Futures, European stocks waver with banks in focus

BLOOMBERG

US futures and European stocks struggled for direction as investors awaited data for clues on monetary policy and assessed developments in the banking sector. Treasuries fell.
Contracts on the S&P 500 were little changed, while those on the Nasdaq 100 dropped. European equities erased earlier gains as French lenders fell on news the country’s financial prosecutor is searching five banks as part of a probe into tax fraud and money laundering.
First Republic Bank climbed in premarket trading, set to extend earlier advance. Alibaba Group Holding Ltd rallied more than 7% as the e-commerce firm plans to split into six units that will individually raise funds and explore initial public offerings (IPOs).
Traders began the week on a bullish note, ahead of a busy calendar for economic reports and speeches by Federal Reserve officials. Still, Tuesday’s moves suggest lingering caution after turmoil in the banking sector fuelled worries of recession and wider contagion earlier this month. A report on the Fed’s preferred measure of inflation later this week will be closely watched.
The US two-year Treasury yield rose further after surging above 4%. A gauge of dollar strength traded lower. Meanwhile, swaps traders priced in more than a 50% probability that the Federal Reserve will lift rates by a quarter point at its next gathering. They continue to expect sharp easing thereafter, with pricing suggesting the policy rate will slide to around 4.3% in December, down from around 4.95% in May.
“We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates,” strategists at BlackRock Investment Institute, including Wei Li and Alex Brazier, wrote in a note.
Hugh Gimber, global market strategist at JPMorgan Asset Management, also doesn’t foresee rate cuts anytime soon, even if hikes pause, and cautions against stock-market optimism on it.
“I think the market is right to price a Fed pause,” he said in an interview on Bloomberg TV. “The question here is how big the feed through from a deterioration in lending standards is to really get inflation lower towards target, and I’m not that convinced we will see that very quickly. I think we would need a pretty significant economic shock to get there in second half of 2022. Rate cuts are more of a 2024 story.”
Elsewhere in markets, Asian shares rose as traders caught up with overnight gains on Wall Street. The yen strengthened after Japan’s cabinet approved the use of some funds from the fiscal 2022 budget for measures to cushion the impact of inflation.
Bitcoin fell, extending declines, when the US Commodity Futures Trading Commission sued Binance Holdings Ltd for allegedly breaking trading and derivatives rules. Oil rose.
The Bloomberg Dollar Spot Index fell 0.2% and the euro rose 0.2% to $1.0823. While the British pound rose 0.2% to $1.2313, the Japanese yen rose 0.5% to 130.96 per dollar.
The yield on 10-year Treasuries advanced two basis points to 3.55% and Germany’s 10-year yield advanced seven basis points to 2.30%. Britain’s 10-year yield advanced 10 basis points to 3.47%.