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Dow Futures Down 260 Pts; Fed Meeting Looms Large

·3 min read

By Peter Nurse

Investing.com -- U.S. stocks are seen opening lower Monday, starting the new week with an air of caution ahead of the widely-awaited Federal Reserve policy meeting, which should see another large interest rate increase.

At 07:00 ET (11:00 GMT), the Dow Futures contract was down 260 points, or 0.8%, S&P 500 Futures traded 32 points, or 0.8%, lower and Nasdaq 100 Futures dropped 105 points, or 0.9%.

The major equity averages registered their worst week since June last week, weighed by expectations of another aggressive rate increase in the wake of higher-than-expected August consumer inflation as well as a dire warning from delivery giant FedEx (NYSE:FDX) about a weakening global economy.

This weakness is expected to continue Monday, as investors prepare for another hefty rate increase from the Fed at the conclusion of its meeting on Wednesday.

Markets have priced in a 75-basis-point rate increase, but a full percentage point hike has risen in likelihood since the release of the hot inflation number last week.

Market watchers will be on high alert for how the U.S. central bank views the future pace of monetary tightening, the Fed’s so-called dot plot, given how the policymakers see the strength of the economy, and how likely inflation is to persist.

“We expect the median dot to show the funds rate at 4%-4.25% at end-2022, an additional hike to a peak of 4.25%-4.5% in 2023, one cut in 2024 and two more in 2025, and an unchanged longer-run rate of 2.5%,” analysts at Goldman Sachs said, in a note.

Aside from the Fed meeting, the economic data slate is relatively bare this week, with only August housing starts on Tuesday and initial jobless claims on Thursday of any great significance.

There are also a handful of quarterly corporate earnings due this week, including Costco (NASDAQ:COST), Darden Restaurants (NYSE:DRI), General Mills (NYSE:GIS), and Lennar (NYSE:LEN).

Elsewhere, Tesla (NASDAQ:TSLA) could be in the spotlight Monday after authorities in Shanghai said that the electric car maker had completed a project to expand production capacity at its plant in the Chinese city.

Amazon (NASDAQ:AMZN) has suspended the construction of new warehouses in Spain until 2024, according to reports in the Spanish press, as pandemic-driven online shopping has slowed down.

Oil prices weakened Monday, overturning earlier gains as fears of aggressive monetary tightening, resulting in a global recession, caused concerns that fuel demand growth will slow.

The market has edged higher earlier Monday after China had started easing curbs in Chengdu, a southwestern city of more than 21 million people and the biggest city to face lockdowns after Shanghai earlier this year.

By 07:00 ET, U.S. crude futures traded 2.1% lower at $83.02 a barrel, while the Brent contract fell 1.8% to $89.69.

Additionally, gold futures fell 0.6% to $1,673.20/oz, while EUR/USD traded 0.4% lower at 0.9980.

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