The threat to US equities from the end of extraordinary central bank stimulus was compounded yesterday by a more hawkish Federal Reserve threatening the possibility of an earlier rate hike if data warrants it.
The rebound in stocks off the lows this month had partly been built off the possibility raised by St Luis Fed president James Bullard that the end of QE could be delayed as well as the assumption based off the last set of minutes that the Fed would lean towards caution over the global economy and lower inflation. QE did end and caution seen in last month’s minutes was replaced with confidence in the US economy and the belief that inflation was only temporary.
Stock markets look set to follow through on yesterday’s losses as fear over the end of stimulus reverberates; whether losses are sustained could depend on whether investors share the Fed’s faith in the strength of the US economy and for the time being this could largely rest on today’s first estimate for GDP growth in the third quarter.
US GDP is announced at 12.20pm GMT and growth is expected to have slowed to 3% from 4.6% in Q2 but 3% would be an improvement over the average for the first half of 2014.
Visa Inc (NYSE:V) reported a 10% drop in profit afterhours thanks to a one-time item, the company nevertheless beat analyst estimates and announced a $5bn share buyback alongside the 20% dividend hike and shares are higher in pre-market trading.
Uncertain global growth is a threat to Visa’s payment volume but the consumer trend towards credit usage and now mobile payments including Apple Pay supports the world’s largest credit card company. News of a loosening of restriction on credit card payments in China could be a major boon for Visa and Mastercard (NYSE:MA).
The results from Visa bode well for MasterCard who report imminently before the open.
Futures suggest the:
S&P 500 will open 9 points lower at 1,973 with the
Dow Jones expected to open 9 points lower at 16,965 and the
NASDAQ Composite 21 points lower at 4,069.
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