Boeing drags down Dow futures as investors fret over Fed trajectory

What’s driving markets

U.S. stocks were in line for a muted open Monday, with the Dow Jones Industrial Average under particular pressure as shares in Boeing
BA,
+1.66%
fell more than 8% in premarket action after some of its 737 Max 9 planes were grounded following the blowout of a fuselage panel.

Sentiment was further dampened by a sharp fall in China stocks — the Hang Seng in Hong Kong
HK:HSI
lost 1.9% to flirt with its lowest levels since November 2022 — as concerns about draconian regulation and the health of the world’s second biggest economy lingered.

The fresh caution comes with stocks having just broken a nine week winning streak after equity investors took profits and benchmark bond yields moved back above 4% as the market pared back expectations for Federal Reserve interest rate cuts.

Friday’s stronger-than-expected reading on the U.S. labor market coupled with a weaker-than-forecast survey of the service sector encapsulated the uncertainty over the trajectory of Fed policy.

“Taken together, a resilient economy and as yet unfinished business with inflation are likely to result in the Federal Reserve staying put on interest rates for the time being, as opposed to the early March cut which markets has been anticipating,” said Richard Hunter, head of markets at Interactive Investor

Indeed, recent comments from the central bank’s officials suggest they are trying to discourage the market from getting too hopeful that borrowing costs will be swiftly reduced this year.

Speaking on Saturday, Dallas Fed President Lorie Logan said it was too early to take rate increases off the table as inflation remained above the 2% target and “a premature easing of financial conditions could allow demand to pick back up.”

Her peer Raphael Bostic, President of the Atlanta Fed, is due to make comments at 12 noon Eastern. And on Thursday the December consumer prices index will be published, where economists expect headline annual inflation to be 3.3%, up from November’s 3.1%.

Otherwise, it’s a thin start to the week for economic data, with the New York Fed’s survey pf consumer expectations released at 11 a.m. Monday, and the consumer credit data for November released at 3 p.m.

Ahead of that, the 10-year Treasury yield
BX:TMUBMUSD10Y,
which dipped below 3.8% just after Christmas, on Monday was trading at 4.049% as investors priced the chances of at least a 25 basis point rate cut at the Fed’s March meeting at 62.8%, down from 88.5% a week ago.

Monetary policy will have some competition for investors’ attention on Friday when the fourth-quarter 2023 corporate earnings season kicks off, with big banks such as JPMorgan
JPM,
+0.50%,
Citigroup
C,
+1.04%
and Wells Fargo
WFC,
+1.30%
leading the charge. Aggregate earnings for the S&P 500 are expected to rise 1.3%, according to Factset.