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Dow Futures Slip Lower, Tech Stocks Gain Ahead of Fed: Oil Extends Rally

A commodity price pullback could give Fed Chair Jerome Powell more room to maneuver as he attempts to convince an increasingly skeptical market that inflation pressures will fade over the second half of the year.

The Wednesday Market Minute

  • Global stocks peel away from record highs in cautious trading ahead of today's Federal Reserve rate decision.
  • No charges are expected in the Fed's base lending rate, but Chairman Jerome Powell's press conference at 2:30 PM Eastern time will be closely watched for any clues on near-term tapering.
  • New growth and inflation projections will also test the current 'dot plot' assumption of no rate moves until at least 2023.
  • Commodity prices retreat as China moves to release copper and other metals from its strategic reserves for the first time in more than a decade.  
  • Benchmark 10-year note yields ease to 1.489% while the dollar index gains at 90.518 ahead of today's Fed statement.
  •  CDC data shows 145.8 million Americans have now been fully vaccinated against the coronavirus, with around 311.8 million doses administered as of Tuesday.
  • U.S. equity futures suggest a mixed open on Wall Street ahead of May housing starts data at 8:30 am Eastern time.

U.S. equity futures slipped lower Wednesday, with oil defying a broader pullback in commodity prices to trade at the highest levels in more than two years, as investors approach today's Federal Reserve rate decision with added caution in the wake of mixed domestic growth and inflation data.

The Fed will unveil the results of its two-day policy meeting at 2:00 PM Eastern time, with Chairman Jerome Powell taking questions from the media thirty minutes later through a virtual feed from Washington. 

No changes to the Fed's base lending rate range -- which currently sits at a record low of 0% to 0.25% -- is expected, but fresh growth and inflation forecasts, which currently suggest rates will remain in place until 2023, will be published alongside the Fed statement and could provide clues as to whether recent data, including the fastest pace of factory gate inflation in more than 10 years, has affected the central bank's 'transitory' narrative. 

"The Fed’s policy has been very stimulative through the pandemic," said Commonwealth Financial Network CIO Brad McMillan. "But with the recent high inflation reports, the headlines are increasingly warning that the Fed risks an inflation breakout if it doesn’t tighten policy very soon."

"So far, the Fed has resisted such calls and doubled down on its determination to keep the pump primed until employment is all the way back to pre-pandemic levels," he added. "The drama this week will be whether the Fed sits tight or admits that inflation is rising and that the Fed needs to tighten."

At least part of the 'transitory' theory was evident in overnight trading, as commodity prices tumbled, with copper falling to the lowest levels in two months, as China's  National Food and Strategic Reserves Administration said it would release certain metals from its national stockpile for the first time in more than a decade in order to tame speculators and slow the face of factory input prices in the world's second-largest economy. 

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Oil prices, however, continued to climb, with Brent trading near the $75 mark after a bigger-than-expected 8.5 million barrel decline in U.S. crude stockpiles was reported by the American Petroleum Institute and traders extended bets on near-term energy demand in a post-pandemic boom.

Brent crude contracts for August delivery, the global benchmark, added 12 cents from Tuesday's close in New York to trade at $74.13 per barrel while WTI crude was marked 10 cents higher at $72.24 per barrel.

U.S. equity futures, meanwhile, remained rangebound ahead of the Fed statement, even as European shares scaled to another record high amid their longest winning streak in three years, with contracts tied to the Dow Jones Industrial Average indicating a 45 point opening bell decline.

Futures linked to the S&P 500, which is up 13.1% for the year, are priced for a 1 point pullback while Nasdaq Composite futures suggest a 15 point bump at the opening bell for the tech-focused benchmark.

Oralce  (ORCL) - Get Report shares were a notable pre-market mover, falling 4.8% to $77.71 per share after the cloud and software group forecast weaker-than-expected current quarter earnings that overshadowed Street-beating profits for its fiscal fourth quarter. 

Carnival Corp.  (CCL) - Get Report was also on the move, rising 0.4% to $27.82 following an upgrade to 'outperform' and a price target boost to $32 a share by Wolfe Research.

Away from equities, benchmark 10-year Treasury note yields eased to 1.489% in overnight trading, while the dollar index held at one-month highs against a basket of its global currency peers to trade at 90.517 ahead of today's Fed decision. 

Overnight in Asia, the strongest May export data since 1980 failed to lift Japan's Nikkei 225, which closed 0.51% lower at 29,291.01 points, while weaker China stocks held down gains for the MSCI ex-Japan benchmark, which fell 0.45% into the close of trading.