Stocks rose as concern over broader contagion from the banking turmoil eased. U.S. futures drifted and the dollar traded lower.
Banks and commodity stocks led gains in European equities. Contracts on the S&P 500 were little changed, while those on the Nasdaq 100 fell. First Republic Bank climbed in premarket trading, set to extend Monday’s 12 per cent advance. Asian shares also rose, with financial firms among the best performers as traders caught up with gains on Wall Street
Traders have been cautiously inching toward a risk-on posture as jitters in the banking sector subside. In focus this week will be speeches by several Federal Reserve officials, and a slew of U.S. data, including a report on the Fed’s preferred measure of inflation.
The US 2-year Treasury yield rose further after surging above 4 per cent on Monday. A gauge of dollar strength fell for a second day.
Meanwhile, swaps traders priced in more than a 50 per cent probability that the Federal Reserve will lift rates by a quarter point at its next gathering. They continue to expect sharp easing thereafter, with pricing suggesting the policy rate will slide to around 4.3 per cent in December, down from around 4.95 per cent in May.
Not all agree.
“We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates,” strategists at BlackRock Investment Institute, including Wei Li and Alex Brazier, wrote in a note.
Hugh Gimber, global market strategist at JPMorgan Asset Management, also doesn’t foresee rate cuts anytime soon, even if hikes pause, and cautions against stock-market optimism on it.
“I think the market is right to price a Fed pause,” he said in an interview on Bloomberg TV. “The question here is how big the feed through from a deterioration in lending standards is to really get inflation lower towards target, and I’m not that convinced we will see that very quickly. I think we would need a pretty significant economic shock to get there in 2H. Rate cuts are more of a 2024 story.”
Elsewhere in markets, the yen strengthened after Japan’s cabinet approved the use of some funds from the fiscal 2022 budget for measures to cushion the impact of inflation.
Bitcoin edged lower after dropping Monday as the US Commodity Futures Trading Commission sued Binance Holdings Ltd. for allegedly breaking trading and derivatives rules. Bitcoin was little changed Tuesday.
Oil rose after posting the biggest daily rally since October on Monday.
Key events this week:
- U.S. wholesale inventories, U.S. Conf. Board consumer confidence, Tuesday
- EIA Crude Oil Inventory Report, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- U.S. GDP, initial jobless claims, Thursday
- Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
- China PMI, Friday
- Eurozone CPI, unemployment, Friday
- U.S. consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2 per cent as of 9:49 a.m. London time
- S&P 500 futures were little changed
- Nasdaq 100 futures fell 0.2 per cent
- Futures on the Dow Jones Industrial Average rose 0.1 per cent
- The MSCI Asia Pacific Index rose 0.6 per cent
- The MSCI Emerging Markets Index rose 0.5 per cent
Currencies
- The Bloomberg Dollar Spot Index fell 0.1 per cent
- The euro rose 0.2 per cent to US$1.0815
- The Japanese yen rose 0.3 per cent to 131.15 per dollar
- The offshore yuan was little changed at 6.8878 per dollar
- The British pound was little changed at US$1.2294
Cryptocurrencies
- Bitcoin fell 0.2 per cent to US$26,997.23
- Ether rose 1.1 per cent to US$1,726.98
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.55 per cent
- Germany’s 10-year yield advanced eight basis points to 2.30 per cent
- Britain’s 10-year yield advanced nine basis points to 3.46 per cent
Commodities
- Brent crude rose 0.7 per cent to US$78.63 a barrel
- Spot gold fell 0.2 per cent to US$1,952.65 an ounce
