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Wall Street set to fall on aggressive rate hike worries

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Wall Street’s main indexes were set for a lower open on Monday, extending declines for a third straight day as investors worried that another massive interest rate hike by the Federal Reserve could tip the U.S. economy into a recession.

The S&P 500 and the Nasdaq logged their worst weekly percentage drop since June on Friday as markets fully priced in at least a 75-basis-point rise in rates during the week, with Fed funds futures showing a 21% chance of a whopping 100 bps increase.

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Unexpectedly hot August inflation data last week also raised bets on increased rate hikes down the road, with the terminal rate for U.S. fed funds now at 4.47%.

“Markets are going to be looking for direction until the Fed meeting, there won’t be much trading action till then,” said Christopher Grisanti, chief equity strategist at MAI Capital Management in Cleveland.

The S&P 500 has lost nearly 19% so far this year on worries of a central bank-induced recession amid recent warnings of slowing demand from delivery firm FedEx and an inverted U.S. Treasury yield curve.

“I think a recession is very likely. The Fed regards a recession as regrettable, but necessary to fight inflation,” Grisanti said.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 27.72 points, inching closer to a more than two-month high.

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Focus will also be on new economic projections, due to be published alongside the policy statement at 2 p.m. ET (1800 GMT) on Wednesday.

Goldman Sachs cut its forecast for 2023 U.S. GDP late on Friday as it projects a more aggressive Fed and sees that pushing the jobless rate higher than it previously projected.

“We think a 100 bps hike would unnerve Wall Street … and would increase the likelihood that the FOMC will eventually overtighten and lessen the possibility of achieving a soft landing,” Sam Stovall, chief investment strategist at CFRA, wrote in a note.

At 8:20 a.m. ET, Dow e-minis were down 269 points, or 0.87%, S&P 500 e-minis were down 35 points, or 0.9%, and Nasdaq 100 e-minis were down 112.5 points, or 0.94%.

Heavyweights Microsoft Corp, Amazon.com, Meta Platforms, Alphabet Inc, Apple Inc , Tesla Inc and Nvidia Corp fell between 0.9% and 1.5% in premarket trading.

Bank of America slipped 1.1% to lead declines among the big U.S. banks.

Take-Two Interactive Software Inc slid 4.2% following a report that a hacker had leaked the early footage of Grand Theft Auto VI, the next installment of the best-selling videogame. (Reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta)


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