Stock index futures pointed to a slightly higher open Thursday following the rally in the previous session, and the bond market is still pricing in lower rates after Fed chief Jay Powell inspired the Fed pivot crowd.
Early on and the S&P futures (SPX) +0.4%, Nasdaq 100 futures (NDX:IND) +0.5% and Dow futures (INDU) +0.2%. Equity sentiment still appeared to be risk-on with the S&P topping its 200-day moving average Wednesday.
“Despite the lateness in the year and the distraction of the World Cup, investors saw Powell’s speech as signaling that the FOMC would become more judicious in deciding future rate hikes,” Standard Chartered Steve Englander wrote “Powell was not overly dovish, but with his previous comments having been seen as intentionally hawkish, this set of comments anchored 50bps as the almost certain hike on 16 December and put 2 February pricing into 50-50 between 25 and 50bps, rather than heavily skewed to 50bps.”
Rates continued down after yesterday’s decline. The 10-year Treasury yield (US10Y) fell 11 basis points to 3.58%. The 2-year yield (US2Y) fell 5 basis points to 4.32%.
Following Powell’s remarks, traders “moderated their views on the likely pace of rate hikes over the months ahead, with terminal rate pricing down from 5.01% the previous day to 4.92% by the close yesterday,” Deutsche Bank’s Jim Reid said. “In the meantime, the rate priced for end-2023 came down by an even larger -21.3bps on the day to 4.43%.”
The economic calendar is busy, with the ISM manufacturing index, due after the start of trading, the highlight following a weak Chicago PMI. The forecast is for a drop into contraction at 49.8 for November.
The “bigger picture is that the index already has fallen sharply since January, by around eight points, and output growth has weakened substantially,” Pantheon Macro’s Ian Shepherdson said.
“This slowdown has been driven largely by the effects of tighter monetary policy, which have yet to be fully absorbed.”
October personal spending and income numbers came in with spending up 0.8% and income up 0.7%. The Fed’s favorite inflation gauge, the core PCE price index came in at +0.2% M/M vs. the anticipated +0.3%.
Weekly jobless claims fell by 16K to 225K compared to the forecasted 235K.
Among active stocks, Okta is rallying after blowing away expectations on results and forecasts.