# Investors eye lower Wall Street on Powell nerves
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-26
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: U.S. Stock Futures Drop on Rate Hike Concerns
Meta Description: Investors are cautious as U.S. stock futures signal a decline on Wall Street on Friday. All eyes are on Fed Chair Jerome Powell's speech for rate hike
URL: https://financedigest.com/investors-eye-lower-wall-street-on-powell-nerveshtml

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By Carolyn Cohn

LONDON (Reuters) – U.S. stock futures were indicating a lower open on Wall Street on Friday while [world](https://www.financedigest.com/world-stocks-cling-to-upbeat-mood-dollar-stalls.html "World stocks cling to upbeat mood, dollar stalls") stocks were heading for a small drop on the week, as investors wait to see if Federal Reserve Chair Jerome Powell will indicate further rate hike pain.

[Investors have pared back expectations](https://www.financedigest.com/wave-of-lawsuits-over-ftx-expected-but-investors-will-face-legal-hurdles.html "‘Wave’ of lawsuits over FTX expected, but investors will face legal hurdles") that the Fed could pivot to a slower pace of rate hikes, as U.S. inflation remains at 8.5% on an annual basis, well above the [central bank’s](https://www.financedigest.com/testing-waters-hungarys-central-bank-flags-cut-in-top-end-of-rate-corridor.html "Testing waters, Hungary’s central bank flags cut in top end of rate corridor") 2% target.

But [Powell’s speech](https://www.financedigest.com/stocks-dollar-pause-ahead-of-powell-biden-speeches.html "Stocks, dollar pause ahead of Powell, Biden speeches") at 1400 GMT at the Fed’s annual conference at Jackson Hole will be scrutinised for any indication that an economic slowdown might alter its strategy.

Interest rate futures now imply a 60% chance of a 75 basis point (bps) [Fed hike](https://www.financedigest.com/dollar-set-for-weekly-loss-amid-expectations-fed-will-slow-hikes.html "Dollar set for weekly loss amid expectations Fed will slow hikes") in September.

The Fed and other central [banks have been falling asleep at the wheel over inflation](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel"), now they are desperate to regain credibility,” said Luca Paolini, chief strategist at Pictet Asset Management.

“Economists are clearly calling for the Fed not to blink, and if anything accelerate the pace of tightening.”

U.S. S&P [futures fell 0.35% after the S&P 500 index gained](https://www.financedigest.com/organic-fertilizer-market-where-should-participant-focus-to-gain-maximum-roi-exclusive-report-by-future-market-insights.html "Organic Fertilizer Market | Where Should Participant Focus To Gain Maximum ROI | Exclusive Report By Future Market Insights") 1.4% on Thursday.

The MSCI world equity index was [steady on the day and was heading for a 0.5% drop on the week](https://www.financedigest.com/wall-st-seen-steady-ahead-of-inflation-data-fed-later-in-week.html "Wall St seen steady ahead of inflation data, Fed later in week").

European stocks dropped 0.44%, while [Britain’s FTSE](https://www.financedigest.com/ftse-100-snaps-four-day-winning-streak-as-britains-ocado-slumps.html "FTSE 100 snaps four-day winning streak as Britain’s Ocado slumps") 100 was steady.

Consumer morale in the euro zone’s two biggest [economies diverged starkly in August as French consumers benefited](https://www.financedigest.com/a-two-way-street-chinese-investment-in-the-uk-will-benefit-both-economies.html "A TWO WAY STREET: CHINESE INVESTMENT IN THE UK WILL BENEFIT BOTH ECONOMIES") from fresh government measures while concerns over rising energy bills hit their German counterparts, surveys showed on Friday.

[Investors pulled money from both equity and bond funds](https://www.financedigest.com/uk-investors-add-1-2-billion-to-equity-funds-in-march-calastone.html "UK investors add .2 billion to equity funds in March – Calastone") in the week to Wednesday, with European equity funds seeing their 28th consecutive week of outflows in the longest streak since 2016, BofA said in a research note citing EPFR data.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.55% to one-week highs.

[Fed officials on Thursday continued hammering the point that they will drive rates up and keep](https://www.financedigest.com/dollar-buoyant-as-robust-u-s-data-keep-fed-hawks-in-control.html "Dollar buoyant as robust U.S. data keep Fed hawks in control") them there until inflation has been squeezed from the economy.

