Five things you need to know before the market opens on Thursday December 15:
1. -- Stock Futures Slide As Fed Hawks Tighten Grip
U.S. equity futures slumped lower Thursday, extending yesterday's late-session pullback, as investors react to the Federal Reserve's hawkish interest rate hike while tracking pending decisions from central banks in Britain and Europe later in the session.
The Fed lifted its benchmark lending rate by 50 basis points, capping a year of seven hikes that have added 4.25% to the Fed Funds rate, and stated that further increases would be needed. The central bank also indicated that it will likely take the Fed Funds rate past 5%, implying at least another 0.75% in cumulative hikes, before holding at the level for most of next year.
"We're into restrictive territory," Fed Chairman Jerome Powell told reporters in Washington. "It's now not so important how fast we go. It's far more important to think what is the ultimate level (and) how long do we remain restrictive."
"There is a strong view on the committee that we'll need to stay there until we're really confident that inflation is coming down in a sustained way and we think that will be some time," Powell cautioned.
The hawkish signaling snuffed out a three-day rally on Wall Street, triggered in party a softer-than-expected November inflation reading, and powered a sharp spike in both the dollar and Treasury bond yields.
Benchmark 2-year notes, the most-sensitive to interest rate changes, were marked 6 basis points higher in overnight trading at 4.24% while 10-year notes held around the 3.5% mark. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.5% higher at 104.285.
Global stocks were also hit by the surprisingly hawkish Fed tone, as well as a series of weaker-than-expected November economic data from China, with Asia's MSCI ex-Japan index falling 1.6% into the close of trading and the Nikkei 225 slipping 0.37% in Tokyo.
In Europe, where traders are braced for interest rate decisions from the Bank of England and the European Central Bank, the region-wide Stoxx 600 was marked 1.2% lower, its biggest single-day decline in a month, while the FTSE 100 was down 0.8% in London.
Global oil prices were also weaker, pulled lower in part by the firmer U.S. dollar and news that the Keystone pipeline, which takes crude from Canada to the Gulf Coast, would reopen following a spill last week. EIA data also showed a bigger-than-expected build of domestic crude stocks over the week ending on December 9.
Brent crude contracts for February delivery were marked 62 cents lower at $82.08 per barrel while WTI futures for January fell 66 cents to $76.62 per barrel.
On Wall Street, futures contracts tied to the S&P 500 are priced for a 40 point slump while those linked to the Dow Jones Industrial Average are indicating a 250 point pullback. The Nasdaq is called 150 points lower.
2. -- Powell Pours Cold Water On Easing Hopes, Says More Hikes To Come
Fed officials, and notably Chairman Jerome Powell himself, conceded late Wednesday that they haven't made enough progress in fighting the fastest inflation in four decades, even with the most aggressive policy tightening in a generation.
Fresh inflation forecasts from the Fed's rate-setting committee see elevated price pressures throughout most of next year, even amid a gloomy prognosis that includes flatlining economic growth and a surge in unemployment. As as a result, officials think rates will need to rise further, and stay elevated for longer, until there is "substantially more evidence to give confidence that inflation is on a sustained downward path."
Powell told reporters in Washington that Fed projections don't include any kind of rate cut in 2023, warning that 'historical experience cautions strongly against prematurely loosening policy."
Not too many investors appear to agree. The CME Group's FedWatch, which tracks movements in Fed Funds futures trading, suggests the Fed will likely pause its rate hike cycle in March, and could even begin cutting by the latter part of the year, as inflation slows and the economy tips into recession.
"We understand the FOMC’s absolute determination to get inflation back to the target," said Ian Shepherdson of Pantheon Macroeconomics. "But we think that a true risk management approach to policy now calls for a pause; as Chair Powell said, policy works with long lags, and no one can be sure how the economy will look a year from now."
3. -- ECB, Bank of England Set to Follow Fed With 50 Basis Point Rate Hikes
The European Central Bank is expected to boost its key refinancing rate for a fourth consecutive time Thursday as it continues to lean into the region's fastest inflation on record while navigating what could be a near-term recession in the world's biggest economic bloc.
The ECB is set to lift all three of its benchmark rates by 50 basis points, taking its headline refinancing rate to 2.5% as its tightens monetary policy with plans to reduce its €5 trillion balance sheet, built-up from bond purchases during the region's debt crisis and the 2020 pandemic.
ECB President Christine Lagarde, however, will need to walk a fine-line between the effort to slow the region's surging inflation rate, last pegged at 10%, and the need to avoid crushing credit growth prospects in an economy that's vulnerable to energy price shocks and the fallout from Russia's ongoing war in Ukraine.
The Bank of England is also expected to deliver a 50 basis point rate hike today in London, taking its key Bank Rate to 3.5%, as it eases back on tightening amid concerns for a near-term recession following the Conservative government's budget and leadership chaos earlier this year.
4. -- Tesla Extends Slump As Musk Dumps Another $3.6 Billion Stake
Tesla (TSLA) shares extended declines Thursday following yet another share sale from CEO Elon Musk amid the biggest peak-to-trough decline on record for the world's biggest carmaker.
Musk sold another 22 million shares this week, Securities and Exchange Commission filings indicated Thursday, raising around $3.6 billion and lifting his year-to-date sale total to around $40 billion. Musk now holds a 13.4% stake in Tesla, down from around 17% this time last year.
Musk's efforts to stamp his authority on Twitter, the social media group he purchased in October for around $44 billion, has come at a significant cost to Tesla investors: shares in the carmaker are down more than 60% since Musk made his intention to buy the group public in early April.
Tesla shares were marked 2.6% lower in pre-market trading to indicate an opening bell price of $152.74 each, the lowest level in more than two years.
5. -- Lennar
Lennar Corp. (LEN) shares moved lower in pre-market trading after the homebuilder posted better-than-expected fourth quarter earnings but forecast a slowdown in new orders as mortgage rates continue to climb.
Lennar said adjusted earnings for the three months ending in November, its fiscal fourth quarter, rose 15% from last year to $5.02 per share, topping Street forecasts, as revenues jumped 21% to $10.2 billion.
Looking into the start of its 2023 year, however, Lennar said new orders would likely fall to around 12,000 to 13,500 -- following a fourth quarter decline of 15% to 13,200 -- amid what it called a "rebalancing" in the broader housing market.
Lennar shares were marked 2.33% lower in pre-market trading to indicate an opening bell price of $88.70 each.
