(Reuters) – U.S. stock index futures edged lower on Tuesday as a surprise interest rate hike by Australia’s central bank ahead of a much-awaited policy meeting by the Federal Reserve and uncertainty around the U.S. debt ceiling talks spooked investors.
The U.S. central bank is expected to deliver a 25 basis-point interest rate increase on Wednesday and then hold rates steady for the rest of 2023, according to economists in a Reuters poll.
Worries about an economic downturn and concerns about stress in the banking sector have fueled expectations of rate cuts in the latter half of the year. However, with inflation running well over the central bank’s 2% target and a still-strong labor market mean chances of rate cuts seem less likely.
Denting sentiment, Australia’s central bank raised its cash rate by 25 basis points when traders were expecting an extended pause, citing too high inflation and warning of even higher rates.
The cost of insuring against a U.S. default hit fresh highs after Treasury Secretary Janet Yellen said the government could run out of money within a month, prompting President Joe Biden to summon four top congressional leaders to the White House next week.
“Nerves are rising about the debt ceiling standoff in the U.S., with the prospect that a default could shake the global economy … focus is now switching to how the U.S. government will be able to pay its bills amid gridlock in Washington,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
Meanwhile, U.S. stocks ended little changed on Monday as investors took in First Republic Bank’s weekend auction, leading to a rout in the regional banking space and strong gains in JPMorgan Chase & Co after the largest U.S. bank picked up the beleaguered lender’s assets.
With manufacturing data on Monday supporting the need for continued tightening by the Fed for the near term, all eyes will be on job openings and factor orders data later in the day.
Focus also remains on earnings from major companies including Pfizer Inc, Uber Technologies Inc, Cummins Inc and Marriott International Inc scheduled for the day.
Analysts expect first-quarter earnings for S&P 500 companies to fall 1.9% from a year earlier following better-than-expected reports from some technology and growth giants, compared with a 5.1% fall expected at the start of April, according to Refinitiv data.
At 5:33 a.m. ET, Dow e-minis were down 72 points, or 0.21%, S&P 500 e-minis were down 7 points, or 0.17%, and Nasdaq 100 e-minis were down 1 points, or 0.01%.
Among individual stocks, Tesla Inc edged up 0.2% on raising prices in Canada, China, Japan and the U.S., after having slashed prices on its top-selling vehicles since the start of the year.
Educational services company Chegg slumped 44.7% on a downbeat second-quarter revenue forecast on increasing competition from ChatGPT.
(Reporting by Ankika Biswas in Bengaluru; Editing by Sriraj Kalluvila)
