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BLOOMBERG
US futures and European stocks advanced, bouncing from losses, ahead of a Federal Reserve meeting at which policymakers are expected to extend their rate-hike cycle.
Contracts on the S&P 500 and the Dow were higher, after underlying stocks slid in the prior session. Regional US lenders PacWest Bancorp and Western Alliance Bancorp fell in premarket trading, adding to the slump. Advanced Micro Devices Inc slipped after issuing a tepid outlook.
In a further sign of caution, Europe’s stock gains were led by defensive sectors such as consumer products, food and beverage companies, while energy and auto shares dropped. The dollar weakened, and 10-year Treasuries extended gains amid demand for haven assets.
Investors will closely watch Fed commentary for clues on the path of interest rates. In addition to concerns about financial strains stemming from the banking turmoil, policymakers are caught between stubbornly high inflation and data pointing to an economic downturn. Traders expect the Fed to raise borrowing costs by 25 basis points at the meeting, before signalling a pause in its aggressive hiking cycle.
“Despite the contagion spreading across the regional bank space, we expect the Fed to squeeze in a final 25 basis point hike before pausing to assess the impact of the significant and rapid tightening to date,†Mizuho strategists Evelyne Gomez-Liechti and Helen Rodriguez wrote in a note.
Multiple volatility halts in US regional lenders PacWest Bancorp and Western Alliance Bancorp unsettled Wall Street, just a day after JPMorgan Chase & Co’s acquisition of First Republic Bank had seemed to bolster confidence in the sector.
A lack of clarity regarding the US debt ceiling added to the uncertain mood. Between now and June 1 — the date by which the Treasury Department may run out of sufficient cash — President Joe Biden and members of the House and Senate are scheduled to be in town at the same time for one week to find a solution. “It is a key event risk in the next few weeks and possibly a month or two,†Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management in Singapore, said on Bloomberg Television.