Markets Close Lower Amid Economic Concerns, FedEx Results


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Stock index futures point to a slightly lower open Tuesday as the FOMC starts its two-day meeting and rates continue to climb.

Nasdaq 100 futures (NDX:IND) -0.5%, S&P futures (SPX) -0.4% and Dow futures (INDU) -0.3% are lower.

The 2-year Treasury yield is knocking on the door of 4%. The 2-year (US2Y) is up 4 basis points to 3.99%, hitting its highest level since 2007. The 10-year yield (US10Y) is up 4 basis points to 3.53%.

“Upward pressure on rates remains intact with 10Y UST yields briefly punching through 3.5% and German 10Y bund yields continuing to flirt with 1.8%,” ING said. “But it is clearly the front end of curves that feel the pain of central banks continuing to pull in the reins.”

“For the Fed meeting on Wednesday night the market is discounting a 20% chance of a 100bp hike,” they added. “If the Fed moves its dots higher, markets’ anticipation of further hikes should move up alongside pricing in more firmly rate increases of similar magnitude. Current market expectations have the Fed’s 2.25-2.50% target range moving to 4.0-4.25%, if not above by year-end. As long as we are on that upward leg also long-end rates can remain dragged higher in the slipstream of front-end rates, though the curve is likely to invert further in the process.”

On the economic calendar, August housing starts arrive before the bell. Economists expect the annual rate to dip slightly to 1.445M. Building permits are forecast to have fallen to 1.61M.

“Yesterday’s NAHB housing survey was weaker,” UBS chief economist Paul Donovan. “The decline of the US housing market is both disinflationary and inflationary – it lowers demand for building materials and associated durable goods, but people still have to live somewhere. If people are not buying houses, but are determined to move out of their parents’ basements, this means higher rents and more upwards pressure on the fantasy owners’ equivalent rent measure.”

Among active stocks, automakers are under pressure after Ford said it expects to see rising inventory of unfinished vehicles.


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