European stocks and US futures advanced, bouncing from Tuesday’s losses, ahead of a Federal Reserve meeting at which policymakers are expected to extend their rate-hike cycle.
(Bloomberg) — European stocks and US futures advanced, bouncing from Tuesday’s losses, ahead of a Federal Reserve meeting at which policymakers are expected to extend their rate-hike cycle.
The Stoxx Europe 600 Index rose, with energy shares rebounding and UniCredit SpA climbing after boosting its profit and payout targets. Contracts on the S&P 500 and the Dow were higher, after underlying stocks slid on Tuesday on renewed concerns about the health of the banking sector. The dollar weakened.
A gauge of Asian shares fell Wednesday in a catch-up with overnight moves on Wall Street. Markets are shut in Japan and mainland China for holidays, and there’s no trading of cash Treasuries in Asia hours.
Swap traders are pricing a more than 90% probability the Fed will raise borrowing costs by 25 basis points later today, bringing the key rate to the highest since 2007. Market pricing also indicates the increase will mark the peak of the tightening cycle before weaker growth prompts the central bank to cut rates later in the year.
“Despite contagion spreading across the regional bank space, we expect the Fed to squeeze in a final 25 basis point hike before pausing to assess the impact of the significant and rapid tightening to date,” Mizuho strategists Evelyne Gomez-Liechti and Helen Rodriguez wrote in a note.
A dollar gauge fell as traders positioned for the Fed decision. Ten-year Treasuries rose further after jumping Tuesday as concerns over the banking sector boosted demand for haven assets.
Uncertain Mood
The S&P 500 fell 1.2% Tuesday as US regional lenders PacWest Bancorp and Western Alliance Bancorp both tumbled at least 15%. That came just a day after JPMorgan Chase & Co.’s acquisition of First Republic Bank had seemed to bolster confidence in the sector.
A lack of clarity regarding the US debt ceiling added to the uncertain mood. Between now and June 1 — the date by which the Treasury Department may run out of sufficient cash — President Joe Biden and members of the House and Senate are scheduled to be in town at the same time for one week to find a solution.
“It is a key event risk in the next few weeks and possibly a month or two,” Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management in Singapore, said on Bloomberg Television. “It feeds into our overall defensiveness, which we are advocating in our asset allocation recommendations to be long fixed income in this kind of an environment and underweight equities.”
Elsewhere, oil stabilized after tumbling on Tuesday, and gold was little changed.
Key events this week:
- US ADP employment, S&P Global US services PMI, US 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
- The Stoxx Europe 600 rose 0.3% as of 8:15 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The MSCI Asia Pacific Index fell 0.4%
- The MSCI Emerging Markets Index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.1034
- The Japanese yen rose 0.6% to 135.76 per dollar
- The offshore yuan was little changed at 6.9308 per dollar
- The British pound rose 0.4% to $1.2511
Cryptocurrencies
- Bitcoin fell 0.3% to $28,612.5
- Ether fell 0.2% to $1,866.33
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.41%
- Germany’s 10-year yield was little changed at 2.25%
- Britain’s 10-year yield declined one basis point to 3.66%
Commodities
- Brent crude was little changed
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Cecile Gutscher and Alex Nicholson.
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