US equity futures swooned shortly after 5am ET, erasing all post-FOMC gains, as doubts grew that the Fed can significantly cut interest rates in the face of potentially inflationary trade tariffs and sentiment was weighed down by comments from ECB President Lagarde, who said that US tariffs could hit growth in the region, and couldn’t make firm commitments on interest rates. As of 8:00am S&P futures dropped 0.4% a day after Wall Street rallied on the Fed’s signal that it still sees room to ease policy this year; Nasdaq futures lost 0.6%, paring much of the earlier advance seen after Fed Chair Powell offered reassuring comments about the outlook for US growth and inflation. European stocks also dropped with the Stoxx 600 down 0.9% and are set to snap a four-day winning streak. JPM warned earlier that yesterday's rally may not be indicative of near-term direction as the Fed’s forecast shifted to support the Stagflation narrative and Powell reintroduced transitory inflation, neither are likely to give confidence to investors. Mag7 names are all loower with TSLA leading losses, while Energy and Financials are higher but Chinese ADRs under pressure. The yield curve is bull flattening after steepening yesterday; the market is still placing its heaviest bets on June and/or Sept rate cuts. USD is poised to have its strongest day in 3 weeks, which is weighing on Emerging markets. Commodities are weaker ex-WTI and Softs; gold dips below its all time high of $3,050. Today’s macro data focus is on Jobless Claims, Regional Fed activity indicators, and Housing data.
In premarket trading, Tesla slipped the most among the Magnificent Seven stocks after the electric-vehicle maker recalled all the Cybertrucks it produced and sold in the first 15 months it was on the market in the US (Alphabet -0.4%, Amazon -0.2%, Apple -0.2%, Microsoft -0.3%, Meta -0.09%, Nvidia -0.4% and Tesla -1.1%). Microchip Technology was undermined by its plan to sell depositary shares to repay debt., while US-listed shares in PDD Holdings Inc. slid as the Chinese budget-shopping site’s sales missed estimates for a third straight quarter. Here are the most notable US premarket movers:
US markets have just endured a bruising four-week stretch in which the S&P 500 slid into a correction, but relief from assurances offered by Powell after the Fed meeting is already dissipating. Powell downplayed the economic impact of President Donald Trump’s tariff policies and said any resulting inflation bump could be transitory. The central bank also dialed back its growth forecasts for this year, while investors remain concerned about Trump’s plans to unleash a fresh tariff wave on April 2.
“The fact that the Fed Chair didn’t play to recessionary fear helped sentiment, but I am a bit bothered by his characterization of the impact of tariffs on inflation as one-off,” Wei Li, global chief investment strategist at BlackRock said on Bloomberg TV. Traders pricing as many as three Fed cuts this year could end up disappointed, Li said, adding that “markets are still expecting the Fed to be able to come to the rescue of the economy if the economy slows down, but the growth-inflation trade-off is becoming very tough indeed.”
Meanwhile, bond investors seized on the Fed’s lower growth forecasts, as well as rate-setters’ indications for a half percentage point of policy easing this year. ECB President Christine Lagarde added to the worries about the economic outlook, saying Thursday that the brewing trade war could hit growth.
European equities slipped, halting a four-day winning streak, on concern that tariffs could undercut the region’s economies. The Stoxx Europe 600 Index was down 1% by 10:40 a.m. in London, with investors taking profits on top-performing sectors including defense, banks and industrials. Sentiment was weighed down by comments from European Central Bank President Christine Lagarde, who said that US tariffs could hit growth in the region, and couldn’t make firm commitments on interest rates. Meanwhile the Swiss National Bank cut its interest rate to deter investors from pushing money into the franc. Meanwhile the Swiss National Bank cut its interest rate to deter investors from pushing money into the franc. Here are the biggest movers Thursday:
Earlier in the session, Asian stocks were mixed as investors sold Chinese shares, offsetting optimism elsewhere after the Federal Reserve signaled there’s still room to ease policy later this year. The MSCI Asia Pacific ex-Japan Index was little changed. Shares advanced in Taiwan, South Korea and Australia, while Indonesian stocks extended a rebound for a second day. Japanese markets were shut for a holiday. A gauge of Chinese shares listed in Hong Kong posted its biggest drop in three weeks, with some market participants attributing the losses to profit taking and waning earnings catalysts. Onshore Chinese shares also fell. Investors are taking stock as they await additional market catalysts, said David Chao, global market strategist, Asia Pacific ex-Japan at Invesco. “We are also moving through peak tariff uncertainty, and these risks could be amplified in the coming weeks.”
In FX, the Bloomberg Dollar Spot Index rose 0.3% and above levels seen before Wednesday’s Federal Reserve decision after US equity futures abruptly turned lower. The pound slipped 0.3%, having risen earlier this week to the highest since November. The Bank of England is expected to leave its benchmark rate unchanged later, with fresh data showing that UK wage growth held at its highest level in nine months.
In rates, treasury futures push higher into early US session with yields falling across the curve. 10-year yields, lower by around 5bps at 4.19%, remain near richest levels of the session with bunds and gilts in the sector outperforming slightly, catching up with Wednesday’s post-FOMC moves in US rates. Investors continue to digest Wednesday’s Fed meeting, where Chair Powell said the inflationary impact of tariffs is likely to be transitory. US session features weekly jobless claims data at 8:30am New York time and a 10-year TIPS reopening at 1pm. Treasuries have added to their post-Fed gains, with US 10-year yields falling another ~3 bps to 4.21%. Gilts lead a rally in European government bonds ahead of the Bank of England decision, with UK 10-year borrowing costs falling nearly 6 bps to 4.57%. The pound falls 0.5%.
