Five things you need to know before the market opens on Wednesday March 22:
1. -- Stock Futures Edge Lower as Fed Rate Decision Looms
U.S. equity futures edged lower Wednesday, while the dollar gave back gains against its global peers and Treasury bond yields steadied, as investors braced for perhaps the most important Fed rate decision in more than a decade later in the session.
Renewed confidence in the banking sector, helped in part by Treasury Secretary Janet Yellen's suggestion of extended deposit support, boosted both sector stocks and Wall Street Tuesday, with the S&B 500 Banks index rising 3.6% on the session for its biggest single-day gain since November.
That rally flowed-through into Asia trading, lifting the region-wide MSCI ex-Japan index by 1.29% heading into the close of trading, with the Nikkei 225 ending the day 1.93% higher in Tokyo following yesterday's Vernal Equinox holiday.
Stocks were mixed in Europe, however, following a faster-than-expected reading for U.K. inflation, which jumped to 10.4% over the month of February and accelerated bets on a harsher policy response from the Bank of England.
Hawkish comments from European Central Bank President Christine Lagarde added to the mix, as did a weaker-than-forecast reading for the ZEW Institute's benchmark reading of German investor sentiment.
In U.S. markets, stocks are unlikely to extend yesterday's rally ahead of the Fed decision, which is due at 2:00 pm Eastern time and will be followed by Chairman Jerome Powell's press conference 30 minutes later, with the CBOE's benchmark gauge of market volatility falling a further 9.6% in overnight trading to an early March low of 21.83 points.
Benchmark 2-year Treasury note yields were little trading a few ticks lower from their Tuesday close in the overnight session at 4.145% while the U.S. dollar index, which tracks the greenback against a basket of six global currencies, slipped 0.24% to 103.013 thanks in part to strong single-day gains for both the euro and the pound.
On Wall Street, futures contracts tied to the S&P 500 are indicating a 2 point opening bell decline while those linked to the Dow Jones Industrial Average were looking at a 12 point dip. The tech-focused Nasdaq is looking at 20 point decline.
2. -- Fed Chair Powell Faces Difficult Choice Between Inflation Fight and Bank Stability
The Federal Reserve faces perhaps its most difficult policy decision since the global financial crisis Wednesday as Chairman Jerome Powell grapples with stubborn inflation dynamics and a simmering bank crisis in the world's biggest economy.
Powell's two main options are fraught with challenges, with markets likely to surge sharply higher if he decides to pause the Fed's rate hike effort in order ease pressures on the banking system, a move that would loosen financial conditions and complicate his inflation fight.
On the other hand, another rate hike -- on top of the 450 basis points in tightening the market has absorbed over the past year -- could heap further pressure on bank balance sheets and signal to markets that the Fed is sanguine with respect to the financial stability risks linked to the collapse of two major U.S. lenders, and sustained weakness in a third, in a credit-driven economy.
The CME Group's FedWatch has locked-in an 89.3% chance of a 25 basis point rate hike, and even puts the chances of a follow-on hike in May at 63%, suggesting traders feel the Fed will maintain its inflation focus through the banking crisis.
Those wagers, however, could be altered quickly today with fresh growth and inflation outlooks from the Fed's quarterly 'Summary of Economic Projections', better-know as the dot plot. December's dots pointed to a terminal Fed Funds rate of 5.125% and any suggestion of a higher path could trigger a major downside move to U.S. stocks.
3. -- First Republic Shares Extend Gains Amid Capital Support Plans
First Republic (FRC) shares edged cautiously higher in pre-market trading amid reports that U.S. government officials may broker a rescue effort for the troubled west coast lender.
Bloomberg, citing sources close to the talks, said options include ring-fencing bad assets at the bank, offering protection against potential losses to investors willing to shore-up the bank or allowing for a more flexible approach to capital rules. The bank is also looking at ways in which is can cut costs, while offloading some of its valuable loan book, in order to raise cash, according to a Reuters report.
Treasury Secretary Janet Yellen's suggestion of extended deposit support for struggling U.S. banks has also provided a floor to First Republic shares, given that it deals with wealthy individuals whose savings top the $250,000 limit set by the Federal Deposit Insurance Corp.
First Republic shares were marked 3.75% higher in pre-market trading to indicate an opening bell price of $16.36 each.
4. -- GameStop Shares Soar Following First Quarterly Profit In Two Years
GameStop (GME) shares soared in pre-market trading after the video game retailer and meme stock favorite posted its first profit in more than two years amid a cost-cutting drive and its move to online sales.
GameStop posted an adjusted bottom line of 16 cents per share for the three months ending in January, well ahead of Street forecasts, with revenues edging modestly higher from last year to $2.226 billion.
Overall expenses, however, fell 15.9% to $453.4 million -- or around 20.4% of sales -- helping drive both its adjusted and net profits in a challenging video game environment.
"Although there is a lot of hard work and necessary execution in front of us, GameStop is a much healthier business today than it was at the start of 2021," CEO Matt Furlong told investors on a conference call late Tuesday. "We have considerable cash on hand, negligible debt, streamlined inventory and a path to full year profitability.'
GameStop shares were marked 42.6% higher in pre-market trading to indicate an opening bell price of $25.17 each.
5. -- Nike Slips as Margin Pressures Cloud Q3 Profit Beat
Nike (NKE) shares edged lower in pre-market trading after the sportswear group cautioned that shifting excess inventory would pressure near-term profit margins, clouding its third quarter earnings beat.
Nike posted a bottom line of 79 cents per share for the three months ending in February, down 9.2% from the same period last year but firmly ahead of the Street consensus forecast of 55 cents per share. Group revenues rose 14% to $12.39 billion.
That pace will slow to the low-single digit range over the current quarter, however, amid a pullback in consumer spending in key markets, with Nike adding that it sees a 250 basis point decline in full-year profit margins as it grapples with higher freight costs, a stronger dollar and "accelerated actions to reduce inventory by year-end".
"With strong traffic and retail sales growth, and reduced inventory buys for the spring and summer seasons, we are increasingly confident that we will exit the year with healthy inventories across the marketplace," CRO Matt Friend told investors on a conference call late Tuesday.
Nike shares were marked 0.65% lower in pre-market trading to indicate an opening bell price of $124.81 each.
