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Stock Futures Steady Ahead of Fed’s Rate Decision

The major stock indices finished Tuesday’s trading day in the black. The Dow Jones Industrial AverageS&P 500, and Nasdaq 100 all added points by 0.31%, 0.74%, and 1.09%, respectively. 

However, gains were modest on Wednesday as investors await the release of the Fed Fund Rate later in the day. Inflation in the United Kingdom decreases from a 41-year high as the fuel price rise subsides.

After the recent US CPI figures came in lower than expected, the stock market increased. Given that, it is expected that the Federal Reserve will be less aggressive in raising interest rates when it announces its decision on Wednesday afternoon.

The S&P 500 increased by 0.7%, the Nasdaq Composite increased by 1%, and the Dow Jones Industrial Average added 104 points or 0.3%. All three indices finished the day substantially below their daily peaks.

In November, the consumer price index increased 7.1% year over year, underperforming October’s 7.7% increase and forecasts for a 7.3% increase. The core CPI, which excludes the more erratic energy and food prices, increased by 6% instead of 6.3% in October.

The session’s underperformer was the consumer staples sector, which dropped 0.16%. However, with a gain of 2.18%, the real estate sector led the session.

Additionally, the 10-Year Treasury yield for the United States dropped by more than 9 basis points to 3.51%. The yield on the two-year Treasury note also dropped, hovering around 4.23%. The difference between them now stands at -72 basis points. 

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Awaited Fed Fund Rate Mutes Stocks

Stock futures were cautious Wednesday morning as traders awaited the Federal Reserve’s announcement on Wednesday regarding its most recent interest rate hike in an effort to combat inflation.

Futures for the Dow Jones Industrial Average went up 22 points, or 0.06%. The S&P 500 futures were essentially steady, while those for the Nasdaq 100 crept up by 0.1%.

A cooler-than-expected inflation figure on Tuesday drove up stocks for a second day during regular trading. The annual increase in the consumer price index for November was 7.1%, compared to the economists polled by Dow Jones’ survey’s prediction of 7.3%. 

Additionally, the 0.1% growth from the prior month was less than anticipated.

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Stocks responded favorably to the indication that inflation may have peaked since it suggests the Fed is getting closer to stopping interest rate hikes or switching to rate cuts, which would support the stock market.

The central bank will wrap up its December meeting on Wednesday and announce its most recent rate increase. After four consecutive 75 basis point increases, investors generally anticipate a 50 basis point rise, or 0.5%, a lower increase. One-tenth of a percent is equivalent to one basis point.

On Wednesday, Chair Jerome Powell will also speak, providing additional hints about what to expect from the Fed in 2023. Traders have picked up on Powell’s wording in earlier meetings this year, interpreting his tone as hawkish or dovish.

The Fed meeting is the final for the year, with the next FOMC meeting expected to take place between Jan. 31 to Feb. 1, 2023. 

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UK Inflation Falls As Fuel Price Surge Eases

With decreasing gasoline prices helping to reduce pricing pressures, U.K. inflation came in at 10.7% in November, slightly below predictions, even though high food and energy prices continued to put pressure on individuals and companies.

Following an unexpected surge to a 41-year high of 11.1% in October, economists had predicted a consumer price index yearly increase of 10.9% in November. The growth in November was 0.4% on a monthly basis, down from 2% in October and under the average forecast of 0.6%.

On Thursday, the Bank of England will reveal its upcoming change in monetary policy. As it balances extremely high inflation with an economy that economists claim is already in its deepest recession on record, it is poised to hike interest rates by 50 basis points.

Over the holiday season, there will be a lot of strikes as workers call for pay increases that are more in line with inflation and improved working conditions.

The market is pricing in a 50 basis point increase in the Bank’s benchmark interest rate to 3.5% on Thursday. Politicians have hinted that the rate of increases may slow down in 2023. But inflation is still far above target.

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  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.