US stocks seen edging lower as investors await Federal Reserve interest rate decision

6.30am: Powell comments crucial

US stocks are expected to edge lower at the open on Wednesday, extending the previous session’s weak start to the new month as investors cautiously await the latest Federal Reserve policy meeting decision.

Futures for the Dow Jones Industrial Average were 0.1% lower in pre-market trading, while those for the S&P 500 were also down 0.1%, and contracts for the Nasdaq-100 shed 0.2%.

The Federal Reserve Open Market Committee (FOMC) is widely expected to agree to raise US interest rates by another 75 basis points (bp) as the US central bank tries to cool inflation, which remains near 40-year highs, but the main focus will be on the Fed governor, Jay Powell’s accompanying comments.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank said: “Powell will probably hammer the dovish hopes, and the latest risk rally when he speaks following the FOMC decision today.  This is, at least, what the latest economic data from the US suggests.  

“Last Friday, the US core PCE index showed further advance in consumer prices. Though the rise was slower than analyst expectations, the core PCE in the US advanced above 5% in September. That’s twice the Federal Reserve’s (Fed) 2% policy target.  

“And yesterday’s job openings report showed another 437,000 vacancies in September, pushing the number of total job openings to 10.72 million jobs.”  

She added: “In summary, for now, the US jobs market is not tightening, and the US inflation is not easing. So, there is no reason for the Fed to announce the end of the tightening cycle, in a way to trigger a positive euphoria across stock and bond markets, which would, in return, boost both inflation and jobs in the US.  

“Maybe Powell could hint that, with today’s 4th consecutive 75bp hike, the Fed could reduce the size of its rate hikes, but he can certainly not promise, when and where, the tightening will pause.”

Once the Fed rate decision and statement, due around 2.00pm ET Wednesday, is out of the way, investors will still have Friday’s, always volatile, October US non-farm payrolls report to negotiate.

Ahead of that the ADP private payrolls report is out on Wednesday morning, a couple of hours before the Fed decision, and is expected to have eased below 200,000 in October.

“Any positive surprise will likely further boost the Fed hawks, and dampen the mood in risk assets,” Ozkardeskaya concluded.

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