US Futures Climb, Dollar Extends Post-Fed Decline:
- S&P 500, Nasdaq 100 contracts advance after Wednesday drop
- Slide in PacWest shares reignites fears over US regional banks
US futures and Asian stocks edged higher while European contracts were flat as investors brushed aside the Federal Reserve’s commentary against interest-rate cuts and looked ahead to an eventual pivot to easing.
Contracts for the S&P 500 and the Nasdaq 100 advanced after a drop on Wednesday, when the turmoil in US regional banks added to market volatility. Futures for the region-wide Euro Stoxx 50 were little changed.
An Asia-wide gauge of equities was on course for its best day in about three weeks, helped by gains in Hong Kong shares. Stocks in mainland China whipsawed as they resumed trading after a three-day break, while Australian and South Korean shares trimmed early declines.
The moves followed a 25 basis-points increase from the Fed and comments from Chair Jerome Powell that opened the door for a pause in June but played down the prospect of rate cuts later in the year — a scenario firmly reflected in market pricing.
Australian bonds rose following gains in US Treasuries, although trading for the latter was closed in Asia due to a holiday in Japan. The yen extended a rally against most of its Group-of-10 peers, while the Bloomberg dollar index fell for a third day.
Oil recovered rapidly after a sudden dip in early Thursday trade. The move helped retrace some of the losses it made earlier this week when concerns over global growth weighed on the commodity.
US regional lender PacWest Bancorp said it is engaged in discussions with several potential investors, seeking to calm markets after shares plummeted on news it was exploring options including a sale. The sudden drop reignited fears about the health of the US banking system and weighed on peer regional lenders.
“The tightening in credit conditions will put some significant downward pressure on the economy,” Michelle Girard, head of US for NatWest Markets, said on Bloomberg Television. “You will see the Fed in a position to move policy to a less restrictive stance sooner than what the Fed chairman today was suggesting.”
The rate debate will resume again later Thursday, with the European Central Bank taking center stage. Policymakers are seen raising the deposit rate by a quarter-point to a 3.25%, which would mark a slowdown in their hiking cycle. The decision is expected at 2:15 p.m. in Frankfurt, followed half an hour later by President Christine Lagarde speaking at a press conference.
“Potential Fed pause, but no Fed pivot yet,” said Jason Pride at Glenmede. “The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table. The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate cut narrative.”
Key events this week:
- 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
Source: Bloomberg.com