Futures and global stocks are soaring and building on Wednesday’s powerful gains after the Fed signaled expectations for three rate cuts this year and said inflation eased substantially while Powell greenlit the next big pre-election leg to the rally with dovish press conference comments that suggested the Fed has all but raised its inflation target to 3%. Both Tech and Small-caps are outperforming; while all of the Mag 7 are higher pre-mkt ex-AAPL which was hit on some negative regulatory headlines (AAPL shares have been a funding short for the group). As of 8:00am, S&P futures were 0.4% higher, trading just above 5,300 while Nasdaq futures up 0.8%, both in record territory. 10Y Treasury yields are lower, trading around 4.22% are the curve bull flattens while the USD trades higher after a shock rate cut by the SNB sent the swiss franc plunging. Today’s macro data focus includes flash PMIs, leading index, existing home sales, and jobless data. Powell flagged that a weakening labor market is cue for when to cut rates but did not indicate which data release is the most impactful but in the 5 years leading into COVID, weekly claims averaged 244k and today consensus is 213k.
In premarket trading, Micron shares surged 18%, lifting peers with it, after the maker of computer memory chips gave a 3Q forecast that was much stronger than expected. Chip equipment makers also gain after Micron said it plans to boost capital spending in fiscal 2025: Western Digital (WDC US) +6.7%, Seagate Technology (STX US) +1.2%; chip equipment makers Applied Materials (AMAT US) +3.4%, Lam Research (LRCX US) +3.1%. Here are some other notable premarket movers:
Stock optimism was reignited after Federal Reserve policymakers kept their outlook for three cuts this year, despite a recent rebound in price pressures. While Chair Jerome Powell continued to highlight that officials would like to see more evidence prices are coming down, he also said it will be appropriate to start easing “at some point this year.” As part of the dovish hurricane response, treasuries advanced, lowering the 10-year yield by four basis points, while the dollar posted small moves. Brent crude traded around $86 a barrel and Bitcoin held at about $67,000. Gold rallied above $2,200 an ounce for the first time and a gauge of emerging-market stocks climbed the most since December.
While the Fed decision surprised some - especially the bears - there were more central bank shockers overnight, notably Taiwan which unexpected hiked 25bps to 2.00% and from the SNB which shockingly cut rates, sending the Swiss franc tumbling. The franc fell more than 1% against the dollar after the SNB lowered its key rate by 25 basis points in a move only a small minority of economists anticipated.
The decision to cut by Swiss policymakers was the first such reduction for one of the world’s 10 most-traded currencies since the pandemic abated.
“This signals to the world that we have turned a corner,” said Philipp Hildebrand, vice chairman at BlackRock and former Chairman of the SNB. “Central banks are easing and the question is where does all this settle in the long term.”
The Stoxx 600 traded up 0.4% after hitting a record earlier in the session. Mining and real estate stocks lead gains, while the health care sector lags. Equities in Europe paired some of their gains after euro-area manufacturing data missed estimates. S&P Global’s purchasing managers’ index showed sustained weakness in Germany and France — the bloc’s top two economies — even as overall private-sector activity for the euro-area rose to a nine-month high in March. Here are some of the most notable premarket movers:
Earlier in the session, the MSCI Asia Pacific Index advanced as much as 2.2%, the most since Nov. 15, with Taiwan Semiconductor, Toyota and Samsung among the biggest contributors to the move. The bullish session echoes US gains after Fed policymakers kept their outlook for three cuts in 2024 and moved toward slowing the pace of reducing their bond holdings, suggesting they aren’t alarmed by a recent rebound in price pressures. Sentiment on Chinese tech stocks got a lift after Tencent Holdings Ltd. announced plans to more than double its stock buyback program and boosted dividends. The region’s semiconductor shares gained after Micron Technology Inc. gave a surprisingly strong revenue forecast for the current quarter, buoyed by demand for memory chips used in artificial intelligence applications.
“With the FOMC event risk out and market pricing roughly in line with dot plots, we think focus of Asian equity investors should return to earlier themes of AI momentum,” Chetan Seth, a strategist at Nomura Holdings Inc., wrote in a note. “We still expect a US soft landing.”
In FX,the Swiss franc sits at the bottom of the G-10 FX pile, falling 0.7% against the dollar after the Swiss National Bank surprised with a 25bps interest rate cut. The Norges Bank stood pat, as expected, prompting an uptick in the krone. The pound is little changed as investors now turn their attention to the Bank of England decision at noon UK time.
