Futures tracking Wall Street’s main indexes edged higher on Monday after taking a beating in the prior session as investors waited for a widely expected pause in U.S. interest rate hikes by the Federal Reserve later this week. A slump in chipmakers on concerns over weak demand and a slide in mega-cap growth stocks due to rising Treasury yields had pushed the S&P 500 (.SPX), the Nasdaq (.IXIC), and the Dow (.DJI) to their worst single-day fall on Friday since Aug. 24, dropping between 0.8% and 1.5%.
Markets are also awaiting the Fed’s policy decision on Wednesday and Fed Chair Jerome Powell’s news conference. Investors are looking for signs that the central bank may be ready to soften its hawkish tone and slow the pace of rate increases this year.
The S&P 500 futures were up 0.2%, while the Dow futures were up 0.15%. Tech shares were among the biggest losers in premarket trading, with Adobe Systems Inc (ADBE.O) falling nearly 4% and Applied Materials Inc (AMAT.O) dropping more than 5% after both companies gave disappointing sales outlooks. Chipmakers were also pressured by a Reuters report that Taiwan Semiconductor Manufacturing Co told major suppliers to delay equipment deliveries due to weak demand.
Traders are assigning a 97% chance that the Fed will leave rates unchanged on Wednesday and just a 31% probability of a hike in November, according to CME’s FedWatch tool. But how the Fed delivers the pause and future rate guidance will be crucial to investor sentiment.
A flurry of hotter-than-expected economic data has eased recession worries and helped tamp down fears that further rate hikes will push the economy into a hard landing. Still, the latest rise in energy prices threatens to boost inflation above the Fed’s target. That could justify another rate hike in September, which would lift 10-year bond yields to their highest levels since mid-2008.
Natural gas futures fell for a fourth consecutive day, with the benchmark West Texas Intermediate contract closing at $5.50 per mmBtu, below the technical level at $5.50 that has served as a support area over the past three months, according to analysts. “A breakthrough $5.50 reveals the neckline of the head and shoulders pattern, a clear downtrend,” said Katie Stockton, founder of Fairlead Strategies.
The decline in nat gas futures also reflects an expectation that the Federal Reserve will increase its interest rate hikes next year to ward off rising inflation, analysts say. “The move lower in nat gas is driven by the belief that inflation is in transit and will accelerate in the third quarter,” said Ed Hyman, global macro strategist at Evercore ISI.