US stocks open higher as investors assess Fed rate outlook, await key speeches

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U.S. stocks opened higher on Wednesday, shaking off modest weakness seen earlier after the Wall Street Journal reported that policymakers appeared on track to push for another 75 basis point rate hike this month.

Investors also awaited a speech from Federal Reserve Vice Chairman Lael Brainard, among other senior Fed officials, along with the release of the Fed’s latest Beige Book.

What happens
  • The Dow Jones Industrial Average DJIA,
    +0.27%
    gained 50 points, or 0.2%, to about 31,210

  • The S&P 500 SPX,
    +0.30%
    added 14 points, or 0.3%, to 3,921

  • The Nasdaq COMP,
    +0.43%
    rose 74 points, or 0.6% to 11,616

On Tuesday, the Nasdaq Composite fell 0.7%, its seventh straight daily decline and its longest losing streak since 2016. The Dow Jones fell 173 points, or 0.6%, while the S&P 500 shed 0.4 %.

What drives the markets

A report published by the Wall Street Journal said that Federal Reserve Chairman Jerome Powell’s pledge to reduce inflation, even if it increases unemployment, appears to put the central bank on track to raise interest rates by 0.75 percentage points. points, instead of half a percentage point, when policy makers meet later this month.

Traders had already largely priced in a 75 basis point move. Fed-funds futures traders priced in an 82% chance of a 75 basis point move after the report, up from 73% on Tuesday, according to the CME FedWatch tool.

“Rising expectations for a more hawkish Fed continued to hurt stocks, as higher interest rates mean higher borrowing costs for companies, as well as lower present values, especially for high-tech companies, which are typically valued at a discount to expected cash flows” , said Charalambos. Pissouros, senior investment analyst at XM, in a memo. “That’s probably why the tech-sensitive Nasdaq was Wall Street’s biggest loser yesterday.”

A sharp rise in Treasury yields weighed on stocks on Tuesday. The benchmark 10-year yield TMUBMUSD10Y,
3.293%
rose 15 basis points, the biggest one-day gain in a month. Yields fell on Wednesday, with the 10-year yield down 4.6 basis points to 3.294%.

The USD DXY,
+0.33%
it hit a new 20-year high on Wednesday, just shy of the 111 level.

This comes as investors assess the latest data on the US economy, as well as efforts by European governments to cushion the impact of rising energy prices.

Brainard has not spoken about the economy in depth since April. Later in the week, Chairman Jerome Powell will participate in a moderated debate on Thursday and Fed Governor Christopher Waller is scheduled to speak on Friday.

“The Fed’s speaker schedule this week appears designed to give us heavy guidance ahead of the blackout period, and I suspect the guidance will favor a 75bp move in September,” said Tim Duy, chief US economist at SGH Macro Advisors.

The Fed’s Beige Book of Economic anecdotes is expected to be released at 2 p.m. east.

The Bank of Canada could raise interest rates by as much as 100 basis points in a decision to be announced at 10 a.m. east. The European Central Bank on Thursday could raise interest rates by as much as 75 basis points on Thursday.

Companies in focus
  • Target Corp.
    TGT,
    +0.84%
    said Wednesday it was scrapping a retirement policy, clearing the way for current CEO Brian Cornell, 63, to stay on for about three more years. Target stocks rose 0.3%.

  • Shares of United Airlines Holdings Inc.
    UAL,
    +1.80%
    rose 1.4%. after the carrier raised its outlook for third-quarter revenue growth, citing continued “strong” demand coming off a “robust” summer.

  • Nio Inc.
    NIO,
    +1.72%
    Shares fell 6.5 percent after the Chinese electric vehicle maker reported a bigger-than-expected second-quarter loss as revenue rose above forecasts but gross margins shrank and provided a dim revenue outlook.

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