4.10pm: Wall Street tumbles as sell-off resumes
US markets endured another dismal session as investors braced themselves for a large interest rate increase tomorrow and as Ford Motor Co. slumped 12.3% after warning of a US$1bn hit from inflationary pressures together with supply chain issues.
At the close the Dow Jones Industrial Average was down 313 points, or 1.01%, to 30,707.08, the S&P 500 fell 44 points, or 1.13%, to 3,856 and the Nasdaq Composite slipped 110 points, or 0.95%, to 11,425.
The Federal Open Markets Committee began its two day meeting today with the US central bank widely expected to hike rates by 75 basis points for the third straight time at the end of its policy meeting on Wednesday, with markets also pricing in a 17% chance of a 100 bps increase.
As important will be the tone of the accompanying statement although recent history suggests this will remain hawkish as the bank remains committed to reducing inflation to its 2% target.
Nike Inc (NYSE:NKE) was another corporate heavyweight under pressure with shares dropping 4.9% as Reuters reported analysts at Barclays had downgraded the stock to equal weight from overweight citing volatility in the Chinese market due to pressures from COVID-related lockdowns in early September.
12.05pm: Wall Street preps for risks ahead
US indices have seen a risk-off sentiment take firmer hold as the central banks geared up for another round of rate hikes.
At midday, the Dow Jones Industrial Average was down over 250 points or 0.6% to 30,769 points, the S&P 500 was down by 0.7% at 3,872 points, while the Nasdaq Composite was down by 0.2% at 11,515 points.
Joshua Mahony, senior market analyst at online trading platform IG, said tighter monetary policy and US president Joe Biden promising to take on China over Taiwan, were sparking another round of risk-off sentiment.
“While futures markets had originally signalled a relatively upbeat start to the day, that never really got started, with selling pressure taking hold in anticipation of a week full of monetary tightening and warnings of stubbornly high inflation,” Mahony said in a statement.
Mahony noted there was little room for optimism as stakes are upped in Taiwan and Ukraine.
“Russia has laid out plans to swiftly annex four Russian-backed regions of Ukraine today, with referendums set to take place over the course of the coming week," he said.
"While optimists may highlight the potential for a massive market rebound in the event that Russia is driven back and a peace deal is reached, this decision to formalize their military gains will make the task of resolving this conflict even more difficult."
Mahoney added: “Meanwhile, Joe Biden has made a bold statement in vowing that American forces would defend Taiwan against any Chinese attack, with traders fearing that any US-China conflict could provide have economic consequences well beyond those seen over the past year."
The major movers included Wynn Resorts (NASDAQ:WYNN), up by 5% in trader sentiment held over from last week when Credit Suisse gave the company an 'Outperform' rating. Also, Moderna and Las Vegas Sands were both up over 4%.
On the downside, Ford continued to take a beating, down by over 9.7%, while Iron Mountain (NYSE:IRM) slid by 6.5%, and Weyerhaeuser was down by 5.9%.
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9.35am: Ford latest in string of companies pummeled by inflation
US stocks continued to slide on Tuesday morning, as the Federal Open Market Committee kicks off its highly anticipated, two-day rate-setting September meeting.
Just after the open, the Dow Jones Industrial Average had shed 273 points or 0.9% at 30,747 points, the S&P 500 was down 35 points or 0.9% at 3,865 points, and the Nasdaq Composite was down 98 points or 0.9% at 11,437 points.
Ford Motor Co fell about 7% at the open after the car maker said inflation had pushed its supplier costs $1 billion higher than expected in the current quarter, revising down its projected quarterly earnings ahead of reporting its results next month.
Beyond Meat Inc (NASDAQ:BYND) was down about 1% following reports the company’s chief operating officer was arrested over the weekend after allegedly biting a man’s nose during an altercation.
6.30am: Renewed falls seen
US stocks were expected to open lower on Tuesday as the Federal Reserve starts its two-day interest rate setting meeting which is widely expected to culminate in a 75 basis point rate hike on Wednesday.
Futures for the Dow Jones Industrial Average were down 0.4% in pre-market trading, while those for the S&P 500 shed 0.5%, and contracts for the Nasdaq-100 lost 0.6%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted that activity on Fed funds futures indicates an over 80% chance of a 75-basis point hike and under a 20% chance for a 100-basis point increase hike.
“Although the probability of a full percentage point hike spiked up to 35% after last week’s disappointing inflation reports, we still believe that the Fed has nothing to gain by surprising the market with a bigger than expected rate hike,” she said, noting that the strength of the US dollar is another factor that will help persuade rate setters against a larger increase.
In data out last week, the US consumer price index (CPI) for August showed inflation at 8.3% on an annualized basis, more than the average economists' forecast of 8.1%. The data led to falls in equity markets but sporadic bargain hunting emerged to shore up prices yesterday.
“Therefore, a 75 basis point hike at tomorrow’s announcement has the potential to give some relief to the US dollar and the equity markets, as it would help de-pricing the scenario of 100 basis point hike,” Ozkardeskaya said.
A 75-basis point interest rate hike on Wednesday will be the third such increase as US rate-setters try to dampen inflation which remains stubbornly around 40-year highs. Investors are worried that the spate of aggressive hikes will threaten economic growth and weigh on corporate profits. US Treasury yields were higher ahead of the rate verdict.
As ever, investors will also scrutinize the statement accompanying the Federal Reserve’s rate decision.
“If there is any hint that the Fed members move away from the idea of ‘soft landing’, the doves would be more aggressively back, and we could see a bigger relief across risk assets, whereas if Powell insists on the fact that the US jobs market remains resilient to the policy tightening, it would be taken as a sign that the Fed will carry on with sustained rate hikes, and the relief – if any - would be much smaller,” concluded Ozkardeskaya.
Contact the author at jon.hopkins@proactiveinvestors.com