US pre-open: Stocks to nudge lower as investors assess Fed announcement

US futures suggested a marginally weaker open on Wall Street on Thursday after the Dow and S&P 500 closed at all-time highs a day earlier as the Federal Reserve said it would start winding down its balance sheet next month.

At 1120 BST, Dow Jones Industrial Average, S&P 500 and Nasdaq futures were down 0.1%.

On Wednesday, the Fed stood pat on interest rates, as expected, while Chair Janet Yellen confirmed the central bank will start winding down its $4.5trn balance sheet in October and suggested that one more rate increase is likely by the end of the year.

Craig Erlam, senior market analyst at Oanda, said investors had expected rate expectations to be scaled back at the Fed meeting given subdued inflation, recent Fed commentary, non-starter fiscal stimulus policies and the recent hurricanes.

"Instead, the central bank announced plans to begin very gradually reducing the size of its balance sheet while only marginally revising lower interest rate forecasts between now at 2019, with another this year still planned. With the dollar having slumped since the start of the year, this provided some rare reprieve and more may follow as markets fall more in line with Fed forecasts. Especially if we see an improvement in the data in the final quarter of the year.

"Even now, despite the Fed effectively forecasting four rate hikes before the end of next year, markets are pricing in only one or two and even then, unconvincingly. Clearly there is still a lot of convincing to do on the Fed’s part, potentially providing in the process plenty of upside for US yields and the dollar. Of course, with Yellen possibly being out at the start of next year, this may not be a case of doubting what she says but whether she’ll be there to follow through. It will be interesting to see how the markets react should she be re-elected."

The dollar rallied on the back of the Fed announcement, while the dollar index hit a two-week high, but the greenback had eased back to trade up just 0.1% versus the pound at 0.7413 by early Thursday. It was down 0.1% versus the euro at 0.8399 and up 0.3% against the yen at 112.51 after hitting a two-month high against the Japanese currency after the Fed announcement.

David Morrison at SpreadCo said: "While it may be too early to call for a recovery in the greenback after nine months of decline, the EURUSD does appear to be topping out chart-wise. It’s just too early to say whether this is the precursor to a more substantial pull-back or nothing more than consolidation."

On the corporate front, carbon materials group Calgon Carbon Corp rocketed in pre-market trade after the company agreed to be bought by Japanese chemical manufacturer Kuraray Co for $1.1bn.

Initial jobless claims are due at 1330 BST, along with wholesale inventories and the Philadelphia Fed manufacturing survey.