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Fed decision, SNB surprise, Reddit IPO - what's moving markets

Published 03/21/2024, 05:00 AM
Updated 03/21/2024, 05:14 AM
© Reuters.
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Investing.com -- Wall Street futures head higher after the Federal Reserve reaffirmed plans for three interest rate cuts this year. The Swiss National Bank became the first major central bank to cut interest rates, and more central banks are due. Reddit is set to start trading, having been priced at the top of its IPO range.

1. Fed reaffirms plans for three cuts this year

The U.S. Federal Reserve held its benchmark overnight borrowing rate in a range between 5.25%-5.5% on Wednesday, but reaffirmed plans for three  quarter-percentage point cuts by the end of 2024.

These would be the first reductions since the early days of the Covid pandemic in March 2020, and the intentions to cut have been repeated despite slower-than-expected progress towards the U.S. central bank's 2% inflation target and robust economic growth.

The Fed's new policy statement described inflation as remaining "elevated," and updated quarterly economic projections showed the personal consumption expenditures price index excluding food and energy, the central bank’s favorite inflation gauge, rising at a 2.6% rate by the end of the year, compared to 2.4% in the projections issued in December.

Additionally, the officials also lifted their expectations for annualized real GDP to show 2.1% growth in the March projection, up from 1.4% in December. 

“Our interpretation is that Chair Powell and a narrow majority of the Committee feel strongly about not delaying cuts for too long and are targeting the June FOMC meeting for the first cut,” analysts at Goldman Sachs said, in a note dated March 20.

“In fact, the somewhat higher inflation forecast—which is now 0.2pp above our own forecast of 2.4%—lowers the bar slightly for incoming inflation data to meet the FOMC’s expectations and keep a June cut on track. We continue to expect cuts in June, September, and December, for a total of 3 cuts in 2024.”

2. Futures higher, continuing positive tone 

U.S. stock futures rose Thursday, suggesting the main indices will add to record closing levels, after the Federal Reserve kept alive the possibility of three interest rate cuts this year.

By 05:00 ET (09:00 GMT), the Dow futures contract was 120 points, or 0.3%, higher, S&P 500 futures had climbed 22 points or 0.4%, and Nasdaq 100 futures had risen by 140 points or 0.8%.

The main indices enjoyed a winning day on Wednesday, with both the Dow Jones Industrial Average and the Nasdaq Composite gaining over 1% and the S&P 500 rising 0.9%, all to new record closing highs. 

This positive tone, based on hopes that the U.S. central bank will start cutting interest rates in June, is set to continue this session, while investors digest data on jobless claims and existing home sales.

Earnings are due from Darden Restaurants (NYSE:DRI) before the open, while FedEx (NYSE:FDX) and Nike (NYSE:NKE) are due to provide numbers after the close.

Micron Technology (NASDAQ:MU) stock surged premarket after the chipmaker provided upbeat guidance for the current quarter after recording a surprise profit in the fiscal second-quarter.

Five Below (NASDAQ:FIVE) stock fell after the discount retailer missed quarterly expectations and posted weak guidance.

3. Central bank meetings continue; SNB surprises with a cut

The parade of major central banks continues Thursday, with policy meetings scheduled from the Norges Bank, the Bank of England, and the Central Bank of the Republic of Turkey.

U.K. inflation slowed by more than expected in February, and while the Bank of England is widely expected to keep rates unchanged this might be enough to settle the two hawks who voted for a hike last month.

Both the central banks of Norway and Turkey are also likely to keep interest rates unchanged.

The Swiss National Bank surprised the markets, cutting its benchmark interest rate by 25 basis points to 1.5%, becoming the first major central bank to cut rates in this cycle.

SNB chief Thomas Jordan suggested, at Davos, that the franc's recent appreciation was posing challenges for exporters, and this move is likely designed to weaken the currency.

4. Reddit prices IPO at top of range

Reddit (NYSE:RDDT) priced its initial public offering at the top of its targeted range of $31 to $34 per share, in the first major social media offering since 2019.

Reddit, a website that hosts millions of online forums, sold 15.28 million shares in the offering, while existing shareholders sold another 6.72 million, raising a total of $748 million, and resulting in a valuation of about $6.4 billion.

The company had been valued at $10 billion in a private fundraising round in 2021, but soaring inflation and rising interest rates pushed investors out of risky assets in 2022, eventually forcing startups to downsize, slash their valuations and focus on profit over growth.

Despite the loyalty of many of its users, Reddit has lost money every year since its launch in 2005 and has lagged the commercial success of contemporaries such as Meta Platforms (NASDAQ:META)' Facebook and Twitter, now known as X. That said, its revenue increased 20% last year to $804 million from $666.7 million in 2022.

The success of this launch could give the ailing technology IPO market a much-needed boost. 

Reddit's shares are expected to start trading on the New York Stock Exchange on Thursday under the ticker 'RDDT'.

5. Oil retreats after strong gains

Oil prices fell Thursday, handing back some of the recent gains prompted by the Fed announcement and a fall in U.S. crude and gasoline inventories. 

By 05:00 ET, the U.S. crude futures traded 0.4% lower at $80.93 a barrel, while the Brent contract dropped 0.3% to $85.70 per barrel. Both contracts are up over 10% to far this year.

The dollar index fell sharply after the Fed flagged three interest rate cuts in 2024, despite the robust strength of the U.S. economy, which presents a positive scenario for oil demand.

Also helping was data showing crude stockpiles in the United States, the world's biggest oil consumer, fell unexpectedly for a second week, dropping by 2 million barrels as exports rose and refiners continued to increase activity. 

Gasoline inventories also fell, this time for a seventh week, by 3.3 million barrels, suggesting steadily strong fuel demand.

Shrinking U.S. inventories, coupled with more potential supply shocks from geopolitical disruptions in Russia and the Middle East, presented a tighter outlook for global crude markets in 2024. 

 

 

 

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