Here are five things you must know for Wednesday, April 5:
1. -- Stock Futures Lower, Bond Yields Surge on Hawkish Fed Concerns
U.S. equity futures traded lower Wednesday, while Treasury yields leaped and the dollar rose to a two-year high against its global peers, as investor adjusted their bets on Federal Reserve rate hikes ahead of the release of minutes from its March policy meeting.
Federal Reserve Governor Lael Brainard told an event in Minneapolis late Tuesday that the Fed would not only be "methodical" in its effort to raise interest rates in order to tame the highest levels of inflation in forty years, but it would also begin the run-off of the Fed's $9 trillion balance sheet as soon as next month, and at a "considerably" more rapid pace than in the past.
Those comments, as well as data showing at least a 76.6% chance of a 50 basis point rate hike at next month's policy meeting, lifted Treasury bond yields to the highest levels in two years, taking 10-year notes to 2.639% in overnight trading, while boosting the U.S. dollar index to a 2020 peak of 99.487 in overnight trading.
The surge in bond yields held down gains for global stocks, which were also hit by data from China showing a sharp slowdown in economic activity last month as the country's Covid infection rate surged and closed factories and businesses around the country.
China's Caixin PMI reading, a composite look at activity in the world's second-largest economy, plunged to 43.9 points last month, the lowest in more than two years and well below the 50 point mark that separates growth from contraction.
In Europe, with investors focused on both the human tragedy from Russia's war on Ukraine and the impact of sanctions on exports from Moscow, oil prices extended gains ahead of a White House statement later today and comments from European Commission President Ursula von der Leyen that suggested crude could be the next target.
WTI crude futures for May delivery were marked $1.17 higher from Tuesday's close at $103.13 per barrel in overnight trading, while Brent contracts for June, the new global pricing benchmark, rose $1.10 to trade at $107.73 per barrel.
On Wall Street, futures contracts tied to the Dow Jones Industrial Average indicating a 155 point opening bell decline while those linked the S&P 500, which is down 5.06% for the year, are priced for a 25 point pullback. Futures linked to the tech-focused Nasdaq are looking at a 120 point opening bell slide.
2. -- Fed Minutes: Balance Sheet Run-Off in Focus as Rate Bets Hold
The Federal Reserve will release minutes from its March policy meeting, where members raised interest rates for the first time since 2019, later today, with investors focused on any details as to how and when the central bank will unwind its $9 trillion balance sheet.
Commentary will also indicate how voting members of the Fed's Open Markets Committee have altered their views on inflation from their January meeting, when at least some had suggested inflation would return to target before the end of the year.
Since then, supply chains have been hit by another Covid surge in China and oil, food and energy prices have soared as a result of the impact of Russia's war on Ukraine, adding to the "stickiness" of inflation prospects and cementing the case for at least seven more rate hikes between now and the end of the year.
The CME Group's FedWatch tool suggests a 76.6% chance of a 50 basis point hike in May, followed by a 60% chance in June and a 48.5% chance in July.
That puts the Fed's $9 trillion balance sheet -- acquired by years bond purchases under its quantitative easing and pandemic support programs -- in focus. Selling those assets into the bond market will raise 'market' interest rates alongside the official Fed Funds rate, creating a 'double-tightening' affect that will both tackle inflationary pressures more aggressively but also put the economy in a more vulnerable position in terms of a slowdown and resultant recession.
3. -- Musk Refiles SEC Paperwork, Indicates 'Active' Role From Twitter Stake
Elon Musk conceded late Tuesday what pretty much everyone in the financial work, and certainly those invested in Twitter (TWTR) already knew: He plans to have an active role in the micro-blogging website.
Musk submitted an updated 13-D filing with the U.S. Securities and Exchange Commission noting his intention to take an active role in the group following the revelation of his 9.2% stake earlier this week.
Musk's original 13-G filing, typically used by passive investors, was called into question when the billionaire Tesla (TSLA) CEO began Tweeting about proposed changes to the group's user interface and accepted a seat on the company's board with the stated intention to "working with (CEO Parag Agrawal) & Twitter board to make significant improvements to Twitter in coming months."
In exchange for his seat on the board, Musk, the world's richest man with an estimate fortune of more than $300 billion, will only be able to amass a 14.9% stake in the San Francisco-based group.
Twitter shares were marked 1.4% lower in pre-market trading to indicate and opening bell price of $50.28 each.
4. -- JetBlue Makes $3.6 Billion Offer For Spirit, Bumping Frontier From Gate
Spirit Airlines (SAVE) shares slumped lower in pre-market trading after the low-cost carrier received an unsolicited $3.6 billion takeover bid from JetBlue Airways (JBLU) that could potentially upend its planned merger with Frontier Group (ULCC).
JetBlue's cash offer of $33 per share for Spirit, which it says will help the New York-based carrier compete with larger rivals such as American Airlines (AAL), Delta (DAL) and United (UAL), is around 33% higher than Frontiers cash-and-stock bid from earlier this year, but would likely face significant regulatory hurdles and a close look from the Department of Justice on the grounds that it could raise fares and limit customer choice.
Spirit said it would review the offer.
"We've had unprecedented amounts of consolidation, which the DOJ has approved and now it's about how do we make sure the rest of us can continue to discipline the legacy carriers and create that competition," JetBlue CEO Robin Hayes told Reuters. "We believe ultimately this is the best deal out there that is going to really drive more competition."
Spirit Airlines shares were marked 2.4% lower in pre-market trading to indicate an opening bell price of $26.26 each while JetBlue fell 3.3% to $13.19 each. Frontier was marked 1.5% lower at $11.74 each.
5. -- Big Oil Bosses Face Gas Price Grilling From Congress
Executives of the biggest U.S. oil companies are expected to face a grilling from lawmakers in Washington Wednesday on record high gasoline prices as the impact of Russia's war on Ukraine continues to ripple into consumer spending in the world's biggest economy.
The U.S. House Energy and Commerce Subcommittee on Oversight and Investigations will ask bosses from Exxon Mobil (XOM), Chevron (CVX), Devon Energy (DVN) and others for the reasons as to while gasoline price rose so quickly during the early March run-up in crude prices, and whey they've taken so long to come down now that WTI crude is some 16% south of its March 8 peak.
Gas prices hit an all-time high of $4.31 in early March, and were last seen pegged at a national average price of $4.164 by the AAA, a figure that would represent only a 3.5% decline.
"Changes in the price of crude oil do not always result in immediate changes at the pump," Chevron CEO Mke Wirth said in prepared testimony. "And while the price of crude oil might dip more quickly, it frequently takes more time for competition among retail stations to bring prices back down at the pump."
Chevron shares, which have gained more than 39.2% so far this year -- against a 5.1% decline for the S&P 500 -- were marked 0.9% higher in pre-market trading at $164.90 each. Exxon shares rose 1.1% to $83.64 each.
