US pre-open: Futures trade lower following Fed's rate hike

Wall Street futures were in the red ahead of the bell on Thursday as market participants came to terms with the Federal Reserve's decision to hike interest rates by 75 basis points.

As of 1325 GMT, Dow Jones futures were down 0.68%, while S&P 500 and Nasdaq-100 futures had the indices opening 0.91% and 1.06% lower, respectively.

The Dow closed 505.44 points lower on Wednesday, significantly extending the losses recorded in the previous session.

Policymakers at the Fed unanimously nodded through their fourth consecutive outsized rate hike late in the day, adding 0.75% to its interest rate target, taking it to a range of 3.75% and 4% - the highest Federal Reserve target in 15 years.

The central bank did indicate that it will monitor any possible economic damage the rate rises could have in what it termed a "lag". However, chair Jerome Powell said it was still "very premature" to discuss a pause in rate hikes, but said given there were often long lags for the effects of monetary policy changes to be seen, the Fed might not wait for inflation to normalise completely before pausing its tightening.

Treasury yields spiked on the news, with the yield on the 2-year Treasury note hitting its highest level in 15 years, while the benchmark 10-year Treasury yield rose 13 basis points to 4.189%.

AvaTrade's Naeem Aslam said: "There was no surprise expected from the Fed, but in reality, the Fed surprised the markets with their commentary yesterday, which is influencing the price action for the European and US futures. The Fed increased the interest rate by 75 basis points, as it was largely expected by them. However, what was not expected by them was to show their hawkish hand with respect to their forward guidance.

"The message which came out of the meeting last was that the Fed isn't going to take its foot off the gas, which means that traders and investors should not be thinking of the Fed reducing the pace of interest rate hikes. The Fed believes that inflation is still a massive issue, and they do not feel that inflation is going to make a U-turn as rapidly as they wanted. This element triggered the sell-off in the US stock markets, and we saw all the major averages, such as the S&P 500, Nasdaq, and Dow Jones plunging on the back of the Fed decision."

On the macro front, September trade balance figures will be published at 1330 GMT, as will initial jobless claims, while October's S&P Global services and composite PMIs will follow at 1445 GMT. Last month's ISM non-manufacturing PMI and September factory orders data will be out at 1500 GMT.

In terms of earnings, Qualcomm and Roku were both in the red prior to the open after issuing disappointing quarterly results and forward guidance, while drugmaker Moderna also traded lower on the back of weak Covid-19 vaccine sales outlook.

Reporting by Iain Gilbert at Sharecast.com