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North American Morning Briefing : Stock Futures Pause Ahead of Fed Decision

06/16/2021 | 06:04am EDT


Watch For:

Walmart formal business & shareholders meeting; U.S. Housing Starts for May; EIA Weekly Petroleum Status Report; U.S. Federal Reserve economic projections and interest rate decision; Canada Consumer Price Index for May.

Opening Call:

Stock futures wavered Wednesday ahead of the Federal Reserve's latest projections, which could provide cues on when policy makers may begin to dial back support for the economy.

Futures tied to the S&P 500 edged down less than 0.1%, pointing to a tepid drop at the opening bell. The broad market index ended Tuesday down 0.2%. Nasdaq-100 futures ticked up 0.1% Wednesday, suggesting muted gains in technology stocks.

Stocks are hovering close to all-time highs with many developed economies moving toward ending lockdowns while central banks keep easy-money policies in place. Investors this week are watching for any changes in Fed policy makers' views on inflation, the labor market, and other economic indicators that may offer hints on when they would begin tapering bond purchases. Data Tuesday showed that retail sales dropped in May while producer prices rose, offering a mixed picture of the recovery.

"We've had the initial exuberance and we are catching up a little bit to reality. Markets are less liquid-being summertime-and they are also digesting some of this anticipation," said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management. "There have been some data points that have come in lower than expected, such as retail sales. It has reduced the cause for concern that the Fed could taper faster than expected."

The Fed will release its latest monetary policy decision at 2 p.m. ET. The central bank will also release individual policy makers' updated quarterly economic projections. The new forecasts could show officials expecting to raise interest rates sooner than they anticipated in March. They are also likely to begin discussing when and how to start scaling back bond purchases.

"We are in the camp that everything we've seen so far isn't the kind of thing that will make the Fed change its policy outlook at all. Employment comes first, inflation second," said Samy Chaar, chief economist at Lombard Odier. "The Fed will stick to its pre-set course and tolerate inflation until the labor market improves."

Data on housing starts in the U.S. in May is due at 8:30 a.m. Economists are expecting an increase from strong demand, at the same time that higher costs for building materials and worker shortages are propelling house prices.


The dollar may rise if the Federal Reserve signals it will soon begin talks about tapering bond purchases but gains are unlikely to be strong or long-lasting, Unicredit said.

The dollar's moves would also probably depend on the reaction of stocks and bonds in particular, considering the 10-year U.S. Treasury yield is struggling to rise above 1.50%, Unicredit analysts said.

"Recent EUR/USD lows of around 1.2090 will probably be breached on the Fed announcement, but we doubt that the USD recovery will be strong enough to drag the common currency below the 1.2050-1.20 key support levels and test additional downside potential." EUR/USD was last flat at 1.2128.

The pound rose after data showed annual U.K. inflation reached 2.1% in May, above a Wall Street Journal poll forecast of 1.9% and exceeding the Bank of England's 2.0% target for the first time in almost two years.

Gains are limited, however, ahead of a Fed decision later which has the potential to boost the dollar and weigh on risk appetite, sending the pound lower.


In bond markets, the yield on the benchmark 10-year Treasury note was relatively flat at 1.496%, compared with 1.498% on Tuesday.

Perhaps the best one can expect from the Fed's meeting is "some slightly more detailed guidance on the conditions that need to be met before the Fed will consider tapering initiatives," said David Norris, head of US credit at TwentyFour Asset Management.

This could include more of the same that Fed Chairman Jerome Powell has said before as substantial further progress on inflation and employment goals is needed before the Fed will look at cutting its $120 billion of monthly bond purchases, Norris said.

TwentyFour AM will focus its attention on comments from the various regional Fed presidents on conditions that could prompt tapering in the future, he said.


Oil prices rose, with both benchmarks' early gains softening despite sharper-than-expected draws in U.S. crude inventories shown in API data on Tuesday.

Investors are also awaiting EIA inventory data due out later Wednesday. Traders remain optimistic about the short-to-medium future for oil prices, according to DNB Markets' Helge Andre Martinsen.

At an event in London this week, Trafigura's CEO reportedly said he sees a chance of $100 a barrel oil, while the CEOs of Gunvor and Vitol both expect elevated prices in the coming months. UBS on Wednesday lifted its September oil forecast by $3 a barrel to $78 a barrel for Brent.

