US Stock Futures Trade Lower Following Austere Fed Interest Rate Plans

UTC by Tolu Ajiboye · 3 min read
US Stock Futures Trade Lower Following Austere Fed Interest Rate Plans
Photo: NYSE / Twitter

Stock futures in the US fell by over 1% on the heels of a significant losing week for Wall Street. Global stocks also plunged.

There was a recent slump across all general markets in the US, Europe, and Asia which impacted most stocks and stock futures.

In the US, stock futures declined by more than 1% during Monday’s pre-trading session following one of the worst Wall Street slumps in 2022. For instance, the Dow Jones Industrial Average (DJIA) fell by 330 points, or 1.05%, while the Nasdaq 100 sank 1.88%. In addition, the S&P 500 futures also declined by 1.42%.

This recent setback for all three major US indexes comes on the heels of their biggest weekly declines since late January. Then, the tech-heavy Nasdaq Composite declined by 5.6%, with the DJIA and S&P 500 also experiencing retracements of 4.6% and 5.1%, respectively.

May Consumer Price Index Report to Blame Largely for US Stock Futures Setback

In addition, a substantial part of the recent US stock futures setback came last Friday following a disappointing May consumer price index report. According to the Bureau of Labor Statistics, the US consumer price index climbed 8.6% last month from the same period a year ago. This represents the fastest increase since December 1981 and exceeds the expectations of economists. The hotter-than-expected inflation data also alienated investors, leading to a 2.9% and 3.5% drop for the S&P 500 and Nasdaq, respectively. Furthermore, the Dow also gave up a massive 880 points, or 2.7%, on Friday last week.

The core consumer price index report for May, excluding food and energy prices, also surpassed estimates at 6%. Weighing in on this development, the president of Yardeni Research, Ed Yardeni, said:

“May’s CPI report showed scant signs of inflation peaking, though we still expect peaking soon. The report also suggests a more hawkish Fed and higher recession risk.”

Furthermore, Yardeni also added that “investor and consumer sentiment both have soured. But this time, pervasive bearishness may not be as useful a contrarian bullish signal as in the past.”

Yardeni concluded that following these developments, there was now a 45% chance that a mild recession could happen. This is also 5% higher than the previous forecast.

The preliminary June reading for the University of Michigan’s consumer sentiment index came in at a record low of 50.2. Furthermore, this data precedes a highly anticipated Fed meeting this week. Many already expect the governing bank to increase interest rates by at least a half-point on Wednesday. So far, the Fed has hiked rates twice in 2022 to contain mounting inflation.

Europe & Asia-Pacific

Across the Atlantic, Europe’s, leading stock indexes also slumped on the possibility of looming interest rate hikes by the European Central Bank. The bank announced last Thursday that it intends to increase rates by 25 basis points. This information, compounded with Friday’s Fed development from the US, saw the pan-European Stoxx 600 slide 1% in pre-market trading.

Asia-Pacific stocks were also not immune to the pervasive market tumble owing to impending interest rate hikes. A slew of major indexes across Hong Kong, Japan, and South Korea all declined more than 3%.

Hong Kong’s Hang Seng index dropped 3.23% in the last hour of trading, with the Hang Seng tech index also sliding 4.4%. Furthermore, Japan’s Nikkei 225 also retraced 3.01% to close at 26,987.44, while the Topix index sank 2.16% to 1,901.06. Meanwhile, in South Korea, the Kospi experienced a 3.52% downswing.

Business News, Commodities & Futures, Indices, Market News, News
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