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BLOOMBERG
US futures rose as investors dialled back bets on Federal Reserve rate hikes following the collapse of Silicon Valley Bank, which continued to reverberate through trading desks on Monday.
Futures on the rate-sensitive Nasdaq 100 rose about 1% while those on the S&P 500 also resumed gains after initially erasing a rally. Stocks in Europe pared a drop of almost 3% to trade about 1.7% lower, with banks leading the decline.
Treasury two-year yields fell as much as 43 basis points to 4.17%, heading for their steepest three-day decline since Black Monday of October 1987. The 10-year yield fell to a one-month low and the dollar extended a decline against major peers. The yield on two-year German debt plunged 35 basis points to 2.74%, putting them on course for the steepest two-day fall on record.
The turmoil following SBV’s demise has caused a rapid repricing in markets for where the Federal Reserve will take policy. Swaps traders now only see a 63% chance the central bank will raise rates at its meeting next week. Goldman Sachs Group Inc. economists said they expect no change in the policy rate following the collapse of SVB. Expectations had built for a hike of as much as 50 basis points after Chair Jerome Powell addressed lawmakers on Tuesday.
“The market is likely to remain very cautious despite regulators stepping in,†said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “The failure of SVB puts the Fed’s focus on financial stability. This is a difficult position Fed is in, on the one hand it needs to keep hiking to arrest inflation, but also it needs to protect the financial system. Feels like a lose-lose situation for the Fed and the market.†S&P 500 futures rose 0.4% as of 7:16 am New York time and Nasdaq 100 futures also gain 0.9%.