Stock futures edge higher with jobs, Fed in focus; Fed minutes may show rate path split as economy, inflation cools; GE HealthCare shares to begin trading on the Nasdaq; Microsoft slumps as UBS cuts rating, flags Azure weakness and Kevin McCarthy faces ‘last shot’ at House Speaker after three failed votes.
Five things you need to know before the market opens on Wednesday January 4:
1. — Stock Futures Edge Higher With Jobs, Fed In Focus
U.S. equity futures edged higher Wednesday, while the dollar and Treasury bond yields eased, as investors eyed jobs data and the release of Fed minutes amid rising market volatility levels paired with thin trading volumes.
Stocks ended lower Tuesday, however, and look vulnerable to a similar pattern today, with daily trading volumes below typical averages in the holiday-shortened week and investors taking early cues from movements in the U.S. dollar .
The CBOE’s VIX volatility gauge, meanwhile, jumped 5.6% in the overnight session to 22.87 points, suggesting daily moves for the S&P 500 of around 55 points over the next 30 days, the highest since mid-December.
Benchmark 10-year Treasury note yields were marked another 3 basis points lower in the European session and trading at 3.701% while the U.S. dollar index, which tracks the greenback against a basket of six global currencies, gave back around 0.5% to change hands at 104.015.
Overnight trading was broadly solid, with the Asia’s MSCI ex-Japan index rising 1.69% into the close of trading and Europe’s Stoxx 600 getting a boost from softer-than-expected inflation data from France and an improved reading for economic activity around the region in the form of final PMI data from S&P Global.
On Wall Street, traders are likely to focus on the release of minutes from the Fed’s December policy meeting, slated for 2:00 pm Eastern time, as well as JOLTS jobs data at 10:00 am Eastern, which is expected to indicate that around 10.3 million positions remained unfilled over the month of November.
Those figures could feed into expectations for Friday’s December payroll report, as well as bets on the Fed’s next month in February, where traders are pricing in a 70.3% chance of a 25 basis point rate hike.
Heading into the start of the trading day, futures tied to the S&P 500 are priced for a 15 point opening bell gain while those linked to the Dow Jones Industrial Average are set for an 88 point bump. The tech-focused Nasdaq is looking at a 72 point advance.
2. — Fed Minutes May Show Rate Path Split As Economy, Inflation Cools
The Federal Reserve will release minutes from its December rate setting meeting Wednesday, with investors likely to focus on any split among policymakers with respect to future hikes amid one of the most aggressive tightening paths on record.
The Fed raised its benchmark interest rate for the seventh time in 2022 when it last met on December 14, taking the benchmark Fed Funds rate to a range of between 4.25% to 4.5%, the highest since 2008, and said ongoing be needed in order to combat the fastest inflation in nearly four decades.
The so-called Dot Plots, which illustrate the views of the Fed’s eighteen member rate-setting committee, indicated a terminal Fed Funds rate of around 5.1% by the spring, a level that it plans to hold until the end of the year.
Data since then, however, has suggested weakness in the overall economy, while inflation continues to slow, and bond markets have been testing the Fed’s hawkish view for more than a month, with benchmark 2-year notes trading at 4.347%, well below the terminal rate projected by the December dots.
“We expect the minutes of the December FOMC meeting to reaffirm policymakers’ commitment to driving inflation back down to the target,” said Ian Shepherdson of Pantheon Macroeconomics. “But we also expect the voices suggesting that the tightening is nearly over to be a bit louder than in November.”
3. — GE HealthCare Shares To Begin Trading On The Nasdaq
GE HealthCare, recently spun-off from the iconic industrial group under the leadership of CEO Larry Culp, will make its trading debut on the Nasdaq Wednesday.
GE finalized plans to spin-off the healthcare division in late November, with shareholders receiving one share of GE HealthCare for every three shares of the main group they own under a distribution that took place after the close of trading last night.
GE HealthCare shares will debut on the Nasdaq under the ticker symbol GEHC today. GE Vernova, the group’s power and renewables division, will likely spun-out into the public markets through a tax-free deal in 2024, leaving GE Aerospace as the final piece of the group’s breakup, trading on the NYSE under the traditional (GE) – Get Free Report ticker.
General Electric shares were marked 20.7% lower in pre-market trading to reflect the GE HealthCare spin-off and indicate an opening bell price of $67.40 each.
4. — Microsoft Slumps As UBS Cuts Rating, Flags Azure Weakness
Microsoft (MSFT) – Get Free Report shares slumped lower in pre-market trading after analysts at UBS lowered their rating on the tech giant, citing weakness in its flagship cloud division.
UBS analyst Karl Keirstead lowered his rating on Microsoft to ‘neutral’ from “buy’, while shaving $50 from his price target to $250 per share, as he cautioned that its Azure cloud offering is heading for a sharp deceleration in growth. He also noted vulnerability in Microsoft’s Office 365 business.
Azure revenues rose 35% over the three months ending in October, the group’s fiscal first quarter, slowing notably from its prior quarter gains as companies pulled back on investment spending. Microsoft said that rate will slow further into the second quarter even after stripping away the impact of the stronger U.S. dollar.
Microsoft shares were marked 2% lower in pre-market trading to indicate an opening bell price of $234.70 each.
5. — Kevin McCarthy Faces ‘Last Shot’ At House Speaker After Three Failed Votes
Congressional lawmakers will reconvene Wednesday as they attempt to elect a Speaker for the House of Representatives following three failed votes on Tuesday that left Republican favorite Kevin McCarthy scrambling for support from the party’s conservative base.
McCarthy, the former House Minority Leader who represents California’s 20th Congressional District, has been working for months to shore-up support among the 202 member Republican caucus after the party narrowly took back control of the House in November.
His efforts fell short, however, following back-to-back roll call vote losses Tuesday that earned him the distinction of being on the second prospective Speaker that wasn’t elected on the first ballot since the Civil War.
Republican lawmakers could now either discuss floating a new candidate after Representative Jim Jordan of Ohio won 20 votes in Tuesday’s final ballot, or encourage dissident caucus members to vote “present”, rather than aye or nay, in a move that would lower the threshold McCarthy would need to earn majority support in the chamber.
“I think that Kevin knows that this is his last shot,” said Colorado Representative Kenneth Buck.