Cautious before Fed, oil

Stock futures point to flat open as investors await clues from Fed about future of rate hikes; U.S. fuel inventories could move mixed oil markets.
May 10, 2006: 6:31 AM EDT


NEW YORK (CNNMoney.com) - All of Wall Street will be closely watching the statement from the Federal Reserve for clues as to whether it is done with its course of interest rate hikes with Wednesday's meeting.

U.S. stock futures were down in early trading, but a comparison to fair value indicating a flat to slightly higher open for U.S. markets, ahead of the 2:15 p.m. ET statement from the Fed.

While the 16th straight quarter-percentage point hike is widely expected, taking the fed funds rate to 5.0 percent, there is debate as to whether the Fed should pause in its course of hikes due to the expected slowdown in the economy and real estate market, or keep raising rates due to signs of a tight labor market, rising wages and inflationary pressures due to solid economic growth.

Treasury prices were lower ahead of the Fed statement, lifting the yield on the benchmark 10-year note to 5.14 percent from the 5.13 percent level reached late Tuesday.

Oil prices were little changed in early trading, ahead of the 10:30 a.m. ET report on U.S. fuel inventories. A rally Tuesday took prices back above the $70 a barrel mark, after the U.S. dismissed a letter from Iranian President Mahmoud Ahmadinejad about that country's nuclear program.

The June light crude futures contract for NYMEX was down 9 cents to $70.60 in electronic trading, while the June contract for Brent crude gained 2 cents to $71.10.

Major markets in Asia closed mostly lower Wednesday, as the yen continued to gain on the dollar, making Japanese exports more expensive. After the market close there automaker Toyota Motor (Research) reported record profits and raised its dividend. Major European markets were mixed in early trading as the euro also gained on the dollar ahead of the Fed decision.

In corporate news media conglomerate Walt Disney Co. (Research) posted improved results, bucking forecasts of a decline in earnings. Shares of the Dow component gained 3 percent in Frankfurt trading early Wednesday, which may help the Dow set a record high after the blue chip index closed Tuesday within 85 points of that mark.

Tech stocks could be under pressure after computer networking firm Cisco Systems (Research) fell despite posted better than expected results after it gave guidance that fell short of forecasts. Shares were down 0.5 percent in Frankfurt trading Wednesday.

Texas Instruments (Research) CEO Rich Templeton said he sees continued growth for the largest maker of chips used in cell phones, although his expectations of growing competition helped send shares down 0.7 percent in after-hours trading. The company is holding a two-day analysts meeting in Dallas.

Citibank (Research) is pulling back on its planned $3 billion group investment bid for China's Guangdong Development Bank and now will take a smaller individual stake in the bank, according to a report on Reuters.