Scott Olson
Stock index futures were mixed Wednesday, with growth struggling after post-earnings slide in megacaps.
Nasdaq 100 futures (NDX:IND) -1.3% and S&P futures (SPX) -0.4% were lower. Dow futures (INDU) +0.2% edged up.
Alphabet (GOOG), Microsoft (MSFT) and AMD (AMD) were all down premarket after reporting results Tuesday after the bell. Communications Services (XLC) was the weakest sector ahead of trading, followed by Info Tech (XLK) and Consumer Discretionary (XLY) — all the megacap sector homes.
Rates continued slip going into the Fed decision this afternoon. The 10-year Treasury yield (US10Y) fell 3 basis points to 4.03% and the 2-year yield (US2Y) fell 3 basis points to 4.33%.
Before the Fed, the Treasury Refunding Announcement arrives premarket.
The Treasury will “announce their plans for which notes and bonds they intend to issue,” Deutsche Bank’s Jim Reid said. “That follows the borrowing estimates on Monday, which triggered a rally in Treasuries after they expected to borrow $760bn over Q1, which was down from its Q4 levels.”
“These didn’t use to attract as much notice, but the QRA was seen as one of the triggers for the major bond selloff from the start of August, as well as the recovery that took place from November onwards, shortly after the 10yr Treasury yield had hit 5% intraday. So these have been associated with important turning points in recent months, although it’s fair to say there’ve also been other factors as well, not least the Federal Reserve’s outlook as well as the inflation data.”
The Fed is guaranteed to keep rates steady today, according to the markets. The focus is on indication on how the FOMC is leaning for March, where the fed funds futures currently price in a 54% chance of no move.
“We think Fed Chair Powell will convey that the FOMC will readily cut if it has to but doesn’t yet feel it has to,” said Standard Chartered strategist Steve Englander, whose base case is now March cut absent weaker economic activity. “The tone of the 31 January FOMC may be set by changes in the statement.”
“We expect ‘in determining the extent of any appropriate easing’ instead of ‘in determining the extent of any further policy tightening’ and ‘Inflation … has made progress to our target’ instead of ‘Inflation … remains elevated’. The activity description will likely be updated to ‘growth of economic activity remains moderate’. This should convince the market that the Fed will cut as soon as inflation or activity slows sufficiently, even if March is too soon.”
Also on the data front, ADP’s measure of private January employment is due. Economists expect that payrolls rose by 145K.
“Models sometimes are dead right, but we have no reason to think ADP’s model now will be consistently right,” Pantheon Macro’s Ian Shepherdson said. “Whatever ADP says today, we won’t be changing our forecast — based on Homebase data and the NFIB survey — that January private jobs rose by 175K, with the headline up 225K.”
Shortly after the start of trading the January Chicago PMI hits. The forecast is for a rise to 48.