US equity-index futures and Treasuries rose as investors looked ahead to Federal Reserve minutes for clues on how much further the US central bank expects interest rates could rise.
(Bloomberg) — US equity-index futures and Treasuries rose as investors looked ahead to Federal Reserve minutes for clues on how much further the US central bank expects interest rates could rise.
Contracts on the S&P 500 and Nasdaq 100 indexes rose at least 0.3% each, after the underlying indexes posted the biggest one-day slump in two months. Shorter-term Treasuries led gains. European stocks, however, were down amid growing worries over earnings misses. CoStar Group Inc. slumped in premarket New York trading on disappointing guidance. The dollar erased gains after Fed official James Bullard’s comments Wednesday were seen by some investors as not-so-hawkish.
An equity selloff has deepened amid growing signs the world’s central banks are far from ending their fight against inflation, underscored by successive hawkish comments by Fed officials last week. Rising geopolitical tensions and earnings shocks are further souring the mood, outweighing any optimism over China’s reopening. US central bankers will publish minutes of their Jan. 31-Feb. 1 meeting at 2 p.m. eastern time Wednesday, which may reveal how many of them see the need for larger rate hikes.
“Investors are waking up to a stark realization that the Fed’s work is not done, and that interest rates may have to be hiked even higher to cool hot inflation,” Susannah Streeter, the head of money and markets at Hargreaves Lansdown Plc, wrote in a note. “Waves of exuberance, which have propelled equities higher since the start of the year, have turned into tides of disappointment and apprehension about the difficulties that still may lie ahead for the mighty US economy.”
Shorter-term Treasuries rose more than longer-dated ones in a choppy session. The two-year rate slid 5 basis points from the highest level since early November. Its 10-year counterpart was 3 basis points lower.
Europe’s Stoxx 600 index headed for a second-day loss, though it came off the day’s lows. Lloyds Banking Group Plc dropped, weighing on the FTSE 100 Index, after results and guidance for 2023 came in below analyst estimates, despite announcing a £2 billion ($2.4 billion) share buyback. Miner Rio Tinto Plc fell after reporting lower than expected profit and slashing its dividend due to weak demand for metals in China.
Disappointing earnings projections are seen everywhere. Walmart Inc. reported a weak profit outlook that fell short of analyst estimates, signaling another rocky year for the world’s largest retailer. Home Depot Inc. also released a profit-decline forecast. Only 68% of S&P 500 companies reporting results this season have beaten estimates, compared with about 80% seen during recent quarters.
CoStar plunged 13% in early New York trading after its annual guidance disappointed analysts and News Corp. said it’s no longer involved in discussions to sell its Move subsidiary to the real estate information and services company.
Fed Bank of St. Louis President James Bullard said the US economy is proving more resilient than expected and repeated his call for the central bank to keep raising interest rates. He penciled in a peak rate of 5.375%. While that was much higher than market-implied rates even days ago, it was still lower than what traders had priced on Wednesday morning.
BlackRock Investment Institute doesn’t see US inflation as being on track to return to policy targets. “We think investors are realizing that sticky core inflation may mean the Fed hikes rates further – and holds them there for longer – than markets had expected,” strategists including Wei Li and Scott Thiel wrote in a note.
A rocky geopolitical outlook has not helped. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.
Oil extended its longest run of losses this year, with West Texas Intermediate contracts falling for a sixth day. The prospect of more aggressive interest-rate hikes from the Fed to quell inflation have kept a lid on prices, despite increasing evidence of a robust recovery in China following the end of Covid Zero.
Key events this week:
- US MBA mortgage applications, Wednesday
- Federal Reserve releases minutes from its latest policy meeting, Wednesday
- Eurozone CPI, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
- US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
- Russia’s invasion of Ukraine hits the one-year mark, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 8:01 a.m. New York time
- Nasdaq 100 futures rose 0.4%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was unchanged at $1.0648
- The British pound was little changed at $1.2107
- The Japanese yen rose 0.4% to 134.44 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $24,139.72
- Ether rose 0.2% to $1,644.92
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.93%
- Germany’s 10-year yield was little changed at 2.52%
- Britain’s 10-year yield advanced two basis points to 3.63%
Commodities
- West Texas Intermediate crude fell 0.5% to $75.95 a barrel
- Gold futures rose 0.4% to $1,849.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Akshay Chinchalkar and Tassia Sipahutar.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.