Market Snapshot: Nasdaq futures slip as rate rise fears cast pall over stocks

What’s driving markets

Renewed concerns that the Federal Reserve may keep borrowing costs higher for longer are damping investor sentiment.

Interest rate sensitive areas of the market — particularly recently high-flying mega-cap tech stocks — took a beating Wednesday after a surprise rate hike by the Bank of Canada reminded traders that even if the Fed pauses its monetary policy tightening campaign next week, stubborn inflation may require the central bank to again start increasing the cost of money in coming months.

“Uh oh. The surprise 25 basis point hike from the Bank of Canada (BoC) yesterday sent shockwaves across the financial markets. BoC decision to resume its rate hikes after a two-meeting pause and the surprise 25bp from the Reserve Bank of Australia a day earlier fueled the central bank hawks around the world and boosted the Federal Reserve rate hike expectations as well,” said Ipek Ozkardeskaya, senior analyst and Swissquote Bank.

After a period when concerns about inflation and central bank policy were placed on the back burner — and investors reveled in AI exuberance — the rates narrative has moved back sharply into focus and was still impacting trading Thursday.

This can be seen by how the tech-heavy Nasdaq 100 futures were underperforming futures tracking the Dow Jones Industrial Average in early trading.

“American investors have been delivered a reminder that further tightening is still on central bankers’ minds,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

Markets still show investors pricing in a 68% probability the Fed will leave interest rates unchanged at a range of 5% to 5.25% on June 14.

However, the chances of an additional 25 basis point rate increase in July has risen to 53%, up from just 10% a month ago. And whereas a few months ago the Fed was expected to have begun cutting rates from current levels by the autumn, the market is now pricing in no such reduction until next year.

Crucial to the Fed’s thinking will be the U.S. consumer price index for May, which will be published on Tuesday, just as the Fed begins its two-day policy meeting.

Before that, U.S. economic updates set for release on Thursday include the weekly initial jobless claims report at 8:30 a.m. and April wholesale inventories data at 10 a.m., both times Eastern.

Companies in focus

• GameStop Corp.‘s stock
  GME,
  +5.75%
  tanked 17% after the retailer fired Chief Executive Mike Furlong and said that its board elected activist investor Ryan Cohen as its executive chairman.

• Shares of Oxford Industries Inc.
  OXM,
  +3.70%
  dropped 5% in the aftermarket Wednesday after the parent company of Tommy Bahama and other brands lowered its guidance for the year, saying that consumers have grown more cautious.

• Semtech Corp. shares
  SMTC,
  +1.54%
  soared 24% after the  analog and mixed-signal chipmaker swung to a surprise profit.