U.S. stocks futures are up ahead of the Federal Reserve’s long-awaited interest rate decision, which will be released later today. The debate is focused on whether the Fed will choose to cut interest rates by 25 basis points or 50 basis points. In addition, the independent directors of the board of the genetic testing group 23andMe resigned after failed negotiations with CEO Anne Wojcicki regarding the proposed privatization. This breakdown in negotiations led to a significant drop in the company’s shares.
Federal Reserve in the Spotlight
After its latest two-day meeting on Wednesday, the Federal Reserve may make its first interest rate cut since March 2020, although the extent of the reduction remains somewhat uncertain for investors. According to CME Group’s FedWatch tool, the odds of a large 50 basis point cut, rather than a smaller, more traditional 25 basis point reduction, stand at 61%.
Lately, there has been increasing optimism surrounding the possibility of a sizable rate cut by the Fed, supported by reports from both the Financial Times and Wall Street Journal indicating that such a move remains a viable option. Importantly, Bill Dudley, former president of the New York Fed, has said that there are compelling reasons for a 50 basis point cut, citing that borrowing costs, which are currently above the neutral rate, neither stimulate nor restrain economic activity.
However, according to ING analysts, the decision remains close. In the latest data before the announcement, U.S. retail sales rose surprisingly in August, indicating consumer resilience and greater economic strength. These trends, coupled with recent inflation figures and cooling labor demand, could further complicate decision-making for the Fed.
Traders will also be on the lookout for any signals on how the Fed plans to approach a potential easing cycle, with markets currently estimating at least 100 basis points in cuts by the end of 2024. “We suspect the Fed will emphasize uncertainty about the macroeconomic outlook and its willingness to be accommodative,” ING analysts said in a note to clients.
Futures Rise
U.S. stock markets rose on Wednesday in anticipation of the Federal Reserve’s crucial interest rate decision.
The benchmark S&P 500 index and the Dow Jones Industrial Average were virtually unchanged after Tuesday’s choppy session.
Meanwhile, the tech sector’s Nasdaq Composite index ended the day up 36 points, or 0.2%.
“Stocks shot up at full speed before plummeting in the afternoon on doubts and concerns about the Federal Reserve,” Vital Knowledge analysts noted in a note to clients.
23andMe’s Independent Directors Step Down from Board
The seven independent directors on 23andMe’s board resigned Tuesday, arguing that they had not obtained a satisfactory takeover offer from CEO Anne Wojcicki.
In a letter to Wojcicki, the directors claimed that they were not presented with a “fully funded, fully detailed and actionable proposal in the best interests of unaffiliated shareholders.” They also expressed their disagreement with Wojcicki’s strategic vision for the company.
As a result, the group’s shares plunged in the final hours of trading.
The resignations leave Wojcicki, who owns 49% of 23andMe, as the only remaining board member. Wojcicki had earlier told the board of her intention to take the company private and proposed to buy all shares not owned by her at a price of $0.40 per share. However, the offer was rejected by a special committee appointed to evaluate it.
In a note to employees picked up by the Wall Street Journal, Wojcicki expressed her surprise and disappointment at the decision, stressing her belief that taking the company private and leaving it free from the “short-term pressures of the stock markets” is the wisest course.
Nippon Steel Gets Extension for U.S. Deal Review, Bloomberg Reports
Nippon Steel Corp (5401) has won an extension of the security review of its $14.1 billion acquisition of United States Steel Corporation (X), possibly delaying a decision on the deal after the U.S. elections in November, as Bloomberg reported Tuesday.
Nippon Steel may revoke and resubmit its application to the U.S. agency overseeing the deal, which could keep the deal alive, even though President Joe Biden has vowed to block it, Bloomberg reports based on sources familiar with the matter.
Stocks of U.S. Steel (USSX34) rose more than 3% following the release of the Bloomberg report.
The buyout deal has gained prominence in the 2024 presidential election, particularly in the hotly contested state of Pennsylvania, where U.S. Steel and the anti-deal United Steelworkers union are headquartered.
Oil Prices Fall
Oil prices declined on Wednesday in the European market, interrupting a recent rally, following the release of industry data that revealed an unexpected rise in U.S. inventories.
However, prices had risen sharply in the previous week, driven by persistent supply disruptions due to Hurricane Francine and the prospect of lower interest rates, which prompted traders to bet on crude oil at reduced prices.
Moreover, escalating tensions in the Middle East also helped spur demand for crude oil, as Hezbollah vowed to retaliate against Israel after accusing it of placing detonation devices across Lebanon this week.
