts for January were marked 49 cents lower at $75.84 per barrel.
4. -- Tesla Shares Extend Biggest Drawdown On Record
Tesla (TSLA) shares were marked lower in pre-market trading, extending their recent slump to a fresh 52-week low, as investors continue to express concern over the time and attention Elon Musk is devoting to his $44 billion Twitter purchase and weakening demand prospects in key global markets.
Tesla shares closed at $159.08 each last night, a level that represents a 60.9% decline from the all-time high it reached on November 4 of last year and the biggest peak-to-trough drawdown on record.
The stock's current PE ratio, a measure of its value compared to the broader market, has fallen to around 29 times the group's projected earnings, according to Bloomberg data, the cheapest since 2010.
Tesla shares were marked 1.1% lower in pre-market trading to indicate an opening bell price of $159.20 each, a move that pull the company's market cap below the $500 billion level for the first time in more than two years.
5. -- Binance Says Deposits Returning But Bankman-Fried Arrest Rattles Markets
Binance CEO Changpeng Zhao said Wednesday that he's seeing a return of deposits onto the world's largest crypto trading platform following a week of withdraws linked in part to the collapse of rival FTX and the arrest of its founder Sam Bankman-Fried.
Zhao, better-known by his online moniker CZ, Tweeted Tuesday that "things seem to have stabilised" following the exodus of around $3.7 billion in cash, including nearly $2 billion in a 24-24 hour period, from Binance wallets, according to data from industry tracker Nansen.
Reuters reported earlier this week that prosecutors are preparing anti-money laundering charges against Binance, by some distance the world's biggest crypto exchange, and its Chinese-Canadian founder.
U.S. authorities, meanwhile, have charged FTX founder Sam Bankman-Fried with eight counts of fraud, conspiracy and making illegal political donations through his failed exchange and hedge fund and are currently seeking his extradition from the Bahamas.
"FUD brought 'stress test', which in turn helps to build the credibility for exchanges that passes the test," Zhao Tweeted Wednesday.
