U.S. Stock Futures Steady Ahead of Highly Anticipated Speech

Introduction

U.S. stock futures remained stable on Friday following a turbulent trading session as investors eagerly anticipated a speech by Federal Reserve Chair Jerome Powell.

Market Overview

• Dow Jones Industrial Average futures (YM00) rose by 62 points, or 0.2%, reaching 34,202.
• S&P 500 futures (ES00) gained 6 points, or 0.1%, totaling 4,392.
• Nasdaq 100 futures (NQ00) decreased by 5 points, or 0%, settling at 14,857.

Previous Market Performance

On Thursday, the market experienced a downturn:

• Dow Jones Industrial Average (DJIA) fell by 374 points, or 1.08%, closing at 34,099.
• S&P 500 (SPX) declined by 60 points, or 1.35%, finishing at 4,376.
• Nasdaq Composite (COMP) dropped by 257 points, or 1.87%, reaching 13,464.

Market Analysis

The stock market witnessed a significant decline on Thursday, although the S&P 500 remains higher for the week. Even Nvidia, a prominent chipmaker, struggled to maintain positive momentum following the release of their financial results and outlook, which surpassed Wall Street expectations.

In light of recent developments, the Nasdaq Composite has failed to rise above its 50-day moving average on four separate occasions since breaking that threshold two weeks ago, as reported by Bespoke Investment Group.

The stock market decline can also be attributed to the sell-off in bonds. The yield on the 10-year bond (BX:TMUBMUSD10Y) reached its sixth highest level for the year on Thursday. Furthermore, the Federal Reserve, Japan, and China's decision to halt bond purchases for various reasons has also affected the bond market.

Upcoming Event

The market is now looking ahead to Federal Reserve Chair Jerome Powell's speech at Jackson Hole, Wyo., scheduled for 10:05 a.m. Eastern Time. In contrast to last year's statements about the necessity of raising interest rates, Powell's remarks today are expected to strike a more balanced tone.

The Changing Outlook for Interest Rates

The Federal Reserve's stance on interest rates has undergone a significant shift in recent months. Initially, there was some indication that a rate hike could occur in October or November, but this sentiment has changed due to a more pessimistic outlook for economic growth. As a result, confidence in the initial forecast has been shaken by incoming data.

Boston Fed President Susan Collins has openly expressed the need for evidence of a slowdown in the economy before she can be convinced that inflation will return to its long-term target of 2%. She had anticipated a greater deceleration in economic growth but admitted to being surprised by its resilience.

Meanwhile, European Central Bank President Christine Lagarde is set to deliver a speech at the Jackson Hole conference. During the previous meeting, she left the possibility of a rate hike in September open-ended. As of Friday morning, there was about a 40% chance of an increase in September, according to market expectations. However, disappointing purchasing managers indexes and Germany's confirmation that its economy stagnated in the second quarter have dampened these prospects.

Francesco Pesole, an FX strategist at ING, believes that Lagarde faces a tougher challenge than Fed Chair Jerome Powell. The latest PMI figures confirm that the eurozone's economy is heading towards a period of sluggish growth, making it difficult to make any hawkish statements. Additionally, Lagarde and her ECB colleagues are likely aware that the window for one final hike to counter the persistent service inflation is rapidly closing.

Overall, these developments indicate a shift in the outlook for interest rates, with both the Federal Reserve and the European Central Bank facing challenges in their respective monetary policies.