So it is a fair [bet that the Powell speech will take a similar turn](https://www.financedigest.com/world-stocks-turn-positive-in-may-on-fed-bets.html "World stocks turn positive in May on Fed bets") today,” said Robert Carnell, regional head of Research, Asia-Pacific, at ING.

If so, the most likely market reaction would be a [rise in yields](https://www.financedigest.com/wall-st-stocks-fall-bond-yields-rise-as-china-drops-quarantine-rule.html "Wall St stocks fall, bond yields rise as China drops quarantine rule") at both the front and back of the yield curve, a sell-off in equities and dollar strength, as markets seem to have been positioning themselves for a more supportive set of comments.

The yield on benchmark U.S. 10-year Treasury notes rose 5 bps to 3.0706%, while the two-year yield was flat at 3.3742%.

Germany’s 10-year [bond yield](https://www.financedigest.com/german-bond-yields-at-new-highs-after-stronger-than-expected-pmis.html "German bond yields at new highs after stronger-than-expected PMIs") rose 2 bps to 1.344% after hitting its highest level since early July on Thursday at 1.39%.

Currency markets were relatively calm after the [dollar recently hit](https://www.financedigest.com/european-shares-hit-nine-month-high-dollar-wobbles-after-powell-remarks.html "European shares hit nine month high, dollar wobbles after Powell remarks") 20-year highs against a basket of currencies on the U.S. [rate hike](https://www.financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talk.html "UK economy’s unexpected bounce spurs more BoE rate hike talk") expectations.

The dollar index dipped 0.25% on Friday, while the [euro rose back above parity with the dollar](https://www.financedigest.com/dollar-slips-yuan-gains-on-china-pmi-hot-inflation-lifts-euro.html "Dollar slips, yuan gains on China PMI; hot inflation lifts euro"), up 0.4% to $1.0013. The [dollar gained](https://www.financedigest.com/stocks-dollar-gain-on-soft-landing-hopes.html "Stocks, dollar gain on soft landing hopes") 0.3% to 136.89 yen.

The pound was steady at $1.1831, holding above recent 2-1/2 year lows, after Britain’s energy regulator said energy bills will [rise 80% to an average 3,549 pounds](https://www.financedigest.com/dollar-slips-after-upbeat-china-data-euro-pound-rise.html "Dollar slips after upbeat China data; euro, pound rise") ($4,200.95) from October.

RBC analysts forecast [annual energy price](https://www.financedigest.com/coca-cola-hbcs-annual-profit-beats-warns-of-price-increases.html "Coca-Cola HBC’s annual profit beats, warns of price increases") caps to rise to more than 6,000 pounds in April 2023.

As wholesale gas and electricity prices surge, millions of people in [Europe are now spending a record](https://www.financedigest.com/europe-experienced-second-warmest-winter-on-record.html "Europe experienced second-warmest winter on record") amount of their income on energy, data shows.

The huge [rise in energy prices in Europe](https://www.financedigest.com/analysis-rate-rises-pile-pain-on-sme-firms-in-u-s-and-europe.html "Analysis-Rate rises pile pain on SME firms in U.S. and Europe") and demand destruction will cause massive disruptions to global supply chains,” said Tim Ash, strategist at BlueBay Asset Management.

However, [oil rose on Friday on signs of improving fuel](https://www.financedigest.com/oil-spills-and-near-misses-more-ghost-tankers-ship-sanctioned-fuel.html "Oil spills and near misses: more ghost tankers ship sanctioned fuel") demand, although further gains were capped as the market awaited Powell’s speech. \[O/R\]

Brent crude rose 1.66% to $100.99 per barrel and U.S. [crude gained](https://www.financedigest.com/oil-up-on-lower-u-s-crude-stocks-and-dollar-opec-and-china-concerns-limit-gains.html "Oil up on lower U.S. crude stocks and dollar, OPEC+ and China concerns limit gains") 1.42% to $93.84 a barrel.

Spot gold was at $1,746 per ounce, down 0.70%. \[GOL/\]

($1 = 0.8448 pounds)

(Additional reporting by Stella Qiu in Sydney; editing by Sam Holmes, Kim Coghill and Chizu Nomiyama)


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