Futures steady ahead of expected rate hike

[September 26, 2018]   By Amy Caren Daniel

(Reuters) - U.S. stock index futures edged higher on Wednesday, with bank stocks among the gainers, ahead of a widely expected Federal Reserve interest rate hike.

Shares of JPMorgan <JPM.N>, Citigroup <C.N>, Wells Fargo <WFC.N>, Bank of America <BAC.N> and M&T Bank <MTB.N> were up between 0.14 percent and 0.60 percent in trading before the bell.

With a third rate hike all but certain and chances of a fourth increase in December firming, after robust consumer confidence data on Tuesday, investors are focused on whether healthy economic growth will prompt the Fed to ramp up the pace of monetary tightening.

Some analysts are expecting a more aggressive tilt, whether it comes in the policy statement at 2 p.m. ET (1800 GMT), the accompanying economic and interest rate projections, or at Fed Chairman Jerome Powell's press conference.
 

"It's no secret that a rate hike is looming and most likely a Fed that is ready and willing to end an accommodating interest rate era," Peter Cardillo, chief market economist at Spartan Capital Securities in New York, wrote in a note.

"The question facing investors is how will the bond market react: 'will yields skyrocket?' Initially we don't think so, but a steady long rise should be expected resulting in a challenge to equities."

U.S. 10-year Treasury yields <US10YT=RR> have been hovering at the key 3 percent level, a shade below their seven-year peak of 3.128 percent hit on May 18.
 

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 20, 2018. REUTERS/Brendan McDermid

Higher bonds yields makes shares less attractive, especially those of high-dividend paying companies such as utilities, real estimate and telecoms. Utilities fell on Tuesday, weighing on the markets.

At 7:45 a.m. ET, Dow e-minis <1YMc1> were up 33 points, or 0.12 percent. S&P 500 e-minis <ESc1> were up 4.75 points, or 0.16 percent and Nasdaq 100 e-minis <NQc1> were up 15.25 points, or 0.2 percent.

Dow component Nike's shares <NKE.N> fell 2.7 percent after the company posted a small rise in quarterly gross margins and left its 2019 forecast unchanged.

IBM <IBM.N> rose 1.6 percent after UBS upgraded the stock to "buy", saying it expects the company's revenue to fare better than expected.

At 10 a.m. ET, the U.S. Commerce Department will likely report that new home sales rose 0.5 percent to a seasonally adjusted annual rate of 630,000 units in August.

(Reporting by Amy Caren Daniel in Bengaluru)

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