Futures signal more losses on Fed's rate hike view

[November 03, 2022]  (Reuters) -U.S. stock index futures slipped on Thursday, signaling a fresh round of selloff spurred by worries that the Federal Reserve's rate-hike cycle is far from over as the central bank hinted at smaller rate hikes.

The benchmark S&P 500 ended 2.5% lower on Wednesday, marking its biggest percentage decline in almost a month, after the Fed raised rates by 75 basis points as expected, although Chair Jerome Powell said it was "very premature" to discuss when it might pause the rate hikes.

Stocks had initially gained after the policy announcement left open the possibility of smaller increments, with traders still split between a rise of 50 bps and 75 bps in December.

However, rate futures markets implied the odds of peak Fed funds rate climbing to 5% or higher next year compared with a prior estimate of 4.50%-4.75% rise.
 

"Although the U.S. economy is beginning to decelerate, inflation remains stubbornly high, and the labor market is still very tight," said Paul O' Connor, head of multi-asset team at Janus Henderson Investors.

"While the balance of evidence suggests that the inflation news will improve from here, the Fed is unlikely to emit dovish tones until stronger proof of this has emerged."

Data this week showed U.S. private payrolls increased more than expected in October and job openings jumped unexpectedly in September, pointing to resilience in the labor market.

Investors will focus on other crucial data, including the nonfarm payrolls report due on Friday to gauge whether the Fed's rate hikes have significantly cooled the labor market.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2022. REUTERS/Brendan McDermid

Data scheduled to be released by the U.S. Department of Labor at 8:30 am ET on Thursday is expected to show initial jobless claims rose to 220,000 for the week ended Oct. 29 from 217,000 for week ended Oct 22, according to a Reuters poll.

Separately, a survey from the Institute for Supply Management due at 10:00 am ET is expected to show non-manufacturing PMI dipped to 55.5 in October from 56.7 in September.

At 6:40 a.m. ET, Dow e-minis were down 140 points, or 0.44%, S&P 500 e-minis were down 20.75 points, or 0.55%, and Nasdaq 100 e-minis were down 74 points, or 0.68%.

The tech-heavy Nasdaq slumped 3.4% on Wednesday as rate-sensitive growth stocks came under pressure on the prospect of higher rates.

Shares of megacap technology companies Apple Inc, Microsoft and Alphabet slipped between 0.2% and 1.0% in premarket trading as the 10-year U.S. Treasury yield hit its highest level since Oct. 25. [US/]

Qualcomm Inc tumbled 8.1% after the chipmaker's forecast for holiday-quarter revenue fell about $2 billion short of Street estimates.

Roku Inc slumped 20.3% after the streaming platform forecast holiday-quarter revenue below Wall Street estimates as ad spending dries up.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur)

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