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Wall St set to open lower as hawkish Fed saps risk appetite

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By Shubham Batra and Shristi Achar A

(Reuters) -Wall Street’s main indexes were set to open lower on Friday as investor sentiment remained damp due to the hawkish interest-rate outlook by Federal Reserve Chair Jerome Powell in his two-day congressional testimony.

Appearing before the Senate Banking Committee, Powell reiterated his view that more rate hikes are likely in the months ahead.

His comment that the Fed will proceed with caution led the S&P 500 and the Nasdaq pull some gains in the previous session, but the indexes were still set to snap multiple weeks of gains.

“We’re getting a little bit of a correction in the advance of the last three weeks or so. We’ve heard from the various Fed governors, Powell talk about higher interest rates,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest.

“We’re still getting more inverted yield curve. So that’s putting a little bit of downward pressure on equities.”

Bond markets are still pricing in one more rate hike of 25 basis points (bps) in July, according to CME Group’s FedWatch tool, as opposed to two more as suggested by Powell.

Richmond Fed President Tom Barkin said he remains unconvinced that inflation is on a steady path downward, but would not prejudge what the Fed should do at its July 25-26 meeting.

Yields on the 2-year, which best reflects interest rate expectations, dropped 5 bps to hover at 4.75% on Friday.

“The latest data aggravated fears about a potential recession, which has further dampened risk appetite,” a note from Deutsche Bank said.

S&P Global’s Purchasing Managers’ Index for both U.S. manufacturing and services activity, due at 9:45 a.m. ET, will provide more clues on the strength of the economy.

Investors will also monitor comments from St. Louis Fed President James Bullard, Atlanta Fed President Raphael Bostic and Cleveland Fed’s President Loretta Mester.

At 8:47 a.m. ET, Dow e-minis were down 199 points, or 0.58%, S&P 500 e-minis were down 36.25 points, or 0.82%, and Nasdaq 100 e-minis were down 181.75 points, or 1.19%.

3M Co climbed 3.3% in premarket trading after the chemical company reached a $10.3 billion settlement with a host of U.S. public water systems to resolve water pollution claims tied to “forever chemicals”.

Carmax Inc jumped 7.7% after the used-car retailer’s first-quarter profit exceeded market expectations, benefiting from cost cuts.

Starbucks Corp fell 1.9% as the coffee chain’s unions said around 3,500 workers will strike next week in the U.S. after it claimed the company banned Pride month decorations at its cafes.

(Reporting by Shubham Batra and Shristi Achar A in Bengaluru; Editing by Arun Koyyur)

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