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Fed minutes fallout, Walmart on deck - what's moving markets

Published 08/17/2023, 06:02 AM
Updated 08/17/2023, 06:02 AM
© Reuters. -- Minutes from the Federal Reserve's latest policy meeting suggest that officials at the U.S. central bank were divided over their eventual decision to hike interest rates in July. Meanwhile, policymakers hinted that further increases in borrowing costs may be needed in the future to subdue inflationary pressures, sending stocks lower and Treasury yields higher. Elsewhere, Walmart is expected to lift its full-year forecast when the big-box retailer unveils its latest quarterly earnings Thursday.

1. Fed minutes hint at division over rate policy

Federal Reserve policymakers may have been united in their decision to hike interest rates to their highest level in 22 years at their last meeting in July, but minutes from that gathering point to internal doubts over the decision.

The central goal for the Fed remains unchanged: Bring inflation back down to its stated 2% target, preferably without causing a meltdown in the broader economy.

How officials choose to achieve this objective is still a subject of deep debate within the U.S. central bank. According to the minutes, "most participants" were fretting over ongoing "upside" pressures to price growth. "Some participants," however, were wary about the wider impact of more policy tightening -- indeed, a "couple" of officials even backed keeping borrowing costs steady last month.

Ultimately, the Fed decided unanimously to lift rates by 25 basis points. Yet, the discussions behind the move suggest that the Fed may now take a more cautious approach to its inflation dilemma, and, by extension, future rate hikes.

Officials warned that further tightening could be required, although they stressed that much will depend on the "totality" of economic data in the "coming months."

2. Futures edge higher

U.S. stock futures ticked up on Thursday, hinting at a recovery on Wall Street after a second consecutive losing day, as investors considered the implications of the Fed's commentary.

At 05:25 ET (09:25 GMT), the S&P 500 futures contract added 7 points or 0.14%, Dow futures climbed by 39 points or 0.11%, and Nasdaq 100 futures rose by 28 points or 0.19%.

The main indices all fell in the prior session, with some traders fretting that the Fed's minutes as a sign that the bank may not yet be finished with its long-standing policy-tightening campaign. The benchmark S&P 500 slipped by 0.76% and the 30-stock Dow Jones Industrial Average dropped by 0.52%, while the tech-heavy Nasdaq Composite slumped by 1.15%.

Meanwhile, worries over continued elevation in interest rates drove the yield on U.S. 10-year Treasury up to its highest close in 15 years in New York. They inched even higher in Asian trading Thursday.

3. Walmart to report

Walmart (NYSE:WMT) is projected to improve its annual earnings guidance for the second time this year when it reports quarterly results on Thursday, while analysts will also be looking for any comments around the big-box giant's back-to-school sales.

Unlike peers, Target (NYSE:TGT) and Home Depot (NYSE:HD), the world's biggest retailer has been a beneficiary of a recent pullback in consumer spending on nonessential items.

Much of this is due to Walmart's large grocery offerings, which have enticed inflation-hit shoppers and supported demand for more profitable products. Food inflation, which the company had flagged earlier this year as a potential drag on second-half performance, has also shown signs of easing.

Analysts expect markets to react to any glimpses into Walmart's back-to-school sales, which have historically proved to be a bellwether for the crucial holiday shopping season. A survey from brokerage Stifel this month found that more people plan to buy backpacks, pens, and pencils at Walmart than at Target or rival Costco (NASDAQ:COST), although overall expenditures on back-to-school items are seen decreasing by 16%.

4. Fitch warns of possible China rating rethink

Ratings agency Fitch hinted that it may reconsider China's A+ sovereign credit grade, in the latest sign of worries in financial markets over the outlook for the world's second largest economy.

Speaking to Bloomberg TV on Wednesday, Fitch's James McCormack said that it may "think again" about the rating if China's government introduces more stimulus measures, adding that the country's debt-to-GDP ratio is a "little bit on the high side for a single 'A' credit."

Although McCormack noted that Fitch is not "expecting" to make such a move, it suggests some uncertainty around the stability of a rating that the group has held in place since 2007. Beijing has struggled to revive what has been a sputtering post-pandemic recovery, while fears persist over the health of China's property sector.

It is not the first time Fitch has rattled financial markets in August. This month, Fitch downgraded the U.S. long-term credit rating to AA+ from AAA and warned that it may slash its ratings on dozens of American banks.

5. Oil prices volatile amid U.S. inventory draw, China fears

Oil prices were choppy on Thursday amid a bigger-than-expected draw in U.S. crude inventories and lingering concerns over China's economic status.

Sentiment remains weak given worries that slowing growth in China, as well as a potential hawkish stance from the Fed, will weaken fuel demand in the world's two biggest economies.

Additionally, data from the Energy Information Administration showed that U.S. production hit a new three-year high last week, close to the record-high levels produced before the COVID-19 outbreak in 2020.

By 05:25 ET, the U.S. crude futures traded 0.34% higher at $79.65 a barrel, while the Brent contract climbed 0.34% to $83.73. Both contracts earlier hit their weakest level in two weeks.

Latest comments

why doller index is going up side and crude oil is also going up side. world is going critical stage. because all stock market is deep
Peter Navarro once said "Powell sales sushi as rotten fish"
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I heard Maria Victoria Caicedo is a crook who will soon be going to prison. Is this true?
get out the popcorn!
Futures tick higher while investors digesting bad negative news......
Feds should just raise the rates 1% at one time, then sit back and watch the fun.  Extra fun when you watch the ones who invest with borrowed funds.  Nice lesson on if you can't  afford to lose it, you don't belong in the game.
The sky is falling, the sky is falling, these writers should seek other careers.
Powell didn't address Fitch's downgrade, which will probably mean the Treasury and Feds will want to make Bonds look attractive. BRICS meeting next week, threat to the dollar even if the Gold back BRICS currency is not launched and Saudi Arabia's 1-2 million oil barrel cut which forces the dollar to get stronger? Interesting!
Market goes into a panic seeing the worst possible outcome as usual
The FED did not say more hikes were coming they said they see risks of inflation re accelerating and that may cause the need for additional hiking IF it happens.
same thing, it does not matter
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