US futures decline as Fed worries outweigh earnings

Bloomberg

US stock-index futures decline as concerns over the Federal Reserve’s aggressive rate-hike path outweighed robust corporate earnings and China’s stimulus plans.
September contracts on the S&P 500 Index slipped 0.5% after the equity benchmark posted modest gains amid a rally in retailer stocks. Nasdaq 100 futures retreated 0.7% signalling a selloff in technology names will continue.
The dollar and Treasury yields rose as investors await the minutes of the Fed’s last policy meeting for clues on policy makers’ sensitivity to weaker economic data.
US stocks have rallied on signs of peaking inflation and an earnings-reporting season that saw four out of five companies meeting or beating estimates. Yet, continuing rate hikes and the likelihood of a recession in the world’s largest economy are weighing on sentiment.
Meanwhile, concern is growing that Fed rate setters will remain focused on the fight against inflation rather than supporting growth.
“We expect the FOMC minutes to have a hawkish tilt,” Carol Kong, strategist at Commonwealth Bank of Australia Ltd., wrote in a note. “We would not be surprised if the minutes show the FOMC considered a 100 basis-point increase in July.”
Earlier on Wednesday, stocks rose in Asia amid speculation that China may deploy more stimulus to shore up its ailing economy. After a string of weak data driven by a property-sector slump and Covid-19 curbs, China’s Premier Li Keqiang asked local officials from six key provinces that account for 40% of the economy to bolster the pro-growth measures.
Some of those equity gains were surrendered when European trading opened and the focus turned to the Fed as well as UK inflation that soared to double digits for the first time in four decades.
The Stoxx 600 falls after a strong start amid signs the continent’s energy crisis is worsening. Benchmark natural-gas futures jumped 5.1% on expectations the hot weather will boost demand for cooling. In the UK, consumer-price growth jumped to 10.1%, sending gilts tumbling.
The dollar drifted higher on Wednesday. Treasuries fell, with the 10-year yield adding 6 basis points and the two-year rate climbing five basis points. The spread between these two yields remained inverted at about 45 basis points. The yield-curve spread between 10-year and two-year securities fell to the most negative since 2008.
Oil fluctuated between gains and losses, and was in sight of a more than six-month low — reflecting lingering worries about a tough economic outlook amid high inflation and tightening monetary policy.
In US premarket trading, Applied Materials and PayPal Holdings dropped at least 1.3%. Tech stocks are forefront of growing pessimism over equity valuations on the back of Fed rate increases. The S&P 500 had posted a small gain, aided by earnings reports from retailers Walmart Inc. and Home Depot Inc.