4:15pm: Inflation fears sink stocks
Stocks settled in negative territory to end Wednesday's trading session as investors digested the latest hawkish outlook from the Federal Reserve.
At the close, the S&P 500 was down 0.3% at 3,577, the Dow was 0.1% lower at 29,211, and the Nasdaq lost 0.1% to close at 10,417.
Commenting on the October meeting minutes, George Lagarias, chief economist at Mazars said: “Markets are moving much faster than policy makers can react. Rapidly widening bond market dislocations, evident also in fresh Gilt volatility, probably render the Fed's September Minutes immaterial."
He added: "No matter what was discussed in the Fed's September meeting, we are fast approaching the point where it will have to choose between sticking to its hawkish stance and risk a financial crisis or relent and embrace its other role as lender of the last resort.”
2.15pm: Fed minutes reflect hawkish outlook
Federal Reserve officials have indicated that they expect higher rates to stay around for the foreseeable future and indicated their concern at doing "too little" to tame inflation.
The group lowered their projections for the economy, expecting GDP to grow at just a 0.2% annualized pace in 2022 and just 1.2% in 2023.
US markets were little changed by the release of the latest Fed meeting minutes, with the Dow Jones, Nasdaq and S&P 500 all remaining in the green.
At 2:15pm, the S&P was up 0.1%, while the Dow and the Nasdaq were both up 0.3%.
12.05pm: US markets react to CPI data
US indices edged into green territory midday, as traders look forward to a key consumer report on Thursday, which can influence whether the US Federal Reserve will hike interest rates.
At midday, the S&P 500 was up by 0.4% at 3,602, while the Nasdaq Composite was up by 0.4% at 10,471 and the Dow Jones was up by 0.6% at 29,406.
Chris Beauchamp, chief market analyst at online trading platform IG, said the markets remain on edge for further bad news, and there is plenty of opportunity over the next two days for either US consumer price index numbers or bank earnings to shock investors.
“Today’s PPI data hasn’t helped much, as it signals that price rises continue to feed through to the broader US economy,” Beauchamp wrote in a report.
The producer price index numbers were up by 0.4% in September, more than the consensus estimate of a 0.2% increase.
He noted that fears of a recession continue to drive oil lower, and the losses are chipping away at last week’s bounce in prices.
“OPEC may find itself having to cut again sooner than it expected should demand keep on weakening. In addition of course, any further US dollar strength will prompt more losses in oil and commodity markets generally, so all eyes remain fixed on tomorrow’s CPI reading,” Beauchamp wrote.
At midday, West Texas Intermediate was down 2.3%, trading at $87.30 a barrel.
The major movers at midday included Moderna, up over 11% on news the vaccine maker will work with Merck & Co on a potential personalized mRNA vaccine, which included a US$250 million payment upfront. Norwegian Cruise Lines, Royal Caribbean and Carnival were all up between 6% and 9%.
On the downside, Abermarle slid 7% to US$253, despite a bounce in yesterday’s stock price to $272. Financial services company T Rowe Price Group fell by 4.5%, while SBA Communications was down by 4.3%, both of them hitting new 52-week lows.
9.35am: Markets turn sour
After making gains in pre-market trading, US stocks edged lower at the open on Wednesday morning as investors awaited the release of the minutes from the Fed’s latest meeting, due out at 2pm Eastern.
Just after the market opened, the Dow Jones Industrial Average had slipped 95 points or 0.3% at 29,144 points, the S&P 500 had shed 11 points or 0.3% at 3,578 points, and the Nasdaq Composite was down 30 points or 0.3% at 10,397 points.
Forex.com market analyst Fawad Razaqzada said the Fed’s minutes were expected to reiterate the central bank’s hawkish stance, but they were unlikely to move markets too much as several officials have since spoken.
“Attention turns to US data after even more hawkish commentary from the Fed overnight with Mester saying the central bank still had a lot of work to do to bring inflation down and that a more restrictive policy was needed,” he noted.
As earnings season ramps up, PepsiCo (NASDAQ:PEP) gained 3.7% after the food and beverage company upped its forecast for the year on the back of a 9% year-over-year 3Q revenue increase to $22 billion.
Hong Kong-based meme stock AMTD Digital shares had jumped about 23.3% at the open, after being halted for volatility, despite a lack of company news.
6.30am: Gains seen
US stocks are expected to open higher on Wednesday, steadying after recent sharp falls as investors await the release of minutes from the Federal Open Market Committee’s (FOMC) last rate-setting meeting.
Futures for the Dow Jones Industrial Average were up 0.6% in pre-market trading, while those for the S&P 500 were 0.8% higher, and contracts for the Nasdaq-100 added 0.9%.
“Today, the minutes from the FOMC’s latest meeting will reveal if some Federal Reserve members are concerned about going ‘too fast’ in terms of rate hikes,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
She said she does not expect the minutes to reveal anything more dovish than a commitment to continue monitoring economic data. Any hint of doubt in the minutes about the effectiveness of the recent spate of interest rate hikes, however, may help bring out bargain hunters.
US rate-setters have delivered three 75-basis point interest rate increases in as many meetings but inflation remains stubbornly high at around levels not seen in 40 years. More interest rate hikes are predicted despite the likely harm to economic growth.
US producer price data for September which will show whether pipeline price pressures are building up.
On Thursday, US consumer price data are due. A slight easing in the headline inflation figure is expected.
While headline CPI figure is expected to have slowed from 8.3% to 8.1%, core inflation, which strips out more volatile items, may have spiked higher. This would be bad news for those hoping that US rate-setters may slow down the pace of interest rate hikes, said Ozkardeskaya.
“Investors, and the world, desperately want a soft US inflation data to convince the Fed to soften its tone. Otherwise, the markets will continue being battered, jobs being lost, and economy being squeezed,” she added.
Separately, news that the International Monetary Fund (IMF) on Tuesday lowered its global growth forecast for next year to 2.7%, from 2.9% underscores the gloomy outlook for global economic activity and is expected to weigh on investors’ minds.
Ozkardeskaya noted that the IMF attached a 25% probability that global growth may slow to a figure below 2%.
Contact the author at jon.hopkins@proactiveinvestors.com