Positive US futures on Fed day: today, Wednesday 27 July, Jerome Powell’s Fed will announce its decision on fed funds rates.
At 13.50 Italian time, futures on the Dow Jones rose by 0.45%, those on the S&P 500 advanced by 0.82%, those on the Nasdaq jumped by 1.35%.
The last time the FOMC meeting – the Fed’s monetary policy arm – was held, in mid-June, Powell & Co raised rates by 75 basis points, as the markets bet, to the new range between 1.5% and 1.75%, a record value from the period before the outbreak of the Covid-19 pandemic.
The monetary tightening has been the strongest since 1994, leading some to speak even of Volcker shock, in a context in which the whole world is frightened by inflation and, consequently, by the effects that the rate hikes aimed at facing its surges end up causing a sharp slowdown in the economy, worse still a hard landing and therefore a recession.
In June, US inflation measured by the consumer price index grew by 1.3% on a monthly basis, higher than expected for a monthly rise of + 1.1% and beyond the previous increase in May, equal to + 1%.
The core component, i.e. the one without the more volatile components represented by the prices of energy and food goods, increased by 0.7% on a monthly basis, more than the expected + 0.6% and even more than the previous + 0.6%. On an annual basis, inflation flew by 9.1%, to the new all-time record, well above the + 8.6% forecast and the previous + 8.3%.
Core inflation rose 5.9% year on year, at a slower pace than the previous + 6%, but again more than expected. The reaction of some economists, such as those of Nomura, who reacted by announcing that they foresee a monetary tightening of up to +100 basis points.
But Wall Street and global markets are also worried about the risk of recession, for the US and world economy.
The consensus estimates a monetary squeeze of 75 basis points: “With so many variables to consider, we expect the markets to remain volatile after the FOMC meeting – wrote Mark Haefele of UBS Global Wealth Management in a note reported by CNBC. markets anticipating fed dfunds rates to 3.3% by the end of the year, meaning that after this week’s meeting, there could be more rate hikes of around 100 basis points by the end of December. But the pace of the squeeze remains uncertain ”.
The positive sentiment is supported by the quarterly reports of Big Tech Microsoft and Alphabet.
Microsoft announced encouraging sales guidance for the current fiscal year, and Alphabet, the holding company to which Google is a part, reported higher-than-expected ad revenue on Wall Street.
It must be said, however, that Alphabet has disappointed analysts’ estimates regarding YouTube profits and cloud activities. Big Tech also indicated that there may be obstacles to growth in the coming months. However, the stock rises in the premarket by almost + 4%. Microsoft advances by more than 3%.
On the US Treasury market, 10-year rates rise to 2.794%, while 2-year rates fluctuate above 3.059%, confirming the inversion of the US yield curve.
More than 150 companies traded on the S&P 500 have released the accounts relating to the second quarter. Of these, around 70% beat analysts’ expectations, according to data from FactSet.