Wall Street equity futures dropped and European stocks pared gains as optimism over less-aggressive rate hikes amid cooling inflation ran into concerns over the weaker outlook for US bank earnings.
(Bloomberg) — Wall Street equity futures dropped and European stocks pared gains as optimism over less-aggressive rate hikes amid cooling inflation ran into concerns over the weaker outlook for US bank earnings.
S&P 500 and Nasdaq 100 contracts dropped at least 0.9% as traders digested a slew of earnings from major banks. JPMorgan Chase & Co. shares slid 3% in premarket after the largest US lender’s net interest income estimate missed analyst expectations. Bank of America Corp. and Wells Fargo & Co. dropped after their earnings reports, while Citigroup Inc. pared a decline.
Tesla Inc. slumped after slashing prices, dragging shares in other carmakers lower. Delta Air Lines Inc. fell after its earnings forecast missed estimates. European stocks gave up most of an advance of as much as 0.6% as the US earnings news weighed on bank shares.
A gauge of dollar strength was steady, while benchmark 10-year Treasury yields rose. Japan’s 10-year bond yield spiked above the Bank of Japan’s 0.5% ceiling amid speculation the BOJ will review the side effects of its ultra-loose monetary policy. The yen extended gains after its 2.5% rally Thursday.
The Federal Reserve is on track to downshift to smaller interest-rate increases after figures Thursday showed a further cooling in inflation. The Wall Street banks’ earnings reports will be parsed for their commentary around the threat of a recession in the world’s biggest economy.
“The more favorable inflation print could allow the Fed to hike by 25 basis points next month rather than the more aggressive hikes it has been using up until now,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. “But despite this positive outcome, we continue to believe it is too early for an imminent Fed pivot and the conditions are not yet in place for a sustainable equity rally.”
Meanwhile, BofA strategists said US stocks are poised for a fresh slide before ultimately rallying in the second half of the year when economic conditions stabilize. Investors are positioned for the S&P 500 to tumble nearly 10% before rallying by 17%, strategists led by Michael Hartnett wrote in a note.
On Thursday, traders looked past initial disappointment with in-line US consumer price index to focus on the idea that aggressive monetary policy may be gradually achieving its desired results. The swap market is showing less than 50 basis points of tightening priced in for the next two Fed gatherings: a small chance of no move at all in March.
Elsewhere in markets Friday, oil headed for a weekly gain and gold was set for a fourth weekly advance after breaching the $1,900-an-ounce mark in the wake of the release of the US inflation data.
Key events this week:
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo report earnings, Friday
This week’s MLIVE Pulse Survey:
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.9% as of 8:29 a.m. New York time
- Nasdaq 100 futures fell 1.1%
- Futures on the Dow Jones Industrial Average fell 0.8%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.3% to $1.0818
- The British pound fell 0.2% to $1.2183
- The Japanese yen rose 0.7% to 128.40 per dollar
Cryptocurrencies
- Bitcoin rose 0.2% to $18,876.89
- Ether fell 1.5% to $1,405.58
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.48%
- Germany’s 10-year yield declined three basis points to 2.13%
- Britain’s 10-year yield declined two basis points to 3.31%
Commodities
- West Texas Intermediate crude rose 0.2% to $78.57 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Farah Elbahrawy.
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