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Stocks are edging cautiously higher ahead of the Fed rate decision, with a 25 bps rate hike expected. But will the Fed signal a pause in the hiking cycle for June?

US futures

Dow futures +0.05% at 33709

S&P futures +0.1% at 4121

Nasdaq futures +0.11% at 13127

In Europe

FTSE +0.23% at 7790

Dax +0.56% at 15804

• Fed to hike rates 25 bps, then what?
• ADP payroll data is due
• AMD falls 7% as sales miss
• Oil falls 9% in 3 days on demand worries 
   

Will the Fed signal a pause?

US stocks are opening cautiously higher, after steep losses in the previous session and ahead of the Federal Reserve interest rate decision later today.

Indices had closed sharply lower yesterday as regional banking fears once again spooked the market after the collapse of First Republic Bank, the third regional lender to go under.

Today regional banks will remain under the spotlight, as investors await the Fed rate decision. The Fed is widely expected to raise interest rates by 25 basis points taking the rate to 5% -5.25%. This will mark 500 basis points worth of rate hikes in what will have been the steepest tightening cycle since the 70s.

However, there are growing expectations that the Fed could signal a pause in its rate hiking cycle for the June meeting while it assesses the impact of its actions so far, particularly in light of the regional banking sector.

Ahead of the FOMC rate decision, there is more labor market data due. ADP private payrolls are expected to see 148k private sector jobs added in April, up from 145k in March. ISM services PMI data is also due.
 

Corporate news

CVS Health falls 2% pre-market, falling towards a 2-year low after cutting forward guidance. It now expects full-year EPS of $8.50 - $8.70, citing costs linked to two recent acquisitions.

Starbucks drops 4% after the coffee chain failed to lift guidance even after beating quarterly profits, thanks to a strong recovery in China.

Ford falls 1.2% after announcing it expects restructuring charges in the region of $1.5 billion to $2 billion, while also reporting losses in its EV business.

Advanced Micro Devices is falling 7.6% after the chipmaker forecast quarterly sales below expectations owing to the slow PC market.
 

S&P500 outlook – technical analysis

The S&P 500 broke out of the rising wedge pattern yesterday, falling to a low of 4088 for closing out just below the 20 sma. Today buyers are trying to push back above the 20 sma resistance at 4130, with a rise above here and 4165, the rising trendline resistance bringing 4195 back into play. On the flip side, should sellers successfully defend the 20 sma, sellers could look to take out yesterday’s low of 4088 to create a lower low and expose the 50 sma at 4044.

(Click on image to enlarge)

FX markets – USD falls, EUR rises

The USD is falling for a second straight session, after weak manufacturing and JOLTS job openings data yesterday raised concerns over the health of the economy and as regional banks came under pressure again. Furthermore, the market is expecting the Fed to signal a pause in rate hikes at the meeting later which could keep USD under pressure.

EUR/USD is rising as investors continue digesting the mixed inflation picture ahead of the ECB rate decision. Headline CPI rose to 7%, but core CPI cooled to 5.6%. This is still well above the ECB’s 2% target level so the ECB is likely to hike rates again tomorrow.

GBP/USD is rising, capitalizing on the weaker USD, despite a quiet UK economic calendar. The pound is broadly supported by bets that the BoE will keep hiking rates. Data yesterday showed the UK food inflation rose to a record high of 15.7%.

EUR/USD +0.36% at 1.1038

GBP/USD +0.44% at 1.2502
 

Oil falls 9% in 3 days

Oil prices are falling for a third straight day putting total losses so far this week at over 9%. Oil it's fooling and rising concerns over slowing economic growth and a US debt default.

A series of weak manufacturing data yesterday from the US, Eurozone, and the UK, combined with a rising fist at the US default on its debt are hurting the oil demand outlook.

Concerns overshadowed data from API which showed that crude oil inventories fell this week to 3.93 million barrels, significantly more than the 1 million draw forecast.

Meanwhile, gasoline and distillate stockpiles rose, raising concerns over the demand picture.

EIA inventory data is due later. Investors will also be watching the Fed rate decision closely. A hawkish Fed could raise concerns over the economic outlook and as a result the oil demand outlook.

WTI crude trades -2.95% at $69.54

Brent trades at -2.6% at $73.33
 

Looking ahead

14:15 US ADP payrolls

15:00 US ISM services PMI

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