Ahead of Powell’s second day of testimony to lawmakers, US equity futures traded near session highs reversing earlier losses recorded during Asia session, when Japan’s Nikkei fell from all-time high on mounting expectations for a BoJ rate hike. As of 7:50am, S&P futures traded up 0.2% while Nasdaq futures rose 0.4%, while Europe’s Stoxx 600 index rose 0.4% to touch a new record. On Wednesday Powell reiterated that the Fed is in no rush to cut interest rates but that it will likely be appropriate to begin lowering borrowing costs “at some point this year” which of course is not news but the market once again pretended to act surprised. The comment spurred a slide in yields and a jump in gold to a fresh record high during Asian trading hours. The Japanese yen was on course for its best day this year, rising 1% versus the greenback as speculation surged that the Bank of Japan will hike rates in March. Not only did the January wage data top expectations, but Japan’s biggest union federation has also demanded its biggest pay hike since 1993. The Bloomberg Dollar Spot Index falls 0.2%. The euro was little changed ahead of the ECB decision. Treasuries are steady, with US 10-year yields at 4.10%. Oil prices declined, with WTI falling 0.7% to trade near $78.60. Spot gold rises 0.4%, having hit another record high in Asian trading hours. Bitcoin traded around $67,000 just shy of record highs.
In premarket trading, chipmakers’ shares advanced led by Micron Technology Inc. which surged more than 3% after receiving an upgrade from Stifel. Here are some other notable premarket movers:
The ECB is set to keep borrowing costs steady for a fourth meeting on Thursday, with analysts unanimously predict the deposit rate will be held at a record 4%. Like their US counterparts, ECB chief Christine Lagarde is in no hurry to begin loosening monetary policy. Traders are bracing for the likelihood of the first quarter-point rate cut to be delivered either in June or July, while also expecting a total of at least three such reductions this year.
Michael Metcalfe, head of global macro strategy at State Street Global Markets, said equity markets had reacted calmly so far this year to the paring of rate-cut bets, with just three reductions now expected — in line with the Fed’s own projection. But he said traders will be looking to see if the Fed points to even fewer cuts. “Markets could be in a bit of a holding pattern because they’ve reached the point now where they’re in line with the Fed,” Metcalfe said, adding traders had “put the ball back into the Fed’s court.”
Also overnight, the yen rose as much as 1% after accelerated wage growth and remarks from a BOJ board member. Tokyo’s Nikkei 225 index dropped, while the two-year government note yield climbed to the highest level since 2011.
The moves spark concern that higher rates at home will lure back Japanese money that’s currently parked in overseas markets. “Japanese demand for foreign assets and for Treasuries in particular has held solid, but this cannot be taken for granted once Japanese yields get to potentially more attractive levels,” State Street’s Metcalfe said.
Looking at today's main US event, Fed Chair Powell will testify before the Senate Banking Committee on Thursday, where he reiterated the central bank is in no rush to cut interest rates, while adding that it will likely be appropriate to begin lower borrowing costs “at some point this year.” Powell also signaled officials would scale back plans to make banks hold more capital — a move that appeared to catch even seasoned industry lobbyists off-guard. That was enough to spur the biggest two-day rally in Treasuries since early February, keeping benchmark 10-year yields near a one-month low set on Wednesday. Powell’s testimony, due at 10 a.m. New York time, will come after weekly labor data that’s forecast to show initial jobless claims picked up slightly from the previous period.
US weekly employment benefits data are also due, and will set the stage for Friday’s monthly non-farm payrolls data.
In politics, Donald Trump challenged President Joe Biden to a debate after Nikki Haley dropped out of the Republican presidential race.
European stocks pared opening declines to trade higher on the day, with the benchmark Stoxx 600 index rising above 500 points for the first time ever, as large caps extend rally. The index’s rally to a record high has been fueled by optimism around global economic growth and easing monetary policy. Tech as well as auto stocks have led gains this year, while investors’ favorites Novo Nordisk, ASML and SAP all made record highs. Stoxx 600 up 0.3% at 499.93 points. Here are the most notable market movers:
In FX, the Bloomberg Dollar Spot fell 0.2%, declining for a fifth consecutive day, setting the currency up for its longest losing streak since October. The euro is little changed ahead of the European Central Bank decision. The Japanese yen is on course for its best day this year, rising 1% versus the greenback as speculation surged that the Bank of Japan will move in March to raise interest rates. Not only did the January wage data top expectations, but Japan’s biggest union federation has also demanded its biggest pay hike since 1993
In rates, treasuries are steady, with US 10-year yields at 4.10% trailing bunds by around 1.5bp in the sector while gilts lag. US Treasury yields are richer by up to 1bp across long-end of the curve which outperforms slightly on the day. Gilts are underperforming, led by the short-end as UK business say they expect to face stubbornly high wage growth. Bunds outperform ahead of ECB rate decision at 8:15am New York time. JGBs extended recent declines on heaviest futures volumes of the year so far as conviction grows that the Bank of Japan will start raising interest rates in March.
In commodities, oil prices decline, with WTI falling 0.7% to trade near $78.60 after West Texas Intermediate jumped 1.3% Wednesday amid further tensions in the Middle East, including the first confirmed deaths of commercial crew after Houthi militants began attacks in the region. Spot gold rose 0.4% climbing to a peak of $2,161.48 an ounce, having hit another record high in Asian trading hours.
Bitcoin rose, but held off record peaks.
Looking at today's calendar, US economic data calendar includes February Challenger job cuts (7:30am), January trade balance, 4Q final nonfarm productivity, initial jobless claims (8:30am), 4Q household change in net worth (12pm) and January consumer credit (3pm). Fed speakers scheduled include Powell’s testimony before the Senate Banking Committee (10am) and Mester (11:30am, 1:15pm)
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APAC stocks were mixed as participants second-guessed central bank policies and digested Chinese trade data.
ASX 200 finished higher but with trade choppy after disappointing home loans and trade data from Australia. Nikkei 225 initially climbed to a fresh record high but then slumped amid increasing hawkish BoJ speculation. Hang Seng and Shanghai Comp. were subdued with heavy losses in WuXi Biologics and Wuxi Apptec after the US Senate's Homeland Security Committee voted to move forward with a bill that could restrict business with Chinese biotech companies, while the mainland was cautious despite the stronger-than-expected Chinese trade data, as the double-digit rise in exports had already been flagged by officials and with data likely to be influenced due to seasonality factors owing to the Lunar New Year holiday.
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European bourses, Stoxx600 (+0.1%) began the session entirely in the red, though sentiment has since improved, with the Euro Stoxx 50 (+0..2%) modestly firmer, ahead of the ECB announcement today. European sectors are mixed; Healthcare is the clear outperformer, propped up by gains in Novo Nordisk (+5.1%), which is on its Capital Markets Day. Insurance is also firmer today, assisted by post-earning strength in Aviva. Autos is found at the foot of the pile, hampered by Continental (-4.1%). US Equity Futures (ES U/C, NQ +0.1%, RTY -0.1%) are tentative and trade on either side of the unchanged mark, with direction generally mirroring the price action seen in Europe.
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