Five things you need to know before the market opens on Wednesday June 21:
1. -- Stock Futures Steady As Markets Eye Powell Testimony
U.S. equity futures nudged higher Wednesday, while market volatility gauges continued to slump lower and the dollar held its ground in foreign exchange trading, as investors prepared for testimony from Federal Reserve Chairman Jerome Powell later in the session.
Stocks ended firmly lower on Tuesday, with the S&P 500 falling nearly half a percent, are rate hike bets accelerated in the wake of stronger-than-expected housing sector data that continues to challenge the narrative of a near-term recession.
Inflation concerns were tacked onto the growth story on Wednesday, as well, following data from the U.K. showing CPI rose at an 8.7% pace last month, matching the April measure and coming in much faster than market forecasts ahead of tomorrow's Bank of England rate decision in London.
And while Philip Jefferson, President Joe Biden's nominee for Fed vice chair, will tell lawmakers before the Senate Banking Committee today that "inflation has started to abate, and I remain focused on returning it to our 2% target", the odds of a July rate increase have risen to 77%, according to the CME Group's FedWatch.
That's lifted 2-year note yields modestly higher in overnight trading, to 4.715%, and put them around 97 basis points higher than 10-year paper, at 3.744%, ahead of a $15 billion auction of 20-year bonds later in the session.
The U.S. dollar index, meanwhile, was marked 0.05% higher against a basket of its global peers at 102.603. The CBOE Group's VIX volatility gauge, meanwhile, was marked 3.1% lower at 13.75.
On Wall Street, equity futures moved modestly higher, with contacts tied to the S&P 500 indicating a 3 point opening bell gain and those linked to the Dow Jones Industrial Average priced for only a 12 point move to the upside. The tech-focused Nasdaq was looking at a 2 point gain.
Overnight in Asia, stocks resumed their recent declines following a smaller-than-expected 10 basis point rate cut from the People's Bank of China earlier this week that investors feel will not be enough to shake the economy from its post-Covid malaise.
Sentiment was further damaged by China's swift reaction to comments from President Biden calling President Xi Jinping a 'dictator', with Beijing characterizing the remarks as “public political provocation” and "extremely irresponsible".
The region-wide MSCI ex-Japan index was marked 1.01% lower heading into the close of trading, while tech stocks at a weaker yen helped Japan's Nikkei 225 close 0.56% higher.
In Europe, London's FTSE 100 slipped 0.1% as the pound jumped to 1.2771 against the greenback following the faster-than-expected May inflation data, while the region-wide Stoxx 600 was marked 0.13% lower in Frankfurt.
2. -- Fed Chair Powell Faces Senate Banking Committee As Markets Test Rate Path
Federal Reserve Chairman Jerome Powell will begin the first of his two-part testimony to lawmakers on Capitol Hill Wednesday with an appearance before the Senate Banking Committee following last week's decision to pause interest rate hikes amid the central bank's inflation fight.
Investors are likely to focus on any indication Powell will provide to the Committee during his semi-annual testimony on monetary policy regarding future rate hikes, particularly in light of the fact that the Fed's own economic projections point to at least two more 25 basis point increases, which would take the Fed Funds rate to between 5.5% and 5.75%, while markets are only preparing for one final hike in July.
And with cracks beginning to appear in the job market, lawmakers may also look to press the Fed Chairman on the need for any future hikes, which could stoke higher rates of unemployment, given that headline inflation has slowed to its three-decade peak of 9.1% last July to just 4% over the month of May, according to recent Commerce Department figures, with further declines expected over the summer months.
"With sentiment still 'bullish' and markets overbought, Powell could provide a modicum of support to the market’s advance, but if he suggests that he’s in the hawkish camp, markets may need to continue to unwind gains until a more viable catalyst emerges," said Quincy Krosby, chief global strategist for LPL Financial.
3. -- FedEx Shares Slide After Mixed Q4 Earnings, Muted Demand Outlook
FedEx (FDX) shares moved lower in pre-market trading after the world's biggest package delivery group posted a muted near-term profit outlook, along with a mixed set of fourth quarter earnings, that underscore the challenges of its recent cost-cutting efforts.
FedEx said it sees revenue growth that is flat to last 2023 levels, or growing at a low single-digit pace, with earnings in the region of $15.00 to $17.00 per share, amid what it described as ongoing demand weakness and input cost inflation.
For the three months ending in May, FedEx said it earned $4.94 per share, just ahead of Street forecasts, on softer-than-expected revenues of $21.9 billion.
The group also said it would ground more planes at the start of its fiscal year, adding to its $1.8 billion cost-cutting effort, and noted that it shed 29,000 jobs last year as it looks to take out $4 billion in permanent costs by 2025.
We are entering fiscal 2024 with a continued focus on areas within our control and a commitment to execute swiftly on our priorities," said CEO Raj Subramaniam. "This focus will support sustained profit improvement in FY '24 through an environment that we expect to remain marked by demand challenges, particularly in the first half."
FedEx shares were marked 3.1% lower in pre-market trading to indicate a Tuesday opening bell price of $224.52 each.
4. -- Tesla Extends Gains On China EV Stimulus, Texas Charging Station Rules
Tesla (TSLA) shares extended gains in pre-market trading following reports that the state of Texas, the new homebase for Elon Musk's electric carmaker, will require Tesla-made plugs at all charging stations.
Texas is planning to require both Tesla's North American Charging Standard (NACS) as well as the Combined Charging Standard (CCS) for state charging stations, a move that would build on a network first launched by Tesla that has since been adopted by rivals such as Ford (F), General Motors (GM) and Rivian Automotive (RIVN).
Tesla also got an overnight boost from China, where the government unveiled a new $70 billion pledge to boost electric vehicle sales by exempting new purchases from state taxes over the next four years.
Musk also met with India's Prime Minister Narendra Modi on Tuesday and said the carmaker would ramp up investments in the country "as soon as humanly possible", having hinted earlier this year that it could be the site for the carmaker's next gigafactory.
Tesla shares, which gained 5.3% yesterday, were marked 1.4% higher in pre-market trading to indicate an opening bell price of $278.22 each.
5. -- Titan Searchers Hear Noises As Hopes Rise For Atlantic Submarine Rescue
The U.S. Coast Guard reported late Tuesday that rescuers searching for the missing Titan submersible detected noises near the site of its launch off the coast of Cape Cod earlier this week.
The Titan, which is carrying five passengers and crew as part of a paid exploration to the wreck of the Titanic, lost contact with its mother ship less than two hours after descending into the North Atlantic ocean on Monday.
The Coast Guard said the noises, which were heard at 30 minute intervals, were picked up by a Canadian plane using sonar and that other rescue vehicles in the area were being diverted as a result.
Time remains a significant factor in the rescue, however, as the Titan is estimated to have only 96 hours in emergency oxygen supplies, a level that would leave it without breathable air as early as mid-day eastern daylight time today.
Titan's passengers include Stockon Rush, who founded the Ocean Gate Expeditions company that runs its voyages; Hamish Harding, a British investor and explorer, French diver Paul-Henri Nargeolet as well as Pakistani businessman Shahzada Dawood and his son, nineteen-year-old Suleman Dawood.
