Wall St set for muted open as investors weigh chances of June rate pause

By Sruthi Shankar and Shristi Achar A

(Reuters) -Wall Street futures were set to open subdued on Monday after a solid rally last week, as investors assessed chances of the Federal Reserve pausing interest rate hikes at its upcoming policy meeting.

U.S. stocks rallied on Friday after a report showed that wage growth moderated in May, raising hopes that the U.S. central bank could skip a rate hike next week, while investors welcomed a Washington deal that avoided a catastrophic debt default.

Ahead of key inflation data next week, traders are pricing in a 76% chance that the Fed will choose to hold interest rates in its June 13-14 policy meeting, according to CME Group’s (NASDAQ:) Fedwatch tool, though they expect another hike in July.

“We are now waiting for that next major data point and to determine whether the Fed is going to be skipping or pausing or hiking,” said Thomas Hayes, chairman at Great Hill Capital LLC.

“We are in the skip camp for now. We could see headline inflation with a ‘3’ handle, which is going to be very good for the Fed to give them cover to skip this month. Hopefully those trends continue, and we can be on a pause until the end of the year.”

The benchmark S&P 500 closed at a fresh nine-month high on Friday and the tech-heavy Nasdaq scaled a new one-year peak, underpinned by the jobs reports and gains in megacap technology stocks that have outperformed the broader market this year.

Surveys from S&P Global (NYSE:) and Institute for Supply Management on U.S. services sector activity in May are due after the opening bell, while Fed Cleveland President Loretta Mester is slated to speak at an event later in the day.

At 8:40 a.m. ET, were down 2 points, or 0.01%, were up 1 points, or 0.02%, and were down 18 points, or 0.12%.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose 0.5 point to 15.13 after closing at its lowest since February 2020 on Friday.

Apple Inc (NASDAQ:) rose 1.0% in premarket trading ahead of its annual software developer conference, where it is widely expected to announce a new mixed-reality headset.

Energy stocks including Exxon Mobil Corp (NYSE:), Chevron Corp (NYSE:) and Schlumberger (NYSE:) Ltd rose about 1% each, as oil prices jumped 2% after top global exporter Saudi Arabia pledged to cut production by another 1 million barrels per day from July. [O/R]

Palo Alto Networks (NASDAQ:) Inc climbed 4.9% as the cybersecurity firm looks set to replace Dish Network (NASDAQ:) in the . Dish shares fell 2.9%.

Big U.S. banks were mixed after the Wall Street Journal reported that U.S. regulators were preparing to tighten rules for large banks, which could include raising their capital requirements by 20% on average. Bank of America Corp (NYSE:) was flat, while Citigroup Inc (NYSE:) slipped 0.4%.