MARKET WRAPS
Watch For:
Retail Sales for May; Import Prices for May; EIA Weekly Petroleum Status Report; FOMC interest rate decision; Canada Housing Starts for May
Opening Call:
Stock futures rose ahead of the Federal Reserve's policy decision, with expectations mounting the central bank will raise rates faster than previously signaled.
The Fed will lay out details of its latest effort to quell inflation through tighter monetary policy at 2 p.m. ET. Investors expect a 0.75-percentage-point increase to the Fed's target rate, which would be the biggest since 1994.
"Financial markets have been beset with shivers of anticipation of more aggressive interest-rate moves, and as the clock ticks down to the key Fed meeting, nerves are set to stay frayed," wrote Susannah Streeter, an analyst at broker Hargreaves Lansdown.
"Expectations have risen that policy makers at the central bank will slam on the brakes hard with a 0.75% hike, to stop prices spiraling out of control," Streeter wrote. "The worry persists that a more aggressive attitude by the Fed will see growth go into reverse and could set off a slow motion crash into recession, with troublesome repercussions for global growth."
In Europe, the Stoxx Europe 600 rose 1.1%, led by shares of banks and insurers. Shares of Italian banks, which own a substantial chunk of government bonds, had suffered as the debt fell in price. Intesa Sanpaolo and UniCredit were among the best performers in the European market Wednesday.
Forex:
The Fed may meet expectations to raise interest rates by 75 basis points at Wednesday's meeting and this could prompt the dollar to fall in a "buy the rumor, sell the fact" reaction, said ING.
However, any dollar declines will be brief as the overall outcome of the Fed's decision will be positive for the currency beyond the very short-term.
"We think DXY may have found a floor around 104.00, and any drop beyond that point may see increasing buying pressure."
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The euro rose across the board on news the ECB will hold an unscheduled meeting Wednesday to discuss current market conditions following the recent selloff in government bonds. The meeting is expected to be held around 0900 GMT.
The news has "helped the euro rally this morning as it is possible that the ECB will announce measures to close peripheral bond spreads," said Monex forex analyst Simon Harvey.
ING said the single currency euro could rise further against the dollar after the ECB meeting and the Fed's latest policy decision but gains will be limited. EUR/USD could rise to 1.0520-1.0550 from 1.0481 currently.
"However, as we see any dollar correction as short-lived, our base case remains a return to sub-1.0500 levels in the coming days."
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Cryptocurrencies kept tumbling. Bitcoin fell 7.2% to $20,413, putting the digital currency on track for a ninth straight daily loss. Ethereum slid 11%, extending a rout in cryptocurrencies that has taken a toll on companies including Coinbase Global, which is laying off almost a fifth of its staff, and Celsius Network, a crypto lender now examining restructuring options.
Behind the selloff in crypto, and the recent turbulence in traditional financial markets, is the Fed's likely change of gears in efforts to douse decadeshigh inflation.
Dorian Carrell, a fund manager at Schroders, said guidance the Fed gives about the direction of interest rates Wednesday is more important for markets than the size of the rate increase. Uncertainty about interest rates has been driving volatility in stock and credit markets, he said.
Bonds:
Government bonds steadied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade.
Peripheral government bonds in the eurozone rallied after the ECB said it would hold an ad hoc meeting Wednesday to discuss turbulence in the region's bond markets. Investors have dumped southern European government debt of late after the ECB set out plans to wind down its bond-buying program and raise rates to tame inflation.
The yield on 10-year Italian government bonds fell to 3.990% ahead of the meeting, due to take place at 5 a.m. ET. That is down from 4.067% Tuesday. They also fell in Greece, Spain and other eurozone members perceived as vulnerable to higher borrowing costs.
Energy:
Oil prices flicked between small gains and losses with traders largely sitting on sidelines ahead of the Fed decision, and opting to avoid risky assets like oil, said Stephen Innes at SPI Asset Management.
Still, with new supplies limited "oil prices remain relatively robust despite growing uncertainty for the global economy."
Other News:
Fitch said crude prices are likely to remain elevated amid supply disruptions and higher postpandemic demand.
It raised its price forecasts and expect Brent to average $105/bbl and WTI to average $100/bbl this year, versus its earlier $100/bbl and $95/bbl assumptions, respectively. This is because the EU's ban on seaborne oil imports from Russia and the resulting redirection of trade flows will put short-term pressure on the oil supply chain.
