Market wrap: 3 May 2023

Market wrap: 3 May 2023

US Futures, Europe Stocks Rise Before Fed Meeting: 

  • US regional banks extend drop in premarket, dollar weakens
  • Fed is forecast to raise rates by a quarter point Wednesday

US futures and European stocks advanced, bouncing from Tuesday’s losses, ahead of a Federal Reserve meeting at which policymakers are expected to extend their rate-hike cycle.

Contracts on the S&P 500 and the Dow were higher, after underlying stocks slid in the prior session. Regional US lenders PacWest Bancorp and Western Alliance Bancorp fell in premarket trading, adding to Tuesday’s slump. Advanced Micro Devices Inc. slipped after issuing a tepid outlook.

In a further sign of caution, Europe’s stock gains were led by defensive sectors such as consumer products, food and beverage companies, while energy and auto shares dropped. The dollar weakened, and 10-year Treasuries extended gains from Tuesday amid demand for haven assets.

Investors will closely watch Fed commentary later today for clues on the path of interest rates. In addition to concerns about financial strains stemming from the banking turmoil, policymakers are caught between stubbornly high inflation and data pointing to an economic downturn. Traders expect the Fed to raise borrowing costs by 25 basis points at today’s meeting, before signaling a pause in its aggressive hiking cycle. 


“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.

Multiple volatility halts in US regional lenders PacWest Bancorp and Western Alliance Bancorp unsettled Wall Street on Tuesday, 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 extended declines after tumbling on Tuesday. A gauge of Asian shares fell Wednesday, catching 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. 



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