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Fed Rate Hike, EU Sanctions, Lyft Crash - What's Moving Markets

Economy May 04, 2022 13:16
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By Geoffrey Smith -- The Federal Reserve is set for its biggest interest rate hike in 20 years, while India also raised rates and the ECB moved a step closer to a July rate hike overnight. The EU confirms its intention to ban Russian oil from its market by the end of the year, pushing oil back to its highs for the year. Lyft shares tank after the ride-hailing company warns of problems getting drivers on the streets and Uber moves up its scheduled earnings release. Airbnb, AMD, and Starbucks all make for a positive overnight session, however. Here's what you need to know in financial markets on Wednesday, 4th May. 

1. Fed set for 50 bps hike; India joins the party 

The Federal Reserve is set to raise U.S. official interest by 50 basis points, its largest single hike in 20 years, aiming to bring inflation down from a 40-year high. The decision is due at 2 PM ET and Chair Jerome Powell's press conference follows half an hour later.

Fed officials have guided consistently in recent weeks for the measure, leaving little room for surprise. That leaves guidance on the Fed’s balance sheet as the key variable, where opinions differ as to when it should start active sales from its bond portfolio, and how fast it should unload bonds into the market.

The Fed’s ‘dot plot’ of future rate expectations may also reflect any nascent fears that tightening too far might hurt an economy that is already showing signs of slowing in some sectors. Weekly mortgage applications and the ISM Non-manufacturing survey may provide fresh evidence before the Fed makes its decision.

Elsewhere, the global monetary tightening cycle continues, with the Reserve Bank of India following its Australian counterpart in announcing a surprise rate hike earlier. Another top European Central Bank official also opened the door to a first rate hike in the Eurozone in July.

2. EU confirms plan to ban Russian oil imports

The European Union confirmed its intention to phase out its purchases of Russian crude and refined products by the end of the year, ratcheting up its economic pressure on the Kremlin.

The EU’s latest sanctions package also delinks Russia’s largest bank, Sberbank (MCX:SBER), and two other large state-owned banks from the SWIFT messaging system, bringing it closer into line with U.S. and U.K. measures and also bans consultants and PR firms from servicing Russian companies.

The measures will need to be approved by all 27 member states. There was no immediate confirmation of reports suggesting carve-outs on the oil provision for Hungary and Slovakia, which have the highest level of dependence on oil delivered through Soviet-era pipelines.

3. Stocks set for positive opening after upbeat Starbucks, Airbnb reports

U.S. stocks markets are set to open mostly higher ahead of the Fed meeting, supported by some strong earnings reports after the bell on Wednesday from the likes of chipmaker Advanced Micro Devices (NASDAQ:AMD), Airbnb (NASDAQ:ABNB) and even Starbucks (NASDAQ:SBUX), whose ability to cope with rising costs and the closure of its Chinese stores had been the source of some concern.

By 6:15 AM ET (1015 GMT), Dow Jones futures were up 106 points, or 0.3%, while S&P 500 futures, and Nasdaq 100 futures were up broadly in line. All three cash indices had posted modest gains on Tuesday.

Wednesday’s reporting highlights include Marriott, Regeneron (NASDAQ:REGN), KFC and Pizza Hut owner Yum! Brands (NYSE:YUM) and BorgWarner (NYSE:BWA) before the open, and Booking (NASDAQ:BKNG), MetLife (NYSE:MET), eBay (NASDAQ:EBAY) and Pioneer Natural Resources (NYSE:PXD) after hours.

4. Lyft crashes in premarket after warning on driver costs

One particular report of note will be Uber (NYSE:UBER), which was originally scheduled to report after the close but which has moved up the release to 7 AM ET, according to Bloomberg.

That follows an alarming update from its rival Lyft (NASDAQ:LYFT) after hours on Tuesday which sent the ride-hailing company’s stock down 27%. Lyft said it would have to spend more heavily to attract drivers, further pushing out the timeline for sustained cash generation.

Uber has suffered from similar concerns to a less acute degree, and its recent quarters have been bolstered by solid growth at its food delivery business. However, it remains loss-making. Uber stock was down 4% in premarket trading.

5. Oil higher on EU action, EIA inventories due

Crude oil prices rose again in response to the EU’s sanctions package, although the details came as no surprise after being flagged by officials earlier in the week.

They do, however, pave the way for a further escalation of the conflict which has the potential to exacerbate the existing disruption to the world economy.

Russian President Vladimir Putin has signed a decree allowing Russia to halt exports of a range of products including metals and grains to ‘unfriendly countries’. Reports also suggest that Putin is considering a formal declaration of war around next week’s anniversary of the end of World War 2, allowing him to expand conscription and put the whole economy on a war footing.

By 6:30 AM ET (1030 GMT), U.S. crude prices were up 3.7% at $106.25 a barrel, while Brent was up 3.9% at $109.06 a barrel. The U.S. government’s weekly inventory data are due at 10:30 as usual, a day after the American Petroleum Institute reported a larger-than-expected drop in crude stocks.

Fed Rate Hike, EU Sanctions, Lyft Crash - What's Moving Markets

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