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MSCI AxJ Index down 1%; Gold above $2,000 an ounce
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China and Japan are on vacation
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Fed decision due 1800 GMT, 25 bps hike expected
(quote added in paragraph 8, prices updated throughout)
By Nell Mackenzie and Tom Westbrook
LONDON/SINGAPORE, May 3 (Reuters) – US stock futures rose on Wednesday in fragile markets, with traders anxiously awaiting hints from today’s Federal Reserve statement that rate hikes may be peaking and the soft Landing that central banks have been aiming for is insight.
Yields on 2-month US Treasury bills rose on mounting concerns that the US Treasury may hit its debt ceiling sooner than expected.
Brent crude, down 5% overnight, continued to fall and was last down about 3% to $73.04 a barrel.
Shares of US regional banks were blown up on Tuesday. PacWest Bancorp fell 27.8%, while Western Alliance Bancorp fell 15.1% and Comerica Inc 12.4%.
Markets are all but certain that the Federal Reserve will announce a 25 basis point rate hike when it announces its monetary policy decision at 1800 GMT. In this case, the focus will be on whether or how much Fed Chair Jerome Powell is pushing back investor expectations for rate cuts by the end of the year.
The pan-European STOXX 600 index rose almost 0.5% after Tuesday’s sharp sell-off. S&P 500 futures edged up 0.1% but sentiment was cautious with banks in the crosshairs.
“It’s not clear today whether markets are being driven by the debt ceiling, the regional bank flight or concerns about FOMC decisions,” said Vijay Modhvadia, managing director of Deuterium Capital Management.
Traders will scan the Fed’s statement for any hint of a hike pause or whether the wording leaves open options for another rate hike in June, Modhvadia said.
US central bankers will have an early look at the Senior Loan Officers Opinion Poll, which has not yet been released publicly, he added.
In Europe, where the bank confidence crisis forced Credit Suisse into the arms of larger rival UBS six weeks ago, similar data was already public, with lenders sharply turning off loan taps, a report on Tuesday showed, possibly urging a smaller one European Central Bank rate hike this week.
The story goes on
“The market consensus is for a soft landing and any hint in that direction should be a source of good news for equities and credit given the Fed and ECB’s trust,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.
Markets are set for a “macro-heavy week,” Ielpo said, with investors looking back on a strong earnings season for the first quarter but expecting Friday’s US jobs report could reveal a worsening macroeconomic picture.
Markets in China and Japan were closed for a public holiday. Hong Kong shares fell, dragging MSCI’s broadest index of Asia-Pacific stocks ex-Japan down about 0.6%.
Bonds and gold held gains. The slipping dollar was caught in a crosswind of falling yields and rising nerves.
EYES ON THE FED
FX markets were stable and also awaiting direction from the Fed. The euro was last up 0.3% at $1.1030.
Elsewhere, the Australian dollar was flat after gaining 0.5% the day before following a surprise rate hike by the Reserve Bank of Australia.
Gold hovered above $2,016 an ounce and was little changed on the day.
US 2-year Treasury yields fell 2 basis points to about 3.96% and 10-year Treasury yields fell 3 basis points to about 3.40%.
Investors are keeping a close eye on the looming US debt ceiling as lawmakers squabble and Treasury Secretary Janet Yellen warns the government could run out of money as early as June 1.
Top U.S. Senate Republicans on Tuesday urged President Joe Biden to accept their package or make a counteroffer, while a top Democrat said the Senate could try to push ahead with a “clean” debt ceiling hike next week.
“Either this game is over in a few weeks or we will see a suspension of the debt limit by the end of this year,” said Rabobank strategist Philip Marey. “In either case, we probably won’t see a resolution until financial markets panic.” (edited by Lincoln Feast and Kim Coghill; edited by Emelia Sithole-Matarise)
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