By Peter Nurse
Investing.com -- U.S. stocks are seen opening sharply lower Wednesday, handing back some of the previous session’s gains ahead of the start of the two-day testimony by Fed Chair Jerome Powell on Capitol Hill.
At 07:00 a.m. ET (1100 GMT), the Dow Futures contract was down 350 points, or 1.1%, S&P 500 Futures traded 50 points, or 1.4% lower and Nasdaq 100 Futures dropped 195 points, or 1.7%.
The major indices on Wall Street posted strong gains on Tuesday, attempting to claw back some of the hefty losses of the past few weeks. The blue-chip Dow Jones Industrial Average rose over 600 points, or 2.2%, the broad-based S&P 500 climbed 2.5%, its best day since early May, while the tech-heavy Nasdaq Composite also gained 2.5%.
However, such a positive day has become unusual, with investors worried about a potential recession ahead as the Federal Reserve aggressively tightens monetary policy to combat inflation running at levels not seen for 40 years.
The probability of the world economy succumbing to a recession is nearing 50% as central banks tighten monetary policy, according to Citigroup.
“Central banks may yet engineer the soft -- or “softish” -- landings embodied in their forecasts (and in ours), but this will require supply shocks to ebb and demand to remain resilient,” the bank’s economists said in a note Wednesday.
Investors will study carefully Fed Chair Jerome Powell’s testimony about the state of the economy in the Senate, beginning at 09:30 a.m. ET (1330 GMT), for clues about future monetary policy as he’s sure to be questioned about the current levels of inflation and last week’s decision to raise rates by 75 basis points.
The economic data slate is largely empty Wednesday, with the exception of the Fed’s Redbook, while the earnings season has largely wound down ahead of the July 4th holiday.
Of the few quarterly reports trickling out, home builder KB Home (NYSE:KBH) and RV maker Winnebago (NYSE:WGO) are due to report Wednesday.
Oil prices slumped Wednesday as traders fretted about an economic slowdown in the U.S., the largest consumer of crude in the world.
Also weighing on the market is a push by the Biden administration to bring down soaring fuel costs, an issue that is rapidly becoming a political problem ahead of the midterm elections.
President Joe Biden is expected on Wednesday to call for temporarily suspending the 18.4-cents a gallon federal tax on gasoline, Reuters reported, while seven major oil companies are set to meet with the president on Thursday.
Weekly U.S. petroleum inventory data from the American Petroleum Institute for the week ending June 17 are due later Wednesday, a day later than usual after Monday’s U.S. holiday.
By 07:00 a.m. ET, U.S. crude futures traded 4.4% lower at $104.75 a barrel, while the Brent contract fell 3.9% to $110.20.
Additionally, gold futures fell 0.4% to $1,832.35/oz, while EUR/USD traded 0.1% lower at 1.0520.