Stock futures struggle for traction ahead of Fed decision and after Putin escalates war footing

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U.S. stock futures struggled for direction on Wednesday, ahead of another expected sharp rate rise by the Federal Reserve and after Russian President Vladimir Putin escalated his war against Ukraine.

How are stock index futures trading
  • S&P 500 futures
    ES00,
    +0.19%

    rose 5 points, or 0.1% to 3878

  • Dow Jones Industrial Average futures
    YM00,
    +0.21%

    inched up 36 points, or 0.1% to 30838

  • Nasdaq 100 futures
    NQ00,
    +0.05%

    rose just 7 points, or 0.1% to 11929

On Tuesday, the Dow Jones Industrial Average
DJIA,
-1.01%

fell 313 points, or 1.01%, to 30706, the S&P 500
SPX,
-1.13%

declined 44 points, or 1.13%, to 3856, and the Nasdaq Composite
COMP,
-0.95%

dropped 110 points, or 0.95%, to 11425.

What’s driving markets

Equities were on course for a muted open on Wall Street as traders expressed nervousness over tightening monetary policy and heightened geopolitical tensions in Europe.

“It is proving very difficult for equity markets to make progress this week with chunky official rate hikes in prospect,” wrote Ian Williams, strategist at Peel Hunt.

The Federal Reserve is expected to increase interest rates by 75 basis points to a target rate of 3.0% to 3.25% when it delivers it decision at 2 pm Eastern. The central bank has swiftly raised borrowing costs from zero earlier in the year as it strives to combat inflation that is currently 8.3%, near multi-decade highs.

“All eyes will be on the Federal Reserve’s latest inflation busting move today, as the price spiral continues to cause financial pain for consumers and companies…There are worries that inflation is becoming dangerously entrenched in the economy, threatening financial stability,” wrote Susannah Streeter senior investment and markets analyst at Hargreaves Lansdown.

The sharp rise in interest rates over recent months — and the prospect of more to come — has sparked a sell-off in bonds and pushed benchmark government yields
TMUBMUSD10Y,
3.538%

to 11-year highs, a move that is further pressuring stocks, partly because it makes debt assets relatively more attractive. The S&P 500 is down 19.1% so far in 2022.

The Fed’s expected move comes after the Swedish central bank on Tuesday delivered a more-hawkish-than-expected 100 basis point rate hike and before an expected rate rise from the Bank of England on Thursday.

“Central banks are demonstrating greater resolve to fighting inflation, and increasingly willing to sacrifice growth to get there,” said Nathan Sheets, global chief economist at Citi.

Also suppressing sentiment on Wednesday was news that Russian president Vladimir Putin had called for a partial military mobilization of the country to prosecute his attack on Ukraine. The announcement, which included threats against the West, raised fears of a further escalation in the conflict.

Energy prices rose in response, with U.S. WTI crude futures
CL.1,
+1.88%

up 2.5% to $86.56 a barrel and the ICE Dutch TTF natural gas futures, the continent’s benchmark, up 6.3% to 206.6 euros per megawatt hour. The euro
EURUSD,
-0.37%

fell 0.7% to $0.9904, pushing the dollar index back near its 20-year peak.

The CBOE Vix index
VIX,
+0.33%
,
an option-derived gauge of expected S&P 500 volatility, rose 1.4% to 27.6, signaling increased nervousness amongst traders.



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