Traders tiptoed back to risk markets Tuesday as steps to shore up the financial system helped restore confidence.
(Bloomberg) — Traders tiptoed back to risk markets Tuesday as steps to shore up the financial system helped restore confidence.
The Stoxx Europe 600 jumped 0.8% at the open, led by a measure of banking shares surging almost 2%. Futures for the S&P 500 rose slightly following a 0.9% advance on Monday in the underlying gauge on reports US officials are studying ways to temporarily guarantee all bank deposits if the current financial turbulence spreads.
Additional Tier 1 bonds issued by Asian banks rebounded, lifting the region’s stocks. The market for this riskier category of debt seized up on Monday when the rescue of Credit Suisse Group AG wiped out its AT1 bonds.
Appetite for risk is also being fueled by expectations that the Federal Reserve may adopt a more cautious policy approach when it decides on interest rates on Wednesday.
“It is possible that some central bankers will see recent events as policy finally getting some traction and tightening financial conditions via forcing markets to price in greater credit risk,” Mizuho International Plc strategists including Evelyne Gomez-Liechti wrote in a note. “This would allow central bankers to do a little less with policy rates.”
Fed bets are settling around a quarter-point hike as cracks in the global banking industry are seen discouraging more aggressive tightening. The policy-sensitive two-year US Treasury yield ended Monday 14 basis points higher, just below 4%. That’s also the level where swap traders currently see the Fed’s benchmark rate ending the year — a whole percentage point below the central bank’s own estimate in December.
Just a couple of weeks ago, investors were betting the Fed would raise rates close to 6% and that the European Central Bank would hike past 4%. Now markets imply the tightening cycles are almost over and wager on multiple rate cuts in the US by year-end.
“Further rate hikes are no longer warranted, in our opinion,” Ed Yardeni, president of Yardeni Research Inc., wrote in a note. Fed Chair Jerome Powell will have to acknowledge that “the crisis confirms that interest rates are sufficiently restrictive and that financial conditions are rapidly getting tighter,” he said.
The dollar ticked higher and was set to end a three-day losing streak, which sent a measure of the greenback’s strength to the lowest in a month on Monday.
Elsewhere, oil fell after a turbulent session, even as a calmer tone returned to the market. Gold fell.
Key events this week:
- US existing home sales, Tuesday
- US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
- FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.8% as of 8:02 a.m. London time
- S&P 500 futures rose 0.3%
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index rose 0.6%
- The MSCI Emerging Markets Index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0724
- The Japanese yen fell 0.4% to 131.84 per dollar
- The offshore yuan was little changed at 6.8728 per dollar
- The British pound fell 0.3% to $1.2246
Cryptocurrencies
- Bitcoin fell 1.8% to $27,590.8
- Ether fell 1.4% to $1,737.39
Bonds
- The yield on 10-year Treasuries was little changed at 3.49%
- Germany’s 10-year yield advanced four basis points to 2.17%
- Britain’s 10-year yield advanced two basis points to 3.33%
Commodities
- Brent crude fell 0.7% to $73.25 a barrel
- Spot gold fell 0.4% to $1,970.45 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
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