U.S. equity futures fell on Wednesday, signaling that major indices will extend losses as investors await the report of the Federal Reserve’s latest monetary policy meeting.
S&P 500 futures fell 0.8% and Dow Jones Industrial Average contracts fell 0.7%. Futures on the Nasdaq-100 fell 1.3%, suggesting tech stocks will be among the biggest losers when markets open.
Stocks have faltered in recent days over fears that rising inflation may cause the Fed to unwind some of the support it has given to markets since the start of 2020. Fed officials have pushed back this prospect, saying that the economy is still in recovery mode and demands near zero interest rates and $ 120 billion a month in bond purchases.
“The main driver is now central banks,” said Nadège Dufossé, head of cross-asset strategy at Candriam. She expects the Fed not to provide advice on reducing stimulus until September, when the data should give a clearer picture of the inflation outlook.
Shares are likely to be volatile and could see a 10% correction in the meantime, Dufossé said, although she added that the market is getting support from strong earnings growth and evidence that vaccines against coronaviruses are very effective. The S&P 500 closed just 2.5% below its all-time high on Tuesday, despite declining for five of the last seven trading days.
Investors will be looking to glean clues to the Fed’s thinking when the minutes of its April meeting are released at 2 p.m. ET. Officials voted unanimously to maintain central bank policies aimed at lowering borrowing costs, and President Jerome Powell said the recovery remained patchy and incomplete.
Since then, data has shown a surge in inflation in April, causing nervousness in the stock market. Tech stocks – which benefit from low rates because their earnings are expected to stretch far into the future – have been particularly sensitive to the prospect of higher borrowing costs.
There is “some concern about what the Fed might do over the next few months and quarters in terms of asset reduction,” said Paul Jackson, head of asset allocation research at Invesco, saying reference to the reduction of the bond purchase program.
“The US economy is rebounding very, very strongly,” added Mr. Jackson. “That, in and of itself, should make the Fed feel more comfortable that it doesn’t need to provide as much support as it is.”
The commodity markets retreated. Futures on West Texas Intermediate, the main grade of US crude oil, fell 1.9% to $ 64.28 a barrel.
Bitcoin fell to $ 38,585.86, its lowest since February, according to CoinDesk. The recent price drop accelerated after three Chinese entities issued a statement that financial institutions should not accept virtual currencies for payment or provide services using them.
Overseas markets have generally declined. The Stoxx Europe 600 index fell 1.4%, weighed down by stocks of basic resources, oil and gas and technology companies. Miners BHP Group and Anglo American each slipped more than 2% as copper prices fell.
In Asia, the Shanghai Composite Index fell 0.5% at the close while Japan’s Nikkei 225 lost 1.3%.
Write to Joe Wallace at [email protected]
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