Here are five things you must know for Wednesday, May 4:
1. -- Stock Futures Higher Ahead of Fed , Oil Surges On EU Russia Export Ban
U.S. equity futures nudged higher Wednesday as investors braced for what is likely to be the largest Federal Reserve rate hike in more than two decades alongside further details of its policy tightening over the coming months as inflation continues to run at the hottest pace since the early 1980s.
Stocks around the world, in fact, have been hit by aggressive rate signaling from global central banks over the past few months as surging oil prices, supply chain disruptions and rising employment costs boost underlying inflation pressures. The Reverse Bank of Australia unveiled its first rate hike in more than a decade on Tuesday, while European Central Bank Executive Board Member Isabel Schnabel indicated Wednesday that rates are likely to begin rising as early as July.
Still, the Fed's actions, as well as its plans to reduce its $8.9 trillion balance sheet -- a move that will likely add upward pressure to market-based interest rates -- has lifted the U.S. dollar index 7.75% so far this year, to a near 20-year high of 103.408 against its global peers, while benchmark 10-year Treasury bond yields are testing the 3% level for the first time since late 2018.
The higher rates are offering alternatives to stocks and other assets, including gold and cryptocurrencies, that have largely outperformed benchmarks since the 2020 pandemic.
Gold is down more than 9% from its early March highs, last trading at $1,867.50 per ounce, while bitcoin has failed to regain the $40,000 mark since late April.
On the flip side, global crude prices resumed their surge in overnight trading after the European Commission -- the region's executive branch -- proposed a ban on all Russian crude imports, phased over the next six months, with a complete embargo on refined oil products put in place for the end of the year. Member states will need to agree the proposals before their put in place,
WTI crude futures for June delivery were marked $3.28 higher in overnight trading to change hands at $105.69 per barrel, while Brent contracts for July delivery jumped $3.12 to trade at $108.11 per barrel.
In Europe, the region-wide Stoxx 600 was marked 0.39% lower in early Frankfurt trading as investors kept risk appetite in check ahead of today's Fed rate decision while the MSCI ex-Japan index in Asia fell 0.56% heading into the close of trading.
On Wall Street, futures contacts tied to the Dow Jones Industrial Average indicating a 132 point opening bell gain while those linked the S&P 500 priced for a 17 point advance. Futures linked to the tech-focused Nasdaq are looking at 40 point opening bell gain.
2. -- Fed In Focus: Rate Hike Path Tested By Slowing Growth, Asset Price Slump
Federal Reserve Chairman Jerome Powell faces yet another significant test of both his leadership and communication Wednesday as he unveils what is likely to be the biggest single-day rate hike in more than twenty years while detailing the central bank's inflation flight against a backdrop of slowing growth and tumbling stocks.
Interest rate traders are widely anticipating a 50 basis points hike from the Fed at 2:00 pm Eastern time today, a move that would take the benchmark Fed Funds rate to a range of 0.75% to 1%, while offering further specifics on how and when it will begin reducing its $8.9 trillion balance sheet.
Powell's challenge, however, begins then, as the market looks for further rate signaling against a backdrop of slowing growth -- the U.S. economy contracted 1.4% over the first quarter -- and the worst four-month start to any year for U.S. stocks since 1939.
"(Powell) will argue that the Fed does not target any specific level for any asset price, and that the macro fundamentals are strong," said Ian Shepherdson of Pantheon Macroeconomics. "If pushed, though, he can’t dodge the idea that market action can feed back into the real economy, amplifying the Fed’s actions. We don’t know where the trigger would be for the Fed to signal a pause, but it’s probably still some way off."
The CME Group's FedWatch is pricing in a 97.9% chance of a 50 basis point hike on Wednesday, as well as an 89.6% chance of a 75 basis point move at the Fed's following meeting in June.
3. -- Starbucks Shares Jump As North American Sales Offset China Slump
Starbucks (SBUX) shares surged higher in pre-market trading after the world's largest coffee chain posted stronger-than-expected first quarter sales thanks to what returning CEO Howard Schultz called "relentless" domestic demand.
The assessment of U.S. growth, where comparable sales soared 12% from last year, offset significant concerns of the pace of activity in China, where Covid lockdowns have shuttered stores around the country. Same-store sales in China fell 23%, and will likely slump further over the three months ending in June, Schultz said, but a return to growth will mean China "will be eventually larger than our business in the U.S." Schultz said.
Starbucks said non-GAAP earnings for the March quarter were pegged at 59 cents per share, down 4.8% from last year but matching Street forecasts, while revenues rose 15% to $7.64 billion, just ahead of analysts's estimates.
Starbucks shares were marked 6.55% higher in pre-market trading to indicate an opening bell price of $79.20 each.
4. -- AMD Shares Leap On Q1 Earnings Beat, Bullish Chip Outlook
Advanced Micro Devices (AMD) shares leapt higher in pre-market trading after the chipmaker blasted first quarter earnings forecasts, and boosted its full-year revenue outlook, as cloud demand more than offset a slump on PC-related sales.
AMD posted earnings of $1.13 per share for the three months ending in March, topping Street forecasts by 22 cents, on adjusted revenues of $5.89 billion.
Looking ahead, AMD said 2022 revenues should come in north of $26 billion, with a second quarter tally in the region of $6.5 billion, thanks to what CEO Lisa Su called the "premium, gaming and commercial portions of the (global semiconductor) market where we see strong growth opportunities and expect to continue gaining overall client revenue share."
AMD shares were marked 5.7% higher in pre-market trading to indicate an opening bell price of $96.35 each.
5. -- Lyft Shares Collapse As Surging Costs Hammer Bottom Line
Lyft (LYFT) shares collapsed in pre-market trading after the ride-sharing group cautioned that rising costs and uneven demand would eat into its bottom line over the next three months.
Lyft, which is struggling to find drivers in an historically competitive job market and surging fuel costs, also said active riders for the three months ending in March fell 18.7 million from the prior quarter. That still left adjusted earnings at $54.8 billion, well ahead of forecasts, but Lyft said that figure would plummet to $15 billion over the three months ending in March.
Lyft shares were marked 26.1% lower in pre-market trading to indicate an opening bell price of $22.74 each., a move that would wipe away nearly $2.8 billion from the San Francisco-based group's market value.
Uber Technologies (UBER) shares were also under pressure, falling 4.1% to $28.26 each.