In rates, treasuries extended Wednesday’s post-Fed rally, supported by gains in UK front-end as traders fully price in 75bps of easing by Bank of England easing this year for first time since March 12. Treasury yields richer by 3bp to 5bp across the curve with gains led by belly, steepening 5s30s spread by around 1.5bp and adding to Wednesday’s sharp steepening move as additional easing was priced back into the front-end; 10-year trades around 4.23% with bunds lagging by 1bp in the sector, gilts trading broadly in line. European bonds are firmly in the green, with rate markets drawing additional support from SNB’s surprise cut. US session includes several economic indicators and 10Y TIPS auction.
In commodities, oil prices decline, with WTI falling 0.3% to trade near $81. Spot gold rises 1%.
Bitcoin climbed back to best levels at USD 68k, before paring back to around the USD 66k level.
Looking at today's calendar, economic data calendar includes 4Q current account balance, March Philadelphia Fed business outlook and weekly jobless claims (8:30am), March preliminary S&P Global manufacturing and services PMIs (9:45am), February leading index and existing home sales (10am). Fed members scheduled to speak include Barr at 12pmTo contact the reporter on this story:
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly underpinned after the fresh record levels on Wall St post-dovish FOMC where the Fed maintained the projection for 3 rate cuts in 2024 and Powell downplayed recent hot inflation data. ASX 200 strengthened with sentiment also helped by a stellar jobs report and a fall in unemployment, while gold miners outperformed after the precious metal rose above USD 2,200/oz to a new all-time high. Nikkei 225 rallied from the open to unprecedented levels north of 40,800 despite recent hawkish source reports. Hang Seng and Shanghai Comp. were mixed in which the Hong Kong benchmark rallied to just shy of the 17,000 level amid strength in the property sector and as the Fed projection for three rate cuts keeps similar action on the table for the HKMA. Conversely, the mainland lagged as the PBoC injected the least amount of funds in its open market operations since August last year despite the PBoC's Deputy Governor reaffirming that China's monetary policy has ample room and there is still room for cutting RRR
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European equities, Stoxx600 (+0.4%) are entirely in the green, with sentiment lifted following a post-FOMC equity rally in the US & APAC. Following the release of poor French PMIs and bleak German commentary, equities have edged off best levels. European sectors are firmer; Tech takes the top spot, with optimism permeating within the sector after strong Micron results and Basic Resources benefits from broader strength in base metal prices. US equity futures (ES +0.4%, NQ +0.7%, RTY +0.6%) are stronger, in a continuation of the prior day's post-FOMC rally; Micron (+16% pre-market) is soaring after beating on EPS/Revenue and lifting guidance.
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DB's Jim Reid concludes the overnight wrap
Considering that US inflation has surprised notably on the upside this year, last night saw a remarkably relaxed Fed as Chair Powell indicated that January’s higher inflation could have been seasonal, and that February’s print had already seen improvements. The dots continued to show three cuts for 2024 and alongside a dovish-leaning press conference, this drove equities higher and yields lower, especially at the front end.
In terms of the details, the statement was little changed as the FOMC continued to see that “ it will likely be appropriate to begin dialing back policy restraint at some point this yea r” while wanting to gain “greater confidence that inflation is moving sustainably toward 2%”.
The dot plot showed the median 2024 dot unchanged at three cuts this year. This came even as 2024’s economic projections were revised higher, with real GDP growth revised up from 1.4% to 2.1%, core PCE inflation up two-tenths to 2.6%, and unemployment a tenth lower to 4.0%. Our US economists note that this forecast implies core PCE averaging 19bps a month for the rest of the year – only a little above the 2% target run rate. So a pretty Goldilocks take for now even if this was accompanied by 25bp upward revisions to the 2025-26 median dots, and a larger share of FOMC members seeing inflation risks as tilted to the upside.
Powell’s press conference also erred on the dovish side, with his comments notably suggesting that the upside inflation data for January and February did not alter the Fed’s baseline, with the inflation story “essentially the same”. He also mentioned a couple of times that unexpected labor market weakening could warrant a policy response (though the FOMC did not see this currently), while expressing no concern about the ongoing easing in financial conditions.
When asked about rate cut timing, Powell made no effort to rule out the possibility of a May move, saying the FOMC “didn't make any decisions about future meetings”. Our US economists continue to expect the first rate cut to come in June with 100bps of cuts in total this year, but with risks skewed to a more hawkish outcome. See their full reaction here.
