- Markets consolidate Fed induced losses ahead of monetary policy announcements from BoE, SNB.
- S&P 500 Futures pare the biggest daily loss in two weeks, yields struggle after falling the most in a week.
- Fears emanating from banking fallouts weigh on sentiment even as Fed marches 0.25% rate hike expectations.
- Comments from US Treasury Secretary Yellen, doubts over SVB renew banking woes.
Global markets pare recent pessimism during Thursday’s sluggish session as Fed-induced moves need validation from the Bank of England (BoE) and Swiss National Bank (SNB). Above all, the banking turmoil challenges the optimists despite the latest cautious optimism in the market, mainly backed by the US Federal Reserve’s (Fed) dovish hike.
While portraying the mood, S&P 500 Futures print mild gains around 3,980, up 0.25% intraday following the biggest daily slump in two weeks. In doing so, the US stock futures pare the previous day’s U-turn from a 12-day high. That said, the US 10-year and two-year Treasury bond yields stay pressured around 3.47% and 3.96% at the latest, licking their wounds after falling the most in a week.
On Wednesday, the Fed confirmed the market’s expectations of announcing a 0.25% rate hike but failed to convince the policy hawks. The reason could be linked to the statements saying, “Some additional policy firming may be appropriate,” instead of previous remarks like “Ongoing increases in the target range will be appropriate.”
It should be noted that Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen’s comments triggered the market’s pessimism as Fed’s Powell said that officials do not see rate cuts for this year, which in turn allowed breathing space to the greenback bears in the last.
On the other hand, US Treasury Secretary Janet Yellen ruled out considering “blanket insurance” for bank deposits. Recently, Bloomberg also came out with the news suggesting that the Federal Deposit Insurance Corporation (FDIC) is said to delay the bid deadline for a Silicon Valley private bank.
Elsewhere, Citibank CEO Jane Fraser tries to placate market fears while saying, “This is not a credit crisis. This is a situation where it’s a few banks,” per Bloomberg. It should be noted that multiple central bank officials have also tried their hands to rule out fears of the 2008 crisis earlier but have failed so far. However, their swift reaction to the fallouts of the Silicon Valley Bank (SVB), Signature Bank and Credit Suisse gains applause and push back the odds of the market’s collapse.
Looking ahead, strong inflation data from the UK may allow the BoE to keep its hawkish bias and announce a 0.25% rate hike while the SNB is up for 50 basis points (bps) of rate lift despite the banking turmoil.
Although the hawkish central bank actions may probe the optimists for a bit, any negative surprises, either in the form of dovish rate increases or no rate lifts at all, could bolster the market’s risk-on mood and propel the yields.