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Landmark Fed decision in focus, futures edge higher - what's moving markets

Published 2024-09-18, 03:46 a/m
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Investing.com -- US stock futures tick higher ahead of an all-important Federal Reserve interest rate decision on Wednesday, with debate swirling around whether the central bank will choose to potentially cut borrowing costs by 25 basis points or a more aggressive 50 basis points. The independent directors on the board of gene testing group 23andMe quit following failed negotiations with Chief Executive Anne Wojcicki over her proposal to take the group private, sending shares sharply lower in extended hours trading.

1. Focus on the Fed

The Federal Reserve is widely tipped to slash interest rates for the first time since March 2020 following the conclusion of its latest two-day meeting on Wednesday, but the scope of the reduction remains a source of considerable uncertainty for investors.

According to CME Group's closely-monitored FedWatch Tool, the chances of a jumbo 50-basis point cut -- rather than a more traditional 25-basis point drawdown -- stand at 61%.

Bets that the Fed will roll out a super-sized cut have increased in recent days, fueled by reports in the Financial Times and Wall Street Journal that the move remains a possibility. Meanwhile, former New York Fed President Bill Dudley has said there is a "strong case" for a half-point cut, arguing that borrowing costs are currently well above the so-called neutral rate, which neither restricts nor accomodates economic activity.

However, as analysts at ING put it, the decision is still a "close call." In the final data point before the announcement, US retail sales unexpectedly rose in August, pointing to consumer resilience and broader economic strength. Such trends, along with mixed recent inflation figures and cooling labor demand, could further complicate matters for Fed officials.

Traders will also be hunting for any insight into how the Fed plans to approach a possible easing cycle, with markets currently pricing in at least 100-basis points in cuts by the end of 2024.
"[W]e strongly suspect the Fed will emphasise the uncertainty over the macro outlook and a willingness to be flexible," the ING analysts said in a note to clients.

2. Futures edge higher

US stock futures inched higher on Wednesday ahead of the Fed's crucial interest rate decision.

By 03:30 ET (07:30 GMT), the Dow futures contract had gained 45 points or 0.1%, S&P 500 futures had ticked up by 7 points or 0.1%., and Nasdaq 100 futures had added 39 points or 0.2%.

The benchmark S&P 500 and 30-stock Dow Jones Industrial Average were both mostly unchanged following a choppy trading session on Tuesday. The averages, bolstered by the surprise retail sales numbers, had touched record highs earlier in the session.

Meanwhile, the tech-heavy Nasdaq Composite ended the trading day higher by 36 points or 0.2%.

"[S]tocks sprinted out of the gate before fading hard in the afternoon due to questions/concerns about the Fed," analysts at Vital Knowledge said in a note to clients.

3. 23andMe independent directors quit board

All seven of the independent directors on the board of genetic testing firm 23andMe resigned on Tuesday, saying that they had not received a satisfactory take-private offer from the company's Chief Executive Officer Anne Wojcicki.

In a letter to Wojcicki, the directors said that she had not sent them a "fully financed, fully diligenced, actionable proposal that is in the best interest of the non-affiliated shareholders." They added that they are not in agreement with Wojcicki's vision for the strategy of the business.

Shares in the group slumped in extended hours trading.

The resignations leave Wojcicki, who controls 49% of 23andMe, as the sole remaining board member. She previously notified the board of her intention to take the firm private and proposed acquiring all the shares she does not own for a price of $0.40 a share, although a special committee formed to review the offer rejected it.

In a memo to employees cited by the Wall Street Journal, Wojcicki said she was "surprised and disappointed" by the decision, adding that she still believes taking the group private -- and relieving it of the "short term pressures of the public markets" -- is the best plan.

4. Nippon Steel wins extension for U.S. Steel deal review - Bloomberg

Nippon Steel Corp (TYO:5401) won an extension in a security review of its $14.1 billion pursuit of United States Steel Corporation (NYSE:NYSE:X), likely pushing a decision on the deal past the U.S. elections in November, Bloomberg reported on Tuesday.

Nippon Steel will be allowed to revoke and refile its submission to a U.S. security body overseeing the deal, potentially keeping the transaction alive even as President Joe Biden vowed to kill the deal, Bloomberg reported, citing people with knowledge of the matter.

Shares of U.S. Steel (BVMF:USSX34) rose over 3% in aftermarket trade following the Bloomberg report.

The takeover has become a key point of contention in the 2024 presidential election, specifically in the battleground state of Pennsylvania, where U.S. Steel and the United Steelworkers union are based. The labor group has opposed the deal.

5. Oil prices inch lower

Oil prices fell in European trade on Wednesday, cutting short a recent rebound as industry data showed an unexpected increase in US inventories.

But prices were sitting on strong gains over the past week as persistent supply disruptions from Hurricane Francine and the prospect of lower rates saw traders pile into crude at heavily discounted levels.

An escalation in Middle East tensions also helped spur some demand for crude, as Hezbollah vowed retaliation against Israel after accusing it of detonating pagers across Lebanon this week.

Brent oil futures fell 0.5% to $73.33 a barrel, while West Texas Intermediate crude futures dropped by 0.5% to $69.63 a barrel by 03:30 ET (07:30 GMT). Both contracts rose sharply from near three-year lows over the past week.

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