This effect should eventually moderate, with Fitch leaving its long-term price assumptions unchanged.
Metals:
Gold prices pushed higher ahead of the Fed decision.
"Alongside the expectations of interest rate rises, the largest factor influencing gold prices at present is the strength of the dollar," said Will Rhind, Founder and CEO of GraniteShares.
"In any normal market, this news would almost certainly send gold prices materially lower but not today. Gold's resilience, in the face of increasing rate rises and dollar strength, shows that this is no ordinary interest rate tightening cycle."
Base metals made solid gains, with improved market sentiment on the expected Fed rate increase. That said, any significant jump for metals looks to be tempered on uncertain Chinese demand.
"We do take caution given it has been one step forward, and another step back [wouldn't go as far to say two steps], with a cha-cha tempo as China struggles to maintain its zero-Covid policy," said Marex's Asian Metals team.
TODAY'S TOP HEADLINES
Metaverse Spending to Total $5 Trillion in 2030, McKinsey Predicts
Businesses' and consumers' annual global spending related to the metaverse could reach $5 trillion by 2030, according to a new report from consulting firm McKinsey & Co.
E-commerce in the metaverse will comprise some $2 trillion to $2.6 trillion of the total, while virtual advertising endeavors will make up another $144 billion to $206 billion, McKinsey said.
Crypto Lender Celsius Hires Restructuring Lawyers After Account Freeze
Crypto lender Celsius Network LLC has hired restructuring attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise on possible solutions for its mounting financial problems, according to people familiar with the matter.
Last week Celsius told users that it was pausing all withdrawals, swaps and transfers between accounts because of extreme market volatility.
Massachusetts Court Blocks Gig-Worker Ballot Measure
The top court in Massachusetts blocked a ballot measure Tuesday that would have asked voters to classify gig workers as independent contractors rather than employees, saying the measure overreached by limiting gig companies' liability in some situations.
The decision is a setback for companies such as Uber Technologies Inc. and Lyft Inc. that rely on such workers. After a decade of robust growth, ride-share and food-delivery companies have spent recent years reckoning with efforts by policy makers and labor advocates to reclassify drivers as employees-entitled to benefits such as a minimum wage, paid sick leave and unemployment assistance.
Real-Estate Firms Redfin and Compass Shed Jobs as Housing Market Slows
Two real-estate brokerage firms said on Tuesday that they were laying off hundreds of employees as rising mortgage rates and record housing prices cool the housing market.
Compass Inc. is laying off 10%, or approximately 450, of its employees, according to a regulatory filing. Redfin Corp. is cutting 6% of its workforce, or 470 people, by the end of the month, it said in a filing.
Mental-Health Startup Cerebral Investigated by FTC
The Federal Trade Commission has begun an investigation into mental-health startup Cerebral Inc., according to a letter the FTC sent the company that was reviewed by The Wall Street Journal.
In the letter dated June 1, the FTC said it was investigating whether Cerebral engaged in deceptive or unfair practices related to advertising or marketing of mental-health services. The letter also directed the company to preserve documents.
Zendesk Is in Settlement Talks With Activist Investor Jana
Zendesk Inc. is in talks to settle with activist investor Jana Partners LLC, days after the software company ended an unsuccessful bid to sell itself.
Zendesk and Jana are discussing a truce that could involve Mikkel Svane stepping down as the software company's chief executive, as well as changes to the board, including the removal of director Carl Bass, according to people familiar with the matter. The situation is still fluid and the men could still remain in their roles, some of the people said.
ECB Calls Emergency Meeting to Address Bond-Market Disruption
FRANKFURT-The European Central Bank said it is set to hold an emergency meeting Wednesday to discuss turbulence in the region's bond markets, after a policy shift by the bank triggered a heavy selloff in some government bonds.
The meeting will take place at 11 a.m. CET, according to people familiar with the matter.
Fed's Stern Message Amplifies Worries About Stock Valuations
The prospect of faster-than-expected monetary tightening has rattled Wall Street, dragging the S&P 500 deeper into bear territory Tuesday and forcing investors to reassess a stock market that doesn't look cheap even after its dramatic selloff.
(MORE TO FOLLOW) Dow Jones Newswires
06-15-22 0525ET
