Stocks Slip Before the Open as Powell’s Hawkish Testimony Weighs on Sentiment, BoE Decision in Focus

September S&P 500 futures (ESU23) are down -0.19%, and September Nasdaq 100 E-Mini futures (NQU23) are down -0.29% this morning after three major U.S. benchmark indices ended the regular session lower as market participants digested a renewed warning issued by Federal Reserve Chair Jerome Powell, emphasizing the necessity of further rate hikes.

In Wednesday’s trading session, Tesla Inc (TSLA) plunged more than -5% and was among the top percentage losers on the tech-heavy Nasdaq 100 after Barclays downgraded the stock to Equal Weight from Overweight. Chip stocks also retreated, with Intel Corporation (INTC) tumbling about -6%, Advanced Micro Devices Inc (AMD) falling more than -5%, and Qualcomm Incorporated (QCOM) dropping over -3%. In addition, FedEx Corporation (FDX) slid more than -2% after the company reported mixed Q4 results and posted weaker-than-expected full-year profit guidance. On the positive side, Dollar Tree Inc (DLTR) climbed over +4% and was the top percentage gainer on the benchmark S&P 500 after the company updated its guidance at an investor event.

In his testimony before the U.S. House Financial Services Committee, Federal Reserve Chair Jerome Powell said policymakers anticipate interest rates would need to be raised to moderate U.S. economic growth and contain inflationary pressures. “Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” the central bank leader told U.S. lawmakers on Wednesday. In addition, Mr. Powell said it might “make sense” for the Fed to raise rates at a “more moderate pace” than it has in the past 15 months.

“Powell is not going to diverge from what he said at the press conference last week; the Fed is going to be hawkish until inflation reaches 2%. The Fed is keeping this tough talk going because they don’t want the markets to get over-enthusiastic,” said Peter Cardillo, a chief market economist at Spartan Capital Securities.

Meanwhile, Chicago Fed President Austan Goolsbee Wednesday emphasized the need for the U.S. central bank to “do more sniffing” on the economy and inflation before deciding whether to resume hiking interest rates. “I have not decided what should be the rate decision more than a month from now,” he said.

U.S. rate futures have priced in a 71.9% probability of a 25 basis point rate increase and a 28.1% chance of no hike at next month’s policy meeting.

Today, all eyes are focused on U.S. Existing Home Sales data in a couple of hours. Economists, on average, forecast that May Existing Home Sales will stand at 4.25M, compared to the previous value of 4.28M.

Also, investors are likely to focus on U.S. Initial Jobless Claims data. Economists foresee this figure to stand at 260K, compared to last week’s value of 262K.

U.S. Current Account data will come in today. Economists expect the first-quarter figure to be -216.9B, compared to the previous number of -206.8B.

U.S. Crude Oil Inventories data will be reported today as well. Economists estimate this figure to be +1.873M, compared to last week’s value of +7.919M.

In addition, investors will likely focus on Federal Reserve Chairman Jerome Powell’s semi-annual monetary policy testimony before the Senate Banking Committee.

In the bond markets, United States 10-Year rates are at 3.756%, up +0.88%.

The Euro Stoxx 50 futures are down -1.01% this morning as investors weighed Federal Reserve Chair Jerome Powell’s cautionary remarks regarding further rate increases while awaiting the latest monetary policy decision from the Bank of England. Losses in banking, automobile, and technology stocks are leading the overall market lower. Meanwhile, Norway’s central bank accelerated interest-rate increases on Thursday and pledged more aggressive tightening, while the Swiss National Bank implemented its smallest interest rate hike since initiating monetary tightening a year ago. Later in the day, the Bank of England is scheduled to announce its interest rate decision, with a rate hike widely anticipated. The key point of the discussion revolves around the magnitude of the increase following Wednesday’s U.K. inflation data that came in hotter than expected. In corporate news, shares of Electrolux Ab (ELUXB.S.DX) plunged about -5% following a report that Midea Group Co. discontinued its efforts to acquire the company after finding the Swedish home appliance maker unreceptive to a deal. In other news, Ses Sa (SESG.P.DX) gained over +5% after the company said it had ceased merger talks with Intelsat SA.

France’s Business Survey was released today.

The French June Business Survey stood at 101, stronger than expectations of 98.

Japan’s Nikkei 225 Stock Index (NIK) closed down -0.92%, while the Chinese market was closed for a holiday.

Japan’s Nikkei 225 Stock Index closed lower today, tracking overnight declines on Wall Street after Federal Reserve Chair Jerome Powell flagged the potential for more interest rate hikes. Chip stocks slumped on Thursday, with Advantest plunging more than -6% and Tokyo Electron falling over -4%. On the positive side, Panasonic rose over +2% after the company’s energy unit said Wednesday it was in talks to supply batteries to power Mazda Motor’s electric vehicles. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed up 0.70% to 20.23.

Pre-Market U.S. Stock Movers

Root Inc (ROOT) surged about +39% in pre-market trading, extending yesterday’s gains after the WSJ reported that Embedded Insurance offered to buy the company for $19.34 a share.

Applied Opt (AAOI) climbed over +14% in pre-market trading after the company announced it had entered into a supply agreement with Microsoft Corporation.

Avid Bioservices Inc (CDMO) plunged over -17% in pre-market trading after the company reported mixed Q4 results and issued downbeat FY24 revenue guidance.

Allovir Inc (ALVR) tumbled more than -23% in pre-market trading after the company priced an underwritten public offering of 20M shares of its common stock for $3.75 a share.

Alcoa Corp (AA) slid over -2% in pre-market trading after Morgan Stanley downgraded the stock to Underweight from Equal Weight.

DigitalOcean Holdings Inc (DOCN) fell more than -5% in pre-market trading after Piper Sandler downgraded the stock to Underweight from Neutral.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Thursday - June 22nd

Accenture (ACN), Darden Restaurants (DRI), FactSet Research (FDS), Commercial Metals (CMC), Methode Electronics (MEI), Smith & Wesson (SWBI), Beyond Air (XAIR).

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