US and European equity futures fell Thursday after Federal Reserve Chair Jerome Powell warned of further rate hikes and as investors awaited a swathe of central bank decisions from the UK to Norway and Switzerland.
(Bloomberg) — US and European equity futures fell Thursday after Federal Reserve Chair Jerome Powell warned of further rate hikes and as investors awaited a swathe of central bank decisions from the UK to Norway and Switzerland.
Futures for the Euro Stoxx 50 fell around 0.9% to place the region-wide benchmark on track for a fourth consecutive session of declines. Contracts for the S&P 500 and Nasdaq 100 also drifted lower after the two benchmarks fell for a third consecutive session Wednesday.
The action precedes a busy day for central banks, with monetary policymakers in England, Switzerland and Norway all expected to raise interest rates.
Investors are rethinking the bullish spirits unleashed by last week’s Fed rate pause after Chair Jerome Powell underscored the need to tame inflation during his semi-annual report to Congress. Powell warned that higher rates were needed and two more rate hikes this year was “a pretty good guess.”
Separately, Atlanta Fed President Raphael Bostic, who isn’t among officials voting on rates this year, said he supported holding the central bank’s benchmark. Chicago Fed chief Austan Goolsbee, who does vote in 2023, said the decision to hold rates steady last week was a “close call.”
In Asia, Japanese equities erased an early advance following a recent string of gains that’s taken the Topix the highest level since 1990. Investors have warmed to corporate reforms, rising profitability and the return of inflation to Japan. Goldman Sachs Group Inc. analysts are among those who are upbeat on Japan, forecasting the Topix to rise about 8% from its current level in 12 months.
South Korean stocks ticked higher, Australian shares dropped and markets were closed for holidays in Hong Kong, mainland China and Taiwan, reducing activity in region.
“The markets are out of step with the inflation narrative,” said Lucy Meagher, an investment adviser for Evans and Partners, who sees equities in countries such as Australia and the US as too high given rates risks.
Treasury yields were broadly flat in Asian trading after shorter maturity yields rose as Powell’s signal of higher rates fanned recession worries. The rise in short-dated yields pushed the inversion of a key segment of the yield curve to a full percentage point for the first time since March.
Australia’s 10-year yield fell one basis point, while New Zealand’s yield of the same maturity moved four basis points higher.
The yen strengthened slightly but remained close to 142 per dollar. The Bloomberg dollar index was little changed.
Some traders are betting the Bank of England will have to accelerate the pace of interest-rate hikes after data Wednesday showed inflation remained at 8.7%, higher than expected for a fourth month. Traders also lifted expectations for the terminal rate to 6%, which would be the highest since the turn of the century. Two-year gilt yields rose to levels last seen in 2008.
Turkey’s central bank is expected to impose a sharp increase in interest rates following recent elections. Turkey’s decision holds a notable place on the calendar, with analysts unanimous the central bank will raise rates for the first time in more than two years after two former Wall Street bankers are now at the controls of the economy.
Elsewhere, crude fell slightly while remaining above $72 a barrel. Bitcoin held gains after jumping past $30,000 for the first time since April amid speculation over BlackRock Inc.’s surprising filing for a US spot Bitcoin exchange-traded fund.
Key events this week:
- Eurozone consumer confidence, Thursday
- Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
- US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
- Fed’s Powell delivers testimony before the Senate Banking Committee, Thursday
- Cleveland Fed’s Loretta Mester speaks Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- Japan CPI, Friday
- US S&P Global Manufacturing PMI, Friday
- St. Louis Fed President James Bullard speaks, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.3% as of 7:12 a.m. London time. The S&P 500 fell 0.5%
- Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 1.4%
- Japan’s Topix was little changed
- Australia’s S&P/ASX 200 fell 1.6%
- Euro Stoxx 50 futures fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0984
- The Japanese yen was little changed at 141.80 per dollar
- The offshore yuan fell 0.1% to 7.1860 per dollar
- The Australian dollar fell 0.5% to $0.6761
- The British pound fell 0.1% to $1.2756
Cryptocurrencies
- Bitcoin rose 0.5% to $30,120.61
- Ether rose 1.4% to $1,905.31
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.73%
- Japan’s 10-year yield was unchanged at 0.370%
- Australia’s 10-year yield declined one basis point to 3.97%
Commodities
- West Texas Intermediate crude fell 0.5% to $72.20 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cristin Flanagan and Stephen Kirkland.
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