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Fed rate outlook, Tesla shareholder vote on Musk pay deal - what's moving markets

Published 06/13/2024, 03:45 AM
© Reuters

Investing.com -- U.S. stock futures point to a mixed open on Wall Street, after the Federal Reserve signaled it expects to roll out fewer interest rate reductions in 2024 than it had expected earlier this year. Tesla (NASDAQ:TSLA) gears up to reveal the results of a much-anticipated shareholder vote on Chief Executive Elon Musk's massive $56 billion compensation deal. Broadcom (NASDAQ:AVGO) shares spike in extended hours trading after the semiconductor firm lifted its annual guidance for its artificial intelligence-optimized chips.

1. Futures mixed

U.S. stock futures were mixed on Thursday, as investors digested an updated outlook for potential interest rate cuts this year from the Federal Reserve.

By 03:29 ET (07:29 GMT), the Dow futures contract had edged down by 28 points or 0.1%, S&P 500 futures had climbed by 15 points or 0.3%, and Nasdaq 100 futures had increased by 170 points or 0.9%.

The benchmark S&P 500 and tech-heavy Nasdaq Composite both posted fresh record highs for a third consecutive session on Wednesday. Equities were boosted by Labor Department data showing an easing in inflationary pressures in May, although trading was choppy after the latest forecast from the Fed's rate-setting committee indicated that policymakers now expect to announce only one interest rate reductions in 2024 (see below).

Adding some upward momentum to the market were shares in Oracle (NYSE:ORCL), which surged by more than 13% following a better-than-anticipated double-digit annual revenue guidance from the software provider.

2. Fed signals one rate cut in 2024

The Federal Reserve has signaled it plans to unveil just one possible interest rate cut in 2024, indicating a hawkish stance from policymakers as they left borrowing costs on hold at more than two-decade highs.

In March, officials had indicated that they projected as many as three reductions this year. But the rate of price growth -- the major focus of an unprecedented recent tightening cycle by the Fed -- has remained stubbornly elevated above the central bank's stated 2% target.

Members of the rate-setting Federal Open Market Committee, several of whom suggested in the run-up to the Fed's latest two-day meeting that they would like to see more evidence inflation is sustainably decelerating to 2% before slashing rates, acknowledged that "modest" progress has been made in corralling prices.

The statement came only hours after a cooler-than-projected reading of May's consumer price index (CPI), which had given lift to stocks and Treasury bonds. Speaking after the Fed's gathering, Chair Jerome Powell said that while the CPI number was "encouraging," many officials are choosing to take a more "conservative" approach to their inflation forecasts.

Financial markets are now pricing in a 56.7% chance that the Fed will ratchet down rates by 25-basis points from their current range of 5.25% to 5.5% in September, according to CME's FedWatch Tool. One day ago, the probability stood at 46.8%.

"[W]e think that if the next three rounds [of monthly inflation figures] are in a similar range, the leadership is likely to push through a cut in September," analysts at Goldman Sachs said in a note to clients.

3. Musk says Tesla shareholders to vote in favor of $56 billion pay package

Tesla shareholders are expected to back CEO Elon Musk’s $56 billion pay package and a move by the electric vehicle giant to reincorporate in Texas from Delaware by "wide margins," Musk said in a social media post on Wednesday.

Shareholders are voting on Musk’s controversial pay package -- the largest in U.S. corporate history -- and the shift to Texas this week. The results are due to be unveiled at a meeting at Tesla's headquarters in Texas on Thursday.

"Both Tesla shareholder resolutions are currently passing by wide margins! Thanks for your support!!," Musk said in a post on X.

Reuters has also reported a similar trend in early voting, citing a source familiar with the preliminary tally.

Musk’s pay deal was struck down by a Delaware judge earlier this year after a slew of lawsuits and complaints from shareholders.

4. Broadcom shares spike after-hours following revenue forecast boost

Broadcom upgraded its annual revenue guidance for its artificial intelligence-optimized chips, sending shares in the semiconductor group sharply higher in extended hours trading.

Revenue from the California-based company's AI-tied chips is now projected to be $11 billion, an increase from its prior forecast of $10 billion. Broadcom stands to be a major benficiary of a boom in enthusiasm around AI because its cutting-edge networking processors, which help move large amounts of data, are used in applications like OpenAI's ChatGPT chatbot.

In the second quarter, revenue from the firm's AI products came in at $3.1 billion.

The firm also announced a ten-for-one stock split aimed at making its shares, which have soared by more than 37% so far this year, more affordable for retail investors.

5. Crude slips

Crude prices fell Thursday after a surprise build in U.S. crude inventories, while the IEA also trimmed its oil demand growth forecast for 2024.

By 03:24 ET, the U.S. crude futures (WTI) traded 0.3% lower at $78.23 per barrel, while the Brent contract dropped 0.4% to $82.31 a barrel.

Government data, released on Wednesday, showed that U.S. oil inventories unexpectedly grew by 3.7 million barrels in the first week of June, against expectations for a draw of 1.2 million barrels.

Outsized builds in distillates and gasoline stockpiles also drove up concerns that fuel demand was not picking up with the summer season as expected.

Additionally, the International Energy Agency trimmed its outlook for demand growth in 2024 by 100,000 barrels per day to 960,000 bpd, in its monthly report.

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