The Fed is set to raise interest rates another 25 basis points today; with all eyes on how Fed Chair Jerome Powell will respond to speculation of a rate cut later this year. Eurozone inflation slowed sharply in January, but the ECB is still expected to raise rates by 50 basis points on Thursday. Snap shares fell sharply after forecasting its first-ever drop in quarterly revenue, while Meta*, owner of Facebook – another social network under pressure from weaker sales growth in recent quarters – will report after the close. OPEC is expected to leave its oil production quotas unchanged for March at a meeting with Russia and other partners, and the U.S. is again seeing a big rise in oil inventories. Here’s what you need to know about the financial market on Wednesday, Feb. 1.
1. The day of the Fed’s decision
At the end of the two-day meeting, the Federal Reserve will raise the target range for the federal funds rate by 25 basis points to 4.50%-4.75%. The press conference will take place at 2:00 p.m. Eastern Time (7:00 p.m. GMT), with Fed Chairman Jerome Powell’s speech beginning a half hour later.
Powell is expected to emphasize that the central bank will continue to tighten policy, unlike some market participants who have already decided that it will have to change course and start cutting rates later this year as the economy has stalled.
The dollar, which has not hit a new low in 2 weeks after assessing the Fed’s dovish reversal at the end of the year, is seen by many as being at risk of a sharp fall if Powell is too blunt about the need to keep rates high until inflation calms down.
2. ISM, JOLTS and ADP manufacturing index data
Today is a busy day for economic data from the US as well, with the Institute for Supply Management (ISM) manufacturing index and the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) for December coming out at 10:00 AM ET.
Regional surveys from the Federal Reserve Banks of Philadelphia and New York have been pretty dismal this month, and the Chicago FRB index fell the most in nearly 2 years, so it would be surprising if the ISM index avoids moving further into contraction territory.
On the other hand, the JOLTS survey has repeatedly shown job openings at historic highs, making it easier for the growing ranks of laid-off tech companies (PayPal (NASDAQ:PYPL) added 2,000 job cuts to that list on Tuesday) to find new work and limit recession risk.
ADP will also release its monthly U.S. hiring survey for January at 08:15 GMT, while weekly data on mortgage applications and rates are due out at 07:00 ET.
3- U.S. stock market drifts ahead of Fed decision; Snap and Meta in focus
U.S. stock indexes are set to open lower, ceding some of the gains made after Tuesday’s mixed earnings data. Appetite for higher rates ahead of the Fed’s decision is likely to be tempered.
By 07:20 ET, the Dow Jones futures were down 114 points, or 0.3%, the S&P 500 futures were down 0.2% and the Nasdaq 100 futures were unchanged.
Snap (NYSE:SNAP), which fell 14% in the premarket after forecasting its first quarterly earnings decline, is likely to be in the spotlight. It also weighed on Pinterest (NYSE:PINS) and Meta Platforms (NASDAQ:META) on the premarket, the latter of which will report after the close of trading. T-Mobile (NASDAQ:TMUS), Thermo Fisher (NYSE:TMO) and Altria (NYSE:MO) will top the list of companies that will report early.
Mondelez (NASDAQ:MDLZ) and Advanced Micro Devices (NASDAQ:AMD) are set for a stronger opening after more encouraging updates Tuesday night. Big pharma earnings data released the day before in Europe didn’t move the market, with neither Novo Nordisk (NYSE:NVO), Novartis (NYSE:NVS), nor GlaxoSmithKline (NYSE:GSK) changing little in the premarket.
4- Eurozone inflation falling faster than expected – or is it?
Inflation in the eurozone is retreating too. Or maybe not. Eurostat reported earlier that consumer prices fell 0.4% in January, bringing core CPI down to 8.5%, the lowest level since May. An even bigger 0.8% decline was seen in core consumer prices.
However, data for Germany, the region’s largest economy, was not included in the index due to technical problems at the country’s statistical office Destatis.
The data did not change expectations for a 50 basis point ECB rate hike at Thursday’s meeting, but may make Christine Lagarde’s guidance a bit more nuanced than in December, when she surprised many by signaling a shift toward an ECB rate hike.
5. OPEC+ will leave quotas unchanged amid lower production in the U.S.
The Organization of the Petroleum Exporting Countries will meet with Russia and other exporters to announce their production targets for March, and it will be delayed. According to newswires, it has no desire to change course, given that most OPEC members’ budgets will balance at current prices (although Russia’s budget will not).
On Tuesday, the U.S. government reported that U.S. oil production declined in November as producers focused on generating cash and paying down debt rather than investing in drilling. However, more recent information suggests demand is also weakening, with the American Petroleum Institute reporting that crude inventories rose by more than 6 million barrels last week, bringing the cumulative increase over the past 5 weeks to 35 million barrels. Government inventory data will be released at 10:30 a.m. ET.
By 07:20 ET, WTI futures were up 0.7% to $79.41 a barrel and Brent futures were up 0.4% to $85.80.