LDN - Business

Futures fall as chips slide, focus on Powell

[June 28, 2023] (Reuters) - Wall Street futures fell on Wednesday, pressured by a report on new U.S. curbs on exporting artificial intelligence (AI) chips to China, while investors awaited comments from Federal Reserve Chair Jerome Powell to gauge the path for interest rates.

Shares of chip companies Nvidia fell 4.6% in premarket trading, while Advanced Micro Devices dipped 3.5% after the Wall Street Journal reported the Commerce Department would stop shipments of chips made by these companies to China as early as July.

Other semiconductor stocks including Intel, Marvell Technology and Qualcomm fell more than 1% each.

Wall Street snapped a recent losing streak on Tuesday after stronger-than-expected economic data eased fears of an imminent U.S. recession, but boosted bets on the Fed hiking interest rates again next month.

Investors are focused on a panel discussion of key central bank policymakers including Powell and European Central Bank President Christine Lagarde at the ECB annual forum in Sintra, Portugal. The session will begin at 9:30 a.m. ET (1330 GMT).

"Today's speech by Fed chair Jerome Powell is likely to reinforce the belief that the U.S. central bank will push up rates once again at its July meeting," Russ Mould, investment director at AJ Bell said in a note to clients.

"It's a calculated bet in the fight against inflation – but at some point, the pain of higher borrowing costs will be too much for many businesses and consumers, so the Fed cannot be gung-ho with its rate decisions."

Traders have priced in a 76.9% chance that the Fed will hike interest rates by 25 basis points to 5.25%-5.50% in July and expect the central bank to hold rates through the end of 2023, according to CMEGroup's Fedwatch tool.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 27, 2023. REUTERS/Brendan McDermid

The S&P 500 and Nasdaq hit more than one-year highs last week while the Dow scaled a six-month peak before hawkish comments from Powell sparked a selloff.

Still, an AI-inspired rally in technology and growth stocks as well as hopes that the Fed would soon end its rate-hike campaign put the main indexes on course for quarterly gains.

Markets are awaiting the Personal Consumption Expenditures (PCE) index, the Fed's favored inflation gauge, initial jobless claims data and the final reading of first-quarter GDP later this week to assess the state of the U.S. economy.

Investors will also keep an eye on bank stocks, with the Fed scheduled to release 2023 results of its annual stress test of large banks after markets close on Wednesday.

The results help determine how much capital banks need to be healthy and how much they can return to shareholders via stock buybacks and dividends.

At 5:31 a.m. ET, Dow e-minis were down 4 points, or 0.01%, S&P 500 e-minis were down 11 points, or 0.25%, and Nasdaq 100 e-minis were down 88 points, or 0.58%.

Uber Technologies slipped 1.3% after Daiwa Capital Markets downgraded the stock.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Vinay Dwivedi)

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