Futures, European Stocks Waver With Banks in Focus: Markets Wrap

(Bloomberg) -- US stocks fell and Treasuries edged lower ahead of inflation data due later this week as turmoil in the banking sector has cast uncertainty over interest rate hikes from the Federal Reserve. The S&P 500 slipped, snapping a three-day advance, while the tech-heavy Nasdaq 100 was 1% lower. The two-year Treasury yield held just above 4% after a rollercoaster month that saw it as high as 5%. A dollar gauge fell for the eighth time in nine days. “Investors can’t seem to make up their minds as to where stocks should go from here, how the bank crisis will play out, and whether the FOMC’s next move will be a rate hike, a rate pause, or a rate cut,” said Bespoke Investment Group cofounder Paul Hickey. Investors will get a raft of data on the American economy this week, including on the central bank’s preferred measure of inflation, after US consumer confidence unexpectedly improved in March. Federal Reserve officials will also testify before Congress on the collapse of regional banks, with First Republic Bank up another 1.2% after Monday’s advance. “Markets have looked like five miles of bad road lately, with the current mini-bank crisis fraying investors’ nerves,” wrote Art Hogan, chief market strategist at B. Riley Wealth Management, noting the bumpy ride for equity indexes and unusually large volatility in the Treasury market. “It would seem that the muscle memory of the Great Financial Crisis remains strong.” US banks are expected to see a lift from the Senate Banking Committee’s first Congressional hearing into the collapse of Silicon Valley Bank and Signature Bank later on Tuesday. Initial reaction to prepared remarks from Fed Vice Chair for Supervision Michael Barr were positive in premarket trading. Swaps traders have priced in more than a 50% probability that the Federal Reserve will lift rates by a quarter point at its next gathering and then ease sharply thereafter given the pressures in the banking sector. Pricing currently suggests the policy rate will slide to around 4.3% in December, down from around 4.95% in May. Strategists at BlackRock Investment Institute expect the Fed to keep raising rates, saying markets are wrong in expecting imminent rate cuts. Likewise, Joe Davis, chief global economist at Vanguard, said recent events in the US and European banking sectors have not altered his macroeconomic views. “The Federal Reserve still has work to do to bring down inflation — a task that was always going to be a challenge, likely to entail higher unemployment and tighter credit and financial conditions,” Davis said. “Deterioration in financial conditions has long been part of our expectation for a modest recession later this year.” Elsewhere in markets, oil was little changed as a clash between Iraq and its Kurdish region curtailed exports. Gold was higher. Bitcoin traded around $26,900. And in Europe, stocks edged lower after French prosecutors said banks including Societe Generale SA and BNP Paribas SA face collective fines of more than 1 billion euros ($1.1 billion) as part of a probe into tax fraud and money laundering. Key events this week: EIA Crude Oil Inventory Report, Wednesday Eurozone economic confidence, consumer confidence, Thursday US 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 US 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 S&P 500 fell 0.3% as of 10:50 a.m. New York time The Nasdaq 100 fell 1% The Dow Jones Industrial Average was little changed The Stoxx Europe 600 fell 0.1% The MSCI World index rose 0.2% Currencies The Bloomberg Dollar Spot Index fell 0.3% The euro rose 0.4% to $1.0837 The British pound rose 0.3% to $1.2329 The Japanese yen rose 0.4% to 130.99 per dollar Cryptocurrencies Bitcoin fell 0.2% to $26,987.55 Ether rose 2.1% to $1,744.15 Bonds The yield on 10-year Treasuries advanced three basis points to 3.56% Germany’s 10-year yield advanced seven basis points to 2.30% Britain’s 10-year yield advanced 10 basis points to 3.47% Commodities West Texas Intermediate crude rose 0.2% to $72.99 a barrel Gold futures rose 0.6% to $1,984 an ounce This story was produced with the assistance of Bloomberg Automation. --With assistance from Namitha Jagadeesh. ©2023 Bloomberg L.P.

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