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Futures edge lower, Apple reveals OpenAI partnership - what's moving markets

Published 2024-06-11, 04:02 a/m
© Reuters -- U.S. stock futures inch lower on Tuesday, as Wall Street looks ahead to a major Federal Reserve policy decision and fresh inflation numbers this week. Apple (NASDAQ:AAPL) unveils a new partnership with ChatGPT-maker OpenAI, with the iPhone giant looking to boost its position in the race to incorporate artificial intelligence into its offerings. Elsewhere, Scottish fund manager Baillie Gifford is set to back Tesla (NASDAQ:TSLA) CEO Elon Musk's $56 billion pay package, according to Bloomberg News.

1. Futures inch lower

U.S. futures hovered below the flatline on Tuesday, with investors taking some caution ahead of a crucial Federal Reserve interest rate decision and key monthly inflation data later this week.

By 03:46 ET (07:46 GMT), the Dow futures contract had dropped by 31 points or 0.1%, S&P 500 futures had fallen by 3 points or 0.1%, and Nasdaq 100 futures had shed 17 points or 0.1%.

On Monday, the benchmark S&P 500 and tech-heavy Nasdaq Composite both clocked record closing highs, buoyed in part by artificial intelligence-darling Nvidia (NASDAQ:NVDA)'s much-anticipated 10-for-one stock split coming into effect. Speculation also swirled around whether the move will result in Nvidia eventually being included in the blue-chip Dow Jones Industrial Average, according to Reuters.

Markets are now widely focused on Wednesday, when the Fed is set to conclude its latest two-day policy meeting and the U.S. Bureau of Labor Statistics is set to release the May reading of its consumer price index, a closely-monitored gauge of inflation in the world's largest economy.

2. Apple partners with OpenAI

Apple has announced a partnership with OpenAI that will see the iPhone-maker fold the start-up's ChatGPT chatbot into its products.

The agreement, which was revealed at Apple's annual developers conference on Monday, comes as the tech giant looks to enhance its artificial intelligence capabilities following an intensifying surge in enthusiasm around the nascent technology.

Prior to the event investors were speculating if Apple would roll out new generative AI features, particularly as it looks to address a growing feeling that it was lagging behind its Big Tech rivals. Chief Executive Tim Cook lauded the new "Apple Intelligence" system, which aims to use AI to improve its Siri voice assistant and deliver more personalized offerings, as the company's "next big step."

However, shares in Apple slid by 1.9% on Monday after spiking prior to the event, in a sign of a lukewarm response from observers on Wall Street who had expected a more dazzling AI update.

"The lack of a game changing AI product intro/software suite is likely a negative for [near-term] iPhone demand as well as investor sentiment," analysts at UBS said in a note to clients.

3. Baillie Gifford to back Musk's $56 billion pay package

Long-time Tesla shareholder Baillie Gifford is set to vote in favor of Chief Executive Elon Musk’s massive $56 billion pay package, Bloomberg reported Monday, citing an unnamed source.

The Scottish fund manager, which has held Tesla's stock for over a decade, supports the compensation plan because the targets linked to the deal were ambitious and aligned with stakeholder returns when they were first unveiled in 2018, Bloomberg reported.

Tesla's shareholders are due to decide on Musk's pay plan, which was approved in 2018 but voided earlier this year by a Delaware judge, on June 13.

Proxy advisors Institutional Shareholder Services and Glass Lewis have previously recommended that shareholders vote against Musk's pay package, while Norway's $1.7 trillion sovereign wealth fund has said it would oppose the deal.

4. Fed to cut rates just once in 2024 - FT-Chicago Booth poll

The Federal Reserve will slash interest rates just once this year due to indications of stubbornly elevated inflation, according to the Financial Times.

Over half of the 39 academics who participated in a FT-Chicago Booth poll predicted the central bank would reveal only 25 basis-point cut in 2024, the paper said. Almost a quarter said they do not expect any rate reductions at all.

The survey comes as the rate-setting Federal Open Market Committee is slated to reveal its latest "dot plot" on Wednesday, which outlines how officials expect borrowing costs to evolve in the futures. Markets are predicting it will show that policymakers have lowered the number of cuts they see this year.

Meanwhile, the Fed is tipped to leave interest rates on hold at a more than two-decade high of 5.25% to 5.5% following its latest policy meeting. Several officials have recently suggested that they need further evidence the pace of inflation is cooling back down to their 2% target level before beginning to lower rates.

5. Oil prices dip

Oil prices edged down slightly on Tuesday, as traders geared up for the Fed decision and fresh U.S. inflation figures.

At 03:51 ET, Brent oil futures had fallen 0.1% to $81.55 per barrel, while West Texas Intermediate crude futures dipped 0.1% to $77.29 per barrel. Prices had touched a one-week high on Monday on hopes of rising demand over the key summer travel period in the U.S., although analysts noted that the positioning was likely overly optimistic.

The outcome of the Fed's two-day gathering and the inflation data could influence how markets see the path ahead for interest rates later this year, with the prospect of higher-for-longer borrowing costs in particular threatening to weigh on demand.

Macroeconomic data out of China on Wednesday may also impact the demand outlook in the world's largest importer of oil.

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