Gold prices edged higher as investors awaited the Fed meeting. Comex gold futures rose 0.3% to $1,862 a troy ounce. Gold, which has edged down 2.3% so far this month, is likely pricing in expectations that the Fed will offer clues on tapering, suggesting it won't move greatly on such news, said Carsten Fritsch, an analyst at Commerzbank.


Regeneron's Antibody Drug Cuts Risk of Death in Some Covid-19 Patients

An antibody treatment developed by Regeneron Pharmaceuticals Inc. has been shown to significantly cut the risk of death among certain hospitalized Covid-19 patients, raising hopes for a valuable new tool for tackling severe cases.

A large U.K. trial involving nearly 10,000 patients showed that administering REGEN-COV on top of usual care reduced the risk of dying by a fifth among hospitalized coronavirus patients who hadn't produced antibodies to the virus. The drug had no effect among patients who had already produced antibodies.


Chinese Trucking Startup Seeks to Raise Up to $1.6 Billion in U.S. IPO

Full Truck Alliance Co., a Chinese startup that provides an Uber-like service for the road-haulage industry, aims to raise as much as $1.57 billion from its U.S. initial public offering, a filing showed.

The company, also known as Manbang Group, runs a mobile app connecting truck drivers to businesses that need to transport goods within China. It has a number of high-profile investors including Alphabet Inc. and SoftBank Group Corp.'s Vision Fund.


FDA Authorizes More Covid-19 Vaccine Doses From Troubled Baltimore Plant

The Food and Drug Administration cleared an additional batch of Johnson & Johnson Covid-19 vaccine doses Tuesday from a troubled production plant in Baltimore.

The agency cleared 15 million doses, bringing the total doses authorized for export to 25 million, according to a senior U.S. official.


Platinum Equity Strikes Deal to Buy McGraw Hill From Apollo

Private-equity firm Platinum Equity has struck a deal to buy McGraw Hill from Apollo Global Management Inc.

The deal for the textbook publisher and educational-technology company, announced Tuesday following an earlier report by The Wall Street Journal, is valued at about $4.5 billion, including debt.


Southwest Airlines Flights Thrown Into Disarray by Technical Problems

For the second day in a row, a technical problem snarled Southwest Airlines Co.'s operations, leading to hundreds of delays and prompting the airline to cancel 500 flights.

Southwest said it was in the process of resuming normal operations following what it called a system issue that created disruptions throughout its network. An airline spokeswoman said multiple systems had experienced connectivity issues.


Oracle Reports Record Annual Profit, Revenue

Oracle Corp. reported an 8% revenue increase in the latest period, ending the year with a record $40.48 billion in revenue.

The business software giant also reported a record $13.75 billion profit for the year ended May 31 and pointed to accelerating growth rates of both its applications and infrastructure cloud businesses.


Fed Meeting Likely to Signal Possible Policy Shifts

WASHINGTON-Federal Reserve officials are set to provide updated details on their plans for eventually scaling back easy-money policies as they conclude a two-day policy meeting amid signs of accelerating economic growth and inflation.

The Fed on Wednesday is likely to say after the meeting that it will maintain short-term interest rates near zero and keep buying at least $120 billion a month of Treasury and mortgage bonds. The central bank will also release individual policy makers' updated quarterly economic projections.


Derby's Take: Consumer and Market Views on Inflation Diverge as Fed Meeting Looms

Federal Reserve officials are approaching this week's monetary policy meeting at a moment when consumers and markets are diverging on what they think the future path of inflation will be.

On Monday, the Federal Reserve Bank of New York said respondents to its May Survey of Consumer Expectations believe that a year from now, inflation will surge to a series high of 4%, while three years from now, they see inflation jumping to 3.6%. What is more, consumers expect nearly all the key real-world things people spend their income on-home buying, rent, food, gasoline, medical care-to see big price increases over the next year.


China to Release Metal Reserves in Effort to Tame Commodities Rally

SINGAPORE-China plans to release national reserves of major industrial metals in an effort to rein in surging commodities prices fueled by a resumption of global economic activity.

(MORE TO FOLLOW) Dow Jones Newswires

06-16-21 0603ET

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