On the balance sheet side, Powell indicated that a decision on slowing the pace of QT would come “fairly soon”. He emphasized that slowing QT did not equate to stopping it, noting that moving to a slower run-off pace could actually allow for a greater reduction in the balance sheet over time by reducing the risk of liquidity problems emerging.
Following the FOMC, futures dialled up the probability of a June cut to 84% from 66% the previous day, with 84bps of cuts now priced by year-end (+10.7bps on the day). This backdrop saw a bull steepening of the Treasury curve, as 2yr yields fell by -8.1bps while 10yr yields were down -2.0bps on the day to 4.27% (and closing near their pre-FOMC levels). This came as higher breakevens offset most of a -5.9bps decline in 10yr real yields. The 2s10s slope reached its steepest level in over month at -33.2bps. And overnight, there’s been a further decline in yields, with those on 10yr Treasuries down another -0.8bps.
Equities basked in a risk-on mood following the Fed, with the S&P 500 (+0.89%), NASDAQ (+1.25%) and Dow Jones (+1.03%) all reaching new records. Small-caps led the gains, with the Russell 2000 up +1.92%, whilst the VIX index of volatility fell to its lowest since early February (-0.78pts to 13.04).
That rally has continued in Asia overnight, with strong advances for the Nikkei (+1.97%), the Hang Seng (+1.80%) and the KOSPI (+2.18%). Moreover, US equity futures are pointing to further gains, with those on the S&P 500 up +0.40%. That comes amidst some strong data releases, as we’ve started to get the March flash PMI releases from around the world. For instance in Japan, the composite PMI rose to 52.3 in March, which is the highest it’s been since August. Likewise in Australia, the composite PMI was up to 52.4, the highest since April. And Australia also had some strong employment data for February as well, with employment up by +116.5k (vs. +40.0k expected). However, even as markets have been positive for the most part, there have been losses for Chinese equities, with the CSI 300 (-0.11%) and the Shanghai Comp (-0.14%) both seeing modest declines.
In FX, the Japanese yen (+0.32%) has strengthened against the dollar, trading at 150.90 this morning after the Nikkei newspaper reported that investors were speculating about another hike in July or October. Before the news broke out, the Japanese yen was trading at 151.91, within a whisker of its post-1990 low.
Before the Fed, European markets had struggled to gain much traction yesterday, with the STOXX 600 unchanged (-0.00%) by the close. That came as ECB President Lagarde stuck to her previous message on monetary policy, saying that “when it comes to the data that is relevant for our policy decisions, we will know a bit more by April and a lot more by June.” That’s meant investors continue to see the June meeting as the most likely for an initial rate cut, and sovereign bonds were also fairly subdued in response. So there was only a modest decline in yields across most of the continent, with those 10yr bunds (-1.8bps) and OATs (-1.1bps) falling slightly.
The main exception to that pattern was in the UK, where 10yr gilts fell by a larger -4.6bps after the latest CPI release surprised on the downside. That showed headline CPI falling to +3.4% in February (vs. +3.5% expected), which is the lowest since September 2021. Moreover, core CPI fell to a two-year low of +4.5% (vs. +4.6% expected). In turn, that led investors to dial up the chance of rate cuts this year, and the chance of a cut by the June meeting moved up from 52% on Tuesday to 58% by the close yesterday.
That inflation release comes ahead of the Bank of England’s latest policy decision today, where they’re widely expected to keep rates on hold as well. So the focus will instead be on any signals about the timing of future rate cuts, along with the vote split. In his preview (link here), our UK economist Sanjay Raja sees the risks skewed towards a dovish surprise, but thinks that the MPC will stick to its February guidance that Bank Rate is restrictive and "will need to remain restrictive for sufficiently long to return inflation to the 2% target".
Lastly, there was some marginally brighter data from the Euro Area, as the European Commission’s preliminary consumer confidence indicator rose to -14.9 in March (vs. -15.0 expected). That was the highest reading since February 2022, just before Russia’s invasion of Ukraine began.
To the day ahead now, and the main data highlight will be the flash PMIs for March. Alongside that, we’ll get the US weekly initial jobless claims, the Conference Board’s leading index for February, existing home sales for February, the Philadelphia Fed’s business outlook for March, and the Q4 current account balance. From central banks, there’s a policy decision from the Bank of England, and we’ll hear from Fed Vice Chair for Supervision Barr. Today’s earnings releases include Nike and FedEx. And in the political sphere, a summit of EU leaders is taking place in Brussels.