Futures gain as oil plunge eases inflation fears

U.S. index futures advanced as a plunge in oil prices eased some of the concern about inflation that’s led market participants to anticipate a steep Federal Reserve rate-hike trajectory.

U.S. index futures advanced as a plunge in oil prices eased some of the concern about inflation that’s led market participants to anticipate a steep Federal Reserve rate-hike trajectory. 

S&P 500 and Nasdaq 100 contracts fluctuated before turning higher, signaling that another volatile day may lie ahead for U.S. stocks after the Nasdaq closed in a bear market on Monday. Futures extended gains after a gauge of manufacturing in New York state unexpectedly fell to the lowest level since May 2020.

WTI oil futures dropped below US$95 a barrel on Tuesday, having shed more than 13 per cent this week already. The latest development to rattle the market is a resurgence of COVID-19 cases in China, the world’s biggest crude importer. While there are still concerns about the disruption to Russian oil flows, OPEC and others have been quick to point out there is no shortage in the market.

Treasuries gained, though the 10-year yield remains near the highest level since 2019. The dollar slipped against a basket of peers. Traders are pricing in about seven quarter-point moves by the Fed in 2022, starting with 25 basis points on Wednesday, though the threat to global economic growth posed by the war in Ukraine is complicating the policy path.

“The Fed must balance the necessity of reining in inflation with the necessity of supporting the economy,” said David Norris, a portfolio manager at TwentyFour Asset Management. “This is one of the most important Fed meetings in recent memory given the current pace of market developments and the fluid nature of geopolitical events.”