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U.S. stock futures flat with eyes on oil and Fed

Published 12/12/2016, 07:01 AM
© Reuters.  Wall Street futures put to mixed open with focus on oil producer agreement ahead of Fed
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Investing.com - Wall Street futures pointed to a mixed open on Monday after all three major indices posted their best week since the election and closed at record highs, while market focus was on the surge in oil prices and preparations began for the Federal Reserve’s (Fed) monetary policy decision later in the week.

The blue-chip Dow futures inched up 14 points, or 0.07%, by 6:59AM ET (11:59GMT), the S&P 500 futures slipped less than a point, or 0.02%, while the tech-heavy Nasdaq 100 futures traded down 20 points, or 0.41%.

With no major economic reports scheduled for release on Monday, market participants were focused on a more than 4% jump in crude prices to a 18-month high after the Organization of the Petroleum Exporting Countries (OPEC) and other producers sealed a deal to jointly cut output for the first time since 2001.

Non-OPEC members agreed to cut output by 558,000 barrels per day (bpd), in a follow up to the cartel’s agreement to reduce production by 1.2 million bpd.

U.S. crude futures rose 4.25% to $53.69 by 7:00AM ET (12:00GMT), while Brent oil traded up 4.12% to $56.57.

Meanwhile, investors were preparing for the Fed’s policy decision out on Wednesday. According to Investing.com’s Fed Rate Monitor Tool, markets had fully priced in a rate hike by 25 basis points to 0.50%-0.75% in what would be its first increase this year and only the second since the 2007-2009 financial crisis.

With the policy tightening on Wednesday essentially considered a “done deal”, Fed fund futures were pricing in the next move for June 2017 with odds at 61.8%.

Rate hike expectations and speculation that the deal to cut the output on oil could spur inflation caused a sell-off in bonds as investors demanded a higher return. Bond yields move inversely to their price.

The U.S. 10-year Treasury yield broke through 2.5% for the first time since October 2014, hitting an intraday high of 2.528% on Monday.

Speculation on Fed policy tightening also took its toll on gold Monday, with prices hitting a 10-month low.

Both a strong dollar and higher interest rates are typically bearish for gold, which is denominated in dollars and struggles to compete with yield-bearing assets when borrowing costs rise.

Elsewhere, European stocks showed little movement with the exception of Italy where investors celebrated a report stating that the Italian government was prepared to step in to support the country’s third largest bank, and the oldest in the world, Monte dei Paschi (MI:BMPS) if plans for a €5 billion ($5.3 billion) capital increase failed to attract investors.

The lender led the FTSE MIB higher with gains of around 6%.

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