Uncertainty About Interest Rates May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Friday, with stocks likely to show a lack of direction following yesterday’s sell-off.

Uncertainty about the outlook for interest rates may lead to choppy trading on Wall Street following comments from several Federal Reserve officials.

In an interview with Bloomberg News on Thursday, St. Louis Fed President James Bullard indicated he supports raising interest rates by a full percentage point by the start of July, including a possible 50-basis point hike.

“I was already more hawkish but I have pulled up dramatically what I think the committee should do,” said Bullard, who is a voting member on the Federal Open Market Committee this year.

Bullard’s comments came after a report from the Labor Department showed consumer prices spiked by the highest annual rate in 40 years in January.

However, other Fed officials have subsequently pushed back against the idea of raising rates by 50 basis points at the next Fed meeting in mid-March.

Atlanta Fed President Raphael Bostic told CNBC he still favors a 25-basis point increase in March, while Richmond Fed President Tom Barkin said he would “have to be convinced” of the need for a 50-basis-point rate hike.

San Francisco Fed President Mary Daly also said a 50-basis-point hike is “not my preference,” according to CNBC’s Steve Liesman.

Stocks recovered from a sell-off at the start of trading on Thursday only to pullback sharply over the course of the session. With the steep drop on the day, the major averages largely offset the strong upward move seen on Tuesday and Wednesday.

The major averages climbed off their worst levels going into the close but still ended the day sharply lower. The Dow tumbled 526.47 points or 1.5 percent to 35,241.59, the Nasdaq dove 304.73 points or 2.1 percent to 14,185.64 and the S&P 500 plunged 83.10 points or 1.8 percent to 4,504.08.

The initial sell-off on Wall Street came after a highly anticipated Labor Department report showed the annual rate of growth in consumer prices accelerated more than expected in the month of January.

The report showed consumer prices in January were up by 7.5 percent compared to the same month a year ago, reflecting the fastest annual growth since February of 1982. Economists had expected the annual rate of growth to reach 7.3 percent.

The faster year-over-year growth came as the Labor Department said its consumer price index climbed by 0.6 percent in January, matching the upwardly revised advance seen in December.

Economists had expected consumer prices to rise by 0.5 percent, matching the increase originally reported for the previous month.

The report showed core consumer prices, which exclude food and energy prices, also advanced by 0.6 percent in January, matching the increase seen in December. Economists had also expected core prices to rise by 0.5 percent.

The annual rate of growth in core prices accelerated to 6.0 percent in January from 5.5 percent in December, showing the biggest jump since August of 1982.

The data raised concerns that the Federal Reserve will increase interest rates more aggressively in an effort to fight elevated inflation.

“These strong inflation data raise the prospect of the Fed starting its tightening cycle with a 50bps rate hike at its March policy meeting, followed by consecutive rate hikes at the subsequent meetings,” said Kathy Bostjancic, Chief US Financial Economist at Oxford Economics.

She added, “If the Fed decides that 50bps is too strong to kick off the tightening cycle, 50bps could be in the cards for the following meetings.”

While upbeat earnings news helped stocks shrug off the initial weakness, selling pressure returned in afternoon trading following Bullard’s comments.

Interest rate-sensitive housing stocks moved sharply lower over the course of the session, dragging the Philadelphia Housing Sector Index down by 3.4 percent.

Substantial weakness also emerged among semiconductor stocks, as reflected by the 3.2 percent nosedive by the Philadelphia Semiconductor Index.

Telecom stocks also saw considerable weakness among worries about higher interest rates, with the NYSE Arca North American Telecom Index plunging by 3 percent.

Gold, utilities, and commercial real estate stocks also showed notable moves to the downside, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are jumping $1.25 to $91.13 a barrel after rising $0.22 to $89.88 a barrel on Thursday. Meanwhile, after inching up $0.80 to $1,837.40 an ounce an ounce in the previous session, gold futures are falling $8.20 to $1,829.20 an ounce.

On the currency front, the U.S. dollar is trading at 115.91 yen versus the 116.01 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1394 compared to yesterday’s $1.1428.

