Bloomberg: US equity futures climbed, signaling a partial recovery following a tumultuous day of losses on Wall Street Wednesday. In contrast, European stocks fell, led by banks, as investors assessed policy moves by key central banks in the region.
Contracts on the S&P 500 rose 0.5% and those on the Nasdaq 100 advanced 0.9%. The Stoxx Europe 600 Index slid 0.8%, falling for the first time this week before a rates decision from the Bank of England. Banking stocks were the biggest laggards, following weakness in their US peers and as Citigroup Inc. slashed its outlook for the sector.
The BOE is likely to continue the quickest series of interest-rate increases in three decades, with its focus on combating inflation outweighing calls for a pause given recent turmoil in the banking system. The Swiss and Norwegian central banks both raised rates Thursday, 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.
For the BOE, February UK CPI data have “removed any flexibility they may have thought they had and now markets are pricing in a higher terminal rate of around 4.5% as a result,” said Craig Erlam, a senior market analyst at Oanda Ltd. “This makes the language that accompanies the decision key,” he said, expecting policymakers to highlight an uncertain outlook and the need to be data-dependent.
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.
“I would not expect the market to take these rate cuts out in the near term and could very well price in more cuts if the data deteriorates from here,” Matthew Hornbach, global head of macro strategy at Morgan Stanley, told Bloomberg Television.
Powell himself, though, 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 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, oil fell as investors weighed the developments at the Fed and digested a mixed snapshot of US supply and demand. Gold and Bitcoin rose.
Separately, investors were on tenterhooks awaiting another report from Hindenburg Research, the US short seller that targeted Gautam Adani’s group earlier this year. There were no details on the subject of the new report.