A look at the day ahead at the US and global markets from Mike Dolan
Even if investors sense light at the end of the tunnel, Western central banks are clearly not done tightening credit – certainly not in inflationary outlier Britain.
chairman of the Federal Reserve Jerome Powell threw more cold water at hopes of a reversal of the Fed’s rate hike campaign on Wednesday and continued to point to two more hikes, even as markets still expect a final quarter-point move next month.
If the economy performs as now expected, two more rate hikes is a “pretty good estimate” of what happens next, Powell told the House Financial Services Committee on Tuesday. He will repeat testimony before the Senate later today.
Markets have been here before this past year – they continually underestimate the resilience of the economy and the trajectory of the Fed.
But while futures markets still don’t quite believe the “two more” signal, the Fed has had some success in dissuading them from easing significantly in the rest of the year, at least for the remainder of the year. year. At the moment, prices suggest that a July increase will not fully reverse until March.
And this view seems to fit more closely with the more moderate view of one of Powell’s colleagues.
“My premise is that we should stay at this level for the rest of the year” and not cut rates until late 2024, Raphael Bostic, head of the Atlanta Fed, said in an interview with Yahoo Finance.
On Thursday there was much less uncertainty about the movements of the European central banks.
Following Wednesday’s shocking news of an acceleration in UK ‘core’ inflation to 31-year highs last month, the Bank of England will push another quarter-point rate hike to 4.75% on Thursday – the 13th rate hike in a campaign that then began in 2021.
Markets think there is a 50-50 chance of a 50 basis point harder move and are now seeing the highest BoE ‘terminal’ rate as high as 6% – some 150bp higher than here.
The Swiss National Bank previously raised interest rates by 25 bps, as expected, but also left the door open for further tightening.
And Norway’s central bank surprised with an aggressive rise of 50 basis points to a 15-year high of 3.75% and signaled a new move in August.
In the emerging market world, Turkey was expected to more than double its interest rate of 8.5% in a post-election macroeconomic policy.
All the hawking has blown up some of the froth of this month’s stock market enthusiasm.
European stocks fell about 1% and US stock futures were back in the red on Thursday, signaling a fourth consecutive daily drop in the S&P 500 (.SPX). Two-year US Treasury yields were marginally higher, but the dollar (.DXY) reached its lowest point in more than a month.
Weekly US unemployment numbers, which have risen in recent weeks, will be closely watched for further signs of an easing in the tight US labor market.
But in a sign that newfound confidence in the bull market has not yet been shaken, Wall St’s VIX “fear index” (.VIX) of implied stock volatility recorded its lowest closing since January 2020 on Wednesday.
In corporate news, British Ocado (OCDO.L) rose 17.4% to the top of the STOXX 600 after The Times reported potential bidding interest in the company.
Events to watch later on Thursday:
* Bank of England policy decision; Policy decisions of the Central Bank of Turkey and Mexico
*Weekly US jobless claims, US existing home sales in May, Kansas City Federal Reserve business survey in June, Chicago Fed May Economic Activity Index, current account in US Q1
* Federal Reserve Chairman Jerome Powell gives semiannual testimony to the Senate Banking Committee
* Fed Board Governors Christopher Waller and Michelle Bowman speak; Cleveland Fed Chief Loretta Mester and Richmond Fed Chief Thomas Barkin speak
* US Treasury auctions 5-year inflation-protected securities, 4-week bills
* US operating income: Carmax, Accenture, Darden Restaurants
By Mike Dolan, edited by Elaine Hardcastle, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.