Asia

Asian stocks followed Wall Street lower on Friday, as signs of surging U.S. inflation added to pressure on the Federal Reserve to hike rates aggressively. Japanese markets were closed for National Foundation Day.

Chinese markets closed lower as Zhenro Properties shares fell sharply on redemption worries. The benchmark Shanghai Composite Index ended down 22.96 points, or 0.7 percent, at 3,462.95, while Hong Kong’s Hang Seng Index finished marginally lower at 24,906.66.

Australian markets fell the most in two weeks as tech stocks followed their U.S. peers lower amid bets for more aggressive interest rate hikes by the Federal Reserve.

The benchmark S&P/ASX 200 Index slumped 71.20 points, or 1 percent, to 7,217.30, snapping a three-day winning streak and marking its worst session since Janiuary 27. The broader All Ordinaries Index fell 79.70 points, or 1.1 percent, to finish at 7,515.80.

Xero lost 4.5 percent and WiseTech Global gave up 3.4 percent. Mining heavyweights BHP and Rio Tinto rose 1.2 percent and 2.9 percent, respectively on strong iron ore prices.

Banks ended flat to slightly higher after Reserve Bank of Australia Governor Philip Lowe said it was plausible interest rates could go up some time this year and that there were risks to lifting rates too early. Insurance Australia Group surged 4.2 percent after its first-half profit topped estimates.

New Zealand stocks plunged after manufacturing data disappointed and another survey showed inflation expectations are gaining upside momentum across the time curve in the first quarter of 2022.

The benchmark NZX-50 Index plummeted 239.27 points, or 1.9 percent, to 12,173.78, marking its sharpest fall since January 28, 2021. Pushpay Holdings, Vista Group and Pacific Edge fell 3-4 percent.

Seoul stocks ended notably lower after a sell-off on Wall Street overnight amid fears about aggressive rate hikes by the Federal Reserve. The Kospi slid 24.22 points, or 0.9 percent, to 2,747.71. LG Chem lost 4.2 percent and Naver declined 1.2 percent.

Europe

European stocks have moved to the downside on Friday amid bets for more aggressive interest rate hikes by the Federal Reserve.

While the French CAC 40 Index has slid by 0.8 percent, the U.K.’s FTSE 100 Index is down by 0.6 percent and the German DAX Index is down by 0.3 percent.

Swedish luxury car maker Volvo Cars has moved sharply lower after its fourth quarter earnings lagged forecasts.

Valve maker Spirax-Sarco has also shown a significant move to the downside in London after a brokerage downgrade.

Electric utility EDF has also come under pressure after cutting its estimate for its French nuclear output in 2023.

On the other hand, British American Tobacco has risen after it reported a 7 percent increase in full-year adjusted revenue.

Tate & Lyle has jumped after the provider of food-and-beverage ingredients raised full-year expectations for continuing operations.

French TV group TF1 has also moved to the upside after reporting an increase in full-year advertising revenue and profit.

In economic releases, the U.K. economy expanded at a steady pace in the fourth quarter, the Office for National Statistics said earlier in the day.

Gross domestic product grew 1 percent sequentially, the same pace of expansion as seen in the third quarter. Economists had forecast quarterly growth of 1.1 percent.

On a yearly basis, GDP grew 6.5 percent, slightly faster than the 6.4 percent expansion expected by economists.

U.S. Economic Reports

The University of Michigan is scheduled to release its preliminary reading on consumer sentiment in the month of February at 10 am ET. The consumer sentiment index is expected to inch up to 67.5 in February from 67.2 in January.

Stocks In Focus

Shares of Zillow Group (Z, ZG) are moving sharply higher in pre-market trading after the real estate website operator reported a narrower than expected fourth quarter loss on revenues that exceeded analyst estimates.

Travel services provider Expedia (EXPE) is also likely to see initial strength after reporting fourth quarter earnings well above expectations.

Shares of Yelp (YELP) may also move to the upside after the online review site operator reported fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

On the other hand, shares of Under Armour (UA, UAA) may open lower after the athletic apparel maker reported better than expected fourth quarter results but warned supply chain issues would weigh on profit margins in the coming months.