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US equity futures struggled for direction on Monday, pointing to a subdued open on Wall Street as traders assess the outlook for monetary policy ahead of key inflation data later this week.
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(Bloomberg) — US equity futures struggled for direction on Monday, pointing to a subdued open on Wall Street as traders assess the outlook for monetary policy ahead of key inflation data later this week.
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Contracts on the S&P 500 edged higher after the gauge jumped 1.9% Friday to halt its longest losing streak since February. Nasdaq 100 futures were flat. PacWest Bancorp rose as much as 42% in premarket trading, extending Friday’s brisk rally and leading gains in US regional banks as they recover from a selloff sparked by the recent collapse of several lenders. A gauge of the dollar slipped for a fifth straight day and Treasury yields rose.
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US stocks have tracked sideways since the beginning of April as as better-than-feared corporate earnings offset concerns around an economic slowdown and the health of regional banks. Resilient jobs data Friday supported bets the Federal Reserve will hold rates high for longer, straining consumer spending, corporate profits and bank balance sheets.
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“The Fed’s aggressive policy actions over the past year will result in slowing economic activity impacting earnings and eventually stock prices,” said Richard Saperstein, chief investment officer at Treasury Partners. “Earnings estimates are not adequately reflecting an economic slowdown.”
Saperstein is underweight equities while maintaining exposure to large-cap technology and oil stocks, and recommends buying intermediate and long-term bonds to benefit from declining interest rates which will be triggered by a slowing economy.
Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September, followed by at least two quarter-point cuts by year-end. Consumer-inflation data Wednesday may provide further clues on the rates path.
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“Unless we see a sharp turnaround in the inflation numbers, the Fed ought to be quite comfortable with where policy rates are right now,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said on Bloomberg Television.
The Stoxx Europe 600 index edged gained, with energy stocks outperforming as crude oil gained. With UK markets closed for a a holiday in honor of King Charles III, trading volumes were relatively modest. The German 10-yield climbed 4 basis points.
While the Fed has signaled that it may pause its tightening cycle, its counterpart in the euro region isn’t done yet, muddying the outlook for economic growth and corporate profits.
The European Central Bank needs to continue raising interest rates amid a “too high” underlying inflation rate, Governing Council member Klaas Knot said Sunday. ECB President Christine Lagarde also signaled that there are more hikes to come after the central bank last week raised the deposit rate by a quarter-point to 3.25%, following three moves of double that size.
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Meanwhile, a report Monday showed German industrial production sank by the most in a year — raising the risk that Europe’s largest economy slipped into a winter recession. Output dropped 3.4% in March, more than the 1.5% decline economists had predicted in a Bloomberg survey. The decrease was especially pronounced in the automotive sector, according to the statistics office.
Worries Remain
Despite Friday’s stock rebound, investors still have much to worry about. The rout in US bank shares has the S&P 500 financials index on the verge of falling back below its 2007 peak.
Meanwhile, Treasury Secretary Janet Yellen sees “simply no good options” for solving the debt limit stalemate in Washington without Congress raising the cap. She even cautioned that resorting to the 14th Amendment would provoke a constitutional crisis.
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“We see a chance that Treasury’s cash amount is enough to sustain till mid-June and probably slightly beyond that,” Oversea-Chinese Banking Corp. strategists Frances Cheung and Christopher Wong wrote in a note. However, “the irregular nature of fiscal receipts and outlays shall render investors staying cautious,” they said.
Elsewhere in markets, oil gained as investors assessed a complex outlook for global demand after a period of volatile trading. Bitcoin slipped below $28,000.
Key events this week:
- US wholesale inventories, Monday
- US President Joe Biden scheduled to meet with congressional leaders on debt limit, Tuesday
- New York Fed President John Williams speaks to Economic Club of New York, Tuesday
- US CPI, Wednesday
- China PPI, CPI, Thursday
- UK BOE rate decision, industrial production, GDP, Thursday
- US PPI, initial jobless claims, Thursday
- Group of Seven finance minister and central bank governors meet in Japan, Thursday
- US University of Michigan consumer sentiment, Friday
- Fed Governor Philip Jefferson and St. Louis Fed President James Bullard participate in panel discussion on monetary policy at Stanford University, Friday.
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Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.2% as of 8:33 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.1036
- The British pound was little changed at $1.2646
- The Japanese yen fell 0.2% to 135.12 per dollar
Cryptocurrencies
- Bitcoin fell 3.7% to $27,875.98
- Ether fell 3% to $1,862.25
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.49%
- Germany’s 10-year yield advanced four basis points to 2.33%
Commodities
- West Texas Intermediate crude rose 2.4% to $73.07 a barrel
- Gold futures rose 0.4% to $2,031.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
—With assistance from Michael Msika and Tassia Sipahutar.
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