U.S. stocks open higher, S&P 500 eyeing record as interest rate-cut hopes underpin sentiment

What’s driving markets

The S&P 500 index was set to open Tuesday’s session only about 1% below its record close as traders remained energized by the prospect of the Federal Reserve starting to cut interest rates by the spring of next year.

The stock market benchmark closed at a record 4796.56 on Jan. 3, 2022.

Some Fed officials in recent days pushed back against the market’s hopes for lower borrowing costs as early as March, but equity investors seem to have shrugged off those comments, for now.

Investors will have more Fed official comments to parse Tuesday. Richmond Fed President Thomas Barkin is slated to speak 9:30 a.m. while Atlanta Fed President Raphael Bostic is due to speak at 12:30 p.m. Eastern.

Meanwhile, the Bank of Japan on Tuesday reminded traders that an important spigot of cheap money remains open. The BOJ left its main interest rate at minus 0.1%, and in the accompanying news conference, Gov. Kazuo Ueda provided little evidence he was minded to exit from the central bank’s ultraloose monetary policy soon, despite inflation running above its 2% target for 19 consecutive months.

The Japanese yen
USDJPY,
+0.86%
fell 1.2% and the Nikkei 225 stock index
JP:NIK
rose 1.4% as 10-year government bond yields
BX:TMBMKJP-10Y
fell 3.6 basis points to 0.634%, the lowest in nearly four months.

“Whenever central banks take positions that the market thinks are unsustainable, it’s always the currencies that play the role of the canary in the coal mine. No surprise then to see the Yen weakening by around 1% against every major currency overnight as investors vote with their feet,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.

See: The yen got slammed after Bank of Japan stood pat. Here’s what’s next.

Traders were also warily eyeing the oil market, after benchmark Brent crude
BRN00,
+1.09%
jumped on Monday following BP’s statement it was halting shipments through the Red Sea, and thus the Suez Canal, because of attack’s by the Houthi in Yemen. Oil futures were steady early Tuesday.

Many of the world’s biggest shipping companies have said they also will steer clear of the region, prompting concerns about rising costs that may build inflationary pressures.

“An extended period of disruption in global trade ways should not only sustain energy prices, but also put a renewed pressure on global supply chains and shipping prices,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Read: Attacks in the Red Sea add to global shipping woes

“The latter is a threat to inflation. Remember, the pandemic-related supply chain disruptions were the major reason that sent inflation to almost 10% in the U.S.,” Ozkardeskaya added.

However, there was little evidence early Tuesday that investors were overly concerned by that narrative, with 10-year U.S. Treasury yields
BX:TMUBMUSD10Y
dipping 2.7 basis points to 3.912%.

Investor also got another look at the housing market at a time when mortgage rates are already starting to turn lower. November housing starts increased 14.8% after a revised 0.2% gain for October. That’s the best reading since May. Meanwhile, building permits fell 2.5% in November.

Companies in focus

• Alphabet Inc.
  GOOG,
  +0.62%
  shares were 0.3% higher in premarket trading Tuesday after court papers Monday showed the search giant agreed to pay $700 million to settle some of the allegation it has been stifling competition in its app store. The filings in San Francisco federal court show some of the specifics in a September deal with state attorneys general.

• FuelCell Energy Inc.
  FCEL,
  -1.96%
  shares were 4.5% lower in the premarket after the fuel cell energy technology company had a revenue miss in its fiscal fourth quarter. The $22.46 million in revenue missed FactSet consensus of $25 million.

• UBS Group AG
  UBS,
  +3.49%
  shares were over 3% higher in the Tuesday premarket following a €1.2 billion ($1.31 billion) stake announced by Swedish activist investor Cevian Capital that thinks the shares should be able to double in worth. “Cevian sees significant value potential in UBS,” managing partner and co-founder Lars Förberg said in a statement.