The Federal Reserve is expected to lay the groundwork for a March rate hike as it grapples with high inflation, setting aside concerns over the recent bout of market volatility. U.S. equities are attempting a cautious rebound, supported by an upbeat sales forecast from Microsoft (NASDAQ: MSFT).
Tesla (NASDAQ: TSLA), Boeing (NYSE: B.A.) and Intel (NASDAQ: INTC) are among some of the companies reporting quarterly earnings. Geopolitical tensions underpin oil prices ahead of U.S. inventory data, and the Bank of Canada is considering its first hike rate since 2018. Here's what you need to know in financial markets on Wednesday, Jan. 26.
Fed day
The Fed isn't expected to announce any policy changes after its two-day meeting later Wednesday but is likely to indicate that rate hikes will begin in March.
U.S. inflation has surged to a near four-decade high while the unemployment rate has fallen back to 3.9%. Still, Fed Chair Jerome Powell faces a communication challenge with markets that have grown used to looser monetary policy.
Investors will be looking for clues on the timeline and pace of rate hikes and the central bank's plans for trimming its almost $9 trillion balance sheet, another way of tightening monetary policy.
Powell will need to balance communicating the Fed's intentions to keep the economic recovery on track while simultaneously taking measures to curb high inflation.
The announcement of the Fed's policy decision will come at 2 PM EST (1900 GMT) and be followed half an hour later by a press conference with Powell.
Stocks set to rebound
U.S. stock markets are set to rebound after another volatile session on Tuesday, which saw the three major stock indexes close lower but above the day's lowest levels.
By 6:25 AM ET, Dow Jones futures were up 0.9%. S&P 500 futures added on 1.3%, and Nasdaq 100 futures were up 1.8%.
ON TUESDAY, the S&P 500 came close to correction territory, closing 9.2% below the record high it set on Jan. 3 amid a broad-based selloff triggered by concerns over a more hawkish sounding Fed and heightened geopolitical tensions.
Markets were boosted after Microsoft reported earnings and revenue for the second quarter ahead of forecasts. The stock initially fell in after-hours trade before surging higher (NASDAQ: MSFT) after the company also forecast revenue for the current quarter that exceeded forecasts, boosted by solid demand for cloud computing.
The report boosted the outlook for upcoming competitors Amazon's (NASDAQ: AMZN) and Alphabet's Google (NASDAQ: GOOGL).
Tesla, Boeing, Intel to report
The corporate earnings roster features results from companies including Boeing, AT&T (NYSE: T), Abbott Labs (NYSE: ABT), Nasdaq (NASDAQ: NDAQ), Kimberly Clark (NYSE: KMB) and Whirlpool (NYSE: WHR) ahead of the open, while Tesla and Intel will report after the close.
Tesla's fourth-quarter revenue is seen at a record $16.88 billion, with profit per share coming in at $2.25, according to analysts tracked by Investing.com. Analysts will be listening to what Elon Musk's company says about the outlook for production, as well as competition from newer E.V. companies and old-guard automakers such as General Motors Company (NYSE: G.M.) and Ford Motor Company (NYSE: F).
Analysts will be looking to Intel's earnings report for clues on the supply chain and chip production efforts.
Oil higher on geopolitical tensions, inventory data eyed
Oil prices edged higher, underpinned by geopolitical tensions as investors awaited the Fed meeting and the latest U.S. inventory data later in the day.
By 6:25 AM ET, U.S. crude futures were up 0.7% at $86.16 a barrel, rising 2.8% on Tuesday.
Brent futures were up 0.7% at $87.83 a barrel after climbing 2.2% in the previous session.
Tensions between the U.S. and Russia over Ukraine remained to the fore. Russia insists it does not plan to invade Ukraine, but the West has threatened severe sanctions if that does happen.
Stockpile data released overnight by the American Petroleum Institute showed that U.S. crude and distillate inventories fell in the week ended Jan. 21 while gasoline inventories rose.
Energy traders are looking ahead to the Energy Information Administration (EIA) weekly U.S. oil inventories report, due for release at 10.30 AM EST (1530 GMT).
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Bank of Canada rate hike?
The Fed is not the only central bank announcing a policy decision today - The Bank of Canada is also meeting, and it may announce its first rate hike since 2018.
Canadian inflation is running at a 30-year high of 4.8%. Still, BoC officials will need to take the economic fallout from the Omicron variant into account when deciding whether to begin a tightening cycle.
The BoC decision will be announced at 10 AM EST (1500 GMT).
The Canadian dollar was up around 0.5% to 1.2569 versus the dollar by 06.25 AM EST.
–Reuters and Investing staff contributed to this report.
