US equity futures climbed, signaling a partial recovery from Wednesday’s losses as investors added to bets that the Federal Reserve will soon start cutting rates, against the guidance from the central bank. European stocks fell, in contrast, as investors digested a flurry of policy tightening moves in the region.
(Bloomberg) — US equity futures climbed, signaling a partial recovery from Wednesday’s losses as investors added to bets that the Federal Reserve will soon start cutting rates, against the guidance from the central bank. European stocks fell, in contrast, as investors digested a flurry of policy tightening moves in the region.
Contracts on the S&P 500 rose 0.5%, a little off their highs for the session as US jobless claims unexpectedly fell for a second week. Those on the Nasdaq 100 advanced 0.8%. The Stoxx Europe 600 Index slid, banking stocks were the biggest laggards, following weakness in their US peers and as Citigroup Inc. slashed its outlook for the sector.
The Bank of England pushed ahead with another interest-rate increase, despite turmoil in the banking sector, hiking its key rate by 25 basis points as expected. The Swiss and Norwegian central banks had earlier tightened as forecast and flagged more hikes to come in their campaigns to tame rising consumer prices.
In the US Wednesday, Federal Reserve Chair Jerome Powell pushed back against bets for rate cuts this year, following the Fed’s expected 25-basis-point hike, and said he was prepared to keep raising borrowing costs until inflation showed signs of cooling. Treasury Secretary Janet Yellen told lawmakers that the government wasn’t considering “blanket” deposit insurance to stabilize US lenders, sending stocks in the sector rapidly lower.
The pound was stronger after the BOE rate hike. Weakness in the dollar extended to a sixth day, with a gauge of the greenback falling to the lowest in more than a month as traders boosted bets for US interest-rate cuts, even after the Fed said more tightening may be needed. Treasury yields ticked higher.
The swap market shows investors are split on the chances that Fed officials will add another 25 basis points to their benchmark in May. Despite Powell’s guidance, expectations for cuts have deepened, with the market suggesting that the effective fed funds rate will drop to around 4.1% in December.
The language accompanying Wednesday’s decision was far less hawkish than before, reflecting the uncertainty that the recent mini banking crisis has created, said Craig Erlam, a senior market analyst at Oanda Ltd.
“Jerome Powell and his colleagues are clearly concerned about the impact of recent events on credit conditions, which may impact lending to households and businesses, slow the economy, and weigh on inflation,” Erlam said. “While this would do some of its job for it, in bringing inflation back to target, it won’t do so in the way that it will have wanted.”
Powell himself said in response to questioning that officials “just don’t” see cuts this year and that they will raise higher than expected if that is needed. “Rate cuts are not in our base case,” he said.
In the latest economic data for Fed officials to parse, applications for unemployment benefits unexpectedly eased for a second week, underscoring a still-tight job market in which employers are reluctant to reduce headcount. Initial filings for jobless benefits fell by 1,000 to 191,000 in the week ended March 18, Labor Department data showed Thursday. The median estimate in a Bloomberg survey of economists called for 197,000 applications.
In premarket trading, Coinbase Global Inc. slumped after the largest US crypto exchange said it received a notice from the SEC formally declaring the securities regulator’s plans to bring an enforcement action against it. Analysts say the notice might be a precursor to the agency ultimately suing the company.
Elsewhere in markets, a gauge of emerging-market stocks surged toward its biggest three-day gain since January. Oil fell as investors weighed the developments at the Fed and digested a mixed snapshot of US supply and demand. Gold and Bitcoin rose.
Key events this week:
- 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
- S&P 500 futures rose 0.4% as of 8:35 a.m. New York time
- Nasdaq 100 futures rose 0.9%
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 fell 0.5%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.2% to $1.0883
- The British pound rose 0.3% to $1.2310
- The Japanese yen was little changed at 131.39 per dollar
Cryptocurrencies
- Bitcoin rose 1% to $27,653.01
- Ether rose 1.2% to $1,758.39
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.48%
- Germany’s 10-year yield declined six basis points to 2.26%
- Britain’s 10-year yield declined one basis point to 3.44%
Commodities
- West Texas Intermediate crude fell 0.4% to $70.62 a barrel
- Gold futures rose 1.7% to $1,999.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller.
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