US equity futures struggled for direction as investors braced for inflation data and corporate results that could confirm fears about the health of the financial system.
(Bloomberg) — US equity futures struggled for direction as investors braced for inflation data and corporate results that could confirm fears about the health of the financial system.
Contracts on the tech-heavy Nasdaq 100 and S&P 500 gave up early gains to trade flat. The yield on policy-sensitive two-year Treasuries slipped below 4%, backtracking some of its climb Monday as traders positioned for another interest-rate hike.
Cracks in 2023’s equity advance are appearing, as hedge funds and other speculators amass the deepest short position since November 2011 when the US sovereign credit rating was cut. Widely-watched inflation data is due Wednesday and banks on Friday kick off what’s forecast to be the worst earnings season since the depths of the pandemic crisis.
“It remains a very tricky trading environment,” Chris Turner, a strategist at ING Bank wrote in a note to clients. “Experienced commentators are refusing to dismiss last month’s events as a one-off and instead prefer to see bank failures as a harbinger of forthcoming stress in the global financial system.”
In premarket trading, Tilray Brands Inc. shares slumped about 7% after the cannabis producer’s third quarter fell short of estimates. Gold miner Newmont Corp. lost almost 3% after it sweetened its bid for Australia’s Newcrest Mining Ltd.
The Federal Reserve appears on track to keep raising rates despite recent bank strains, with resilient labor markets and higher oil prices holding sway for policymakers focused on their price-stability mandate.
Markets are pricing for a strong likelihood the Fed will raise borrowing by a quarter-point May 3 to contain inflation, after US payrolls rose at a firm pace last month and the unemployment rate dropped. Wednesday’s report on consumer prices, expected to show a 0.4% monthly increase in the core consumer price index, could cement the Fed’s rate path.
A scenario where the Fed halts rate hikes in May, which markets had briefly entertained last month as fragility in banks raised recession fears, looks increasingly remote.
“The Fed has maintained its resolute inflation narrative despite banking sector stress, switching to liquidity tools to tackle the funding squeeze, and keeping its monetary policy toolkit intact,” Mizuho International Plc strategists including Evelyne Gomez-Liechti wrote in a note.
After May, though, markets are pricing in a pivot to easier policy. Tighter financial conditions following the failure of Silicon Valley Bank could pave the way. Investors predict rates will peak below 5%, with the Fed then cutting by roughly 50 basis points before end 2023.
Read more: End May Be in Sight for Global Rate-Hike Cycle as Fed Nears Peak
Elsewhere, Japanese shares climbed following the dovish stance of the new Bank of Japan governor, Kazuo Ueda, and on a report that Warren Buffett is turning his focus back to Japan. In Europe, a rally in cyclical industries boosted the regional stock benchmark by 0.4%.
Oil wavered, with West Texas Intermediate dipping back below $80 a barrel after briefly crossing it. Gold was slightly higher and near $2,000 an ounce.
Key events this week:
- IMF global financial stability report, Tuesday
- Chicago Fed’s Austan Goolsbee, Minneapolis Fed’s Neel Kashkari and Philadelphia Fed’s Patrick Harker speak at separate events, Tuesday
- Canada rate decision, Wednesday
- US FOMC minutes, CPI, Wednesday
- Richmond Fed’s Thomas Barkin speaks, Wednesday
- China trade, Thursday
- US PPI, initial jobless claim, Thursday
- US retail sales, business inventories, industrial production, University of Michigan consumer sentiment, Friday
- Major US banks JPMorgan Chase, Wells Fargo and Citigroup report earnings, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 8:26 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.4% to $1.0903
- The British pound rose 0.3% to $1.2422
- The Japanese yen rose 0.3% to 133.23 per dollar
Cryptocurrencies
- Bitcoin rose 3.2% to $30,069.28
- Ether rose 1.5% to $1,914.34
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.41%
- Germany’s 10-year yield advanced eight basis points to 2.26%
- Britain’s 10-year yield advanced nine basis points to 3.53%
Commodities
- West Texas Intermediate crude rose 0.1% to $79.85 a barrel
- Gold futures rose 0.6% to $2,016.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland and Brett Miller.
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