US stock futures slipped, while Treasuries edged higher as investors braced for the Federal Reserve’s policy decision and awaited developments from Washington on the debt limit showdown.
(Bloomberg) — US stock futures slipped, while Treasuries edged higher as investors braced for the Federal Reserve’s policy decision and awaited developments from Washington on the debt limit showdown.
Contracts on the S&P 500 swung between gains and losses overnight after ending Monday little changed. The rescue of First Republic Bank drew a line for now under US banking turbulence, but investors fear lending will be crimped, slowing an economy already under pressure from the most aggressive rate-hike campaign in decades. Euro-zone data reinforced these fears, showing banks had curbed lending more than anticipated.
Attention will turn to the Fed, whose two-day policy meeting kicks off Tuesday. The central bank is expected to raise rates by a quarter percentage point and potentially signal a willingness to hold off on further increases. Focus is also on policymakers in Washington after Treasury Secretary Janet Yellen said the government might run out of money to pay its bills as early as June.
Earnings will also garner attention, with more than 35 S&P 500 firms slated to report Tuesday, including Starbucks Corp. and Uber Technologies Inc. Apple Inc.’s report is due Thursday.
In Europe, the Stoxx 600 index slipped as much as 0.4%, held down by growth-sensitive sectors such as energy and real estate. HSBC Holdings Plc bucked the decline after a profit beat and a $2 billion share buyback.
Overnight, Australia’s central bank stirred speculation that global policy makers will extend tightening cycles. Reserve Bank of Australia hiked its benchmark rates by 25 basis points to 3.85%, saying inflation remained too high and further tightening may be required.
“The banking crisis appears to have been dealt with, now it’s again all about inflation,” said Fahad Kamal, chief investment officer at SG Kleinwort Hambros Bank Limited. “Markets are wobbly because of the dichotomy between reasonably strong data and weak forward expectations, as there is concern over what may happen to corporate earnings due to the delayed effects of monetary policy.”
Swaps traders have upgraded the odds the Fed will raise its policy rate by a quarter point Wednesday, while also increasing expectations for peak ECB rates.
Earlier, the Reserve Bank of Australia hiked benchmark rates by 25 basis points to 3.85%, saying inflation remained too high and further tightening may be required. That pushed Australia’s dollar as much as 1.2% stronger and lifted rate-sensitive three-year local yields more than 20 basis points.
The RBA move shows “there is going to be more of a higher-for-longer push,” said Rabobank strategist Jane Foley. “This brings the increased risk of more fragilities in the system as we have seen with the banks in the US.”
While Treasury yields slipped after a late-Monday surge, euro zone and UK bond yields rose as much as 10 basis points across the curve, with the rises most pronounced in rate-sensitive short-dated bonds.
On currency markets, the euro slipped modestly versus the dollar as the slower core inflation and bank lending tilted the odds toward a smaller rate increase. The greenback was flat against a basket of currencies.
Oil prices fluctuated on concerns over China’s economic outlook and the impact of the US banking jitters. Prices have dropped more than 5% already this year.
Key events this week:
- US JOLTS job openings, factory and durable goods orders, Tuesday
- ADP employment, S&P global US services PMI, ISM services, Wednesday
- Fed Chair Jerome Powell holds news conference following rate decision, Wednesday
- US initial jobless claims, trade balance, Thursday
- European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 8:29 a.m. New York time
- Nasdaq 100 futures fell 0.1%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0965
- The British pound fell 0.2% to $1.2473
- The Japanese yen was little changed at 137.46 per dollar
Cryptocurrencies
- Bitcoin rose 1.3% to $28,043.58
- Ether rose 1.2% to $1,829.34
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.54%
- Germany’s 10-year yield advanced six basis points to 2.37%
- Britain’s 10-year yield advanced four basis points to 3.76%
Commodities
- West Texas Intermediate crude fell 0.3% to $75.40 a barrel
- Gold futures rose 0.2% to $1,996.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.