In commodities, Oil prices turn lower with Brent down 0.1% to $70.75 a barrel. Spot gold drops $19 to around $3,028/oz. Bitcoin inches lower toward $85,000.
Looking to the day ahead now, the main highlight will be all the central bank results. Today will also be heavy with data releases, including the March Philadelphia Fed business outlook, US existing home sales, UK January unemployment rate, Germany February PPI, and Eurozone January construction output. In terms of earnings releases, we can expect Nike, FedEx, Micron, Lennar, RWE, Accenture, and PDD Holdings.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded mixed with most indices in the green as the region initially took its cue from the gains on Wall St in the aftermath of the FOMC meeting where the Fed kept rates unchanged and slowed its balance sheet run-off, while Chinese markets bucked the trend and Japanese participants were absent due to Vernal Equinox Day. ASX 200 outperformed with gains led by the tech and real estate sectors amid a lower yield environment, while disappointing jobs data did little to derail the momentum in the index. KOSPI advanced amid strength in tech including index heavyweight Samsung Electronics which recently held its AGM and announced the appointment of one of its CEOs. Hang Seng and Shanghai Comp were subdued as participants navigated through earnings releases and after the lack of surprises from the announcement that China's benchmark Loan Prime Rates were kept unchanged.
Top Asian News
European bourses (STOXX 600 -1%) opened mixed, but has now succumbed to some significant selling pressure in recent trade, to display a negative picture in Europe. While there is no clear catalyst for the downside, it could be attributed to traders winding down their optimism surrounding the roll out of EU defence spending given it would take time to build up to spending of 1.5% of GDP; also, a pullback post-FOMC, refocussing on tariffs/trade into the April 2nd deadline and general economic/policy uncertainty all weigh. As such, a broad risk-off mood has entered markets since the European cash open, with the Dollar also catching a bid. European sectors are mixed and with the breadth of the market fairly narrow aside from the top/bottom performers. Retail takes the top spot, joined closely by Real Estate; the latter buoyed by the relatively lower yield environment – a factor which has led to some of the underperformance in Banks today.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Although yesterday was a day where the market rallied on a relatively dovish Fed meeting, at least in terms of Powell's messaging, the most interesting thing I listened to over the course of the day was a podcast featuring US Treasury Secretary Bessent. I’ll be honest that my walk to the station in the morning is usually accompanied by a tub-thumping Liverpool podcast. However since they were dumped out of Europe and lost a cup final in the course of the last week, I’m avoiding them for now. So as there were no new golf podcasts available, I listened to Bessent. I suppose the more you listen to this administration the more the evidence builds that they are serious about making significant structural changes to the economy. Here he talked about reducing the role of government, the fact that after WWII 90% of Americans made more than their parents and now it's 50/50, and the distributional problems of the top 10% owning large amounts of assets with the bottom 50% not having much. Anyway it's worth a listen. It's within the All-In podcast.
Bessent did say he completely respected the Fed's autonomy on monetary policy even if he didn’t always agree with them. There wasn’t a lot of incremental news to agree or disagree with last night as they kept the fed funds rate on hold in the 4.25%-4.50% range for a second consecutive meeting, while announcing a slowing in the pace of QT. The updated dot plot showed the median FOMC member still expecting two rate cuts in 2025, even as the distribution of responses shifted in a more hawkish direction with 8 of the 19 members expecting one or no cuts this year. The projections also saw 2025 core inflation revised +0.3pp higher and growth -0.4pp lower, with the balance of risks also shifting in a more stagflationary direction. A clear majority of the FOMC now see risks tilted towards higher inflation but towards weaker growth and higher unemployment.
In the press conference, Powell reiterated that policy was in a “good place” and that the Fed is not in a “hurry” to cut rates, while emphasising the “remarkably high” uncertainty and avoiding potential hawkish signals. He acknowledged that tariffs may delay “further progress” on inflation but said that the base case was the tariff impact on inflation would be “transitory” and noted that long-term inflation expectations remained anchored. Powell said the Fed was watchful of risks from the recent downturn in sentiment data though the relationship with hard data had not been “very tight” lately. Our US economists think that while the Fed may be anticipating a slowdown in the hard data, they are on hold until that evidence emerges (see their reaction here).
On the balance sheet, the Fed announced a slowing in the pace of QT, with the runoff in Treasury holdings to slow from $25bn to $5bn from April 1, while the MBS redemption cap was unchanged at $35bn. The move matched our expectations that an adjustment of QT was likely, though the details were somewhat different with Powell saying that the FOMC had “seen some signs of increased tightness in money markets” and reusing a “slower for longer” argument adopted when the Fed first slowed QT last May. See our rates strategists' takeaway here.
Rates saw a solid rally on the back of the decisions, with 10yr yield having traded 3-4bps higher on the day prior to Fed before closing -4.1bps lower at 4.24%. 2yr yields saw a larger move, falling by -11bps post-FOMC to close -6.8bps lower on the day. The amount of Fed rate cuts priced by year-end rose +6.7bps to 66bps from its three-week low the previous day. The avoidance of a hawkish Fed surprise also boosted equities, with the S&P 500 rallying from +0.3% pre-FOMC to as much as +1.8% higher near the end of Powell’s press conference, before closing up +1.08%. The rally was broad-based with all 11 major S&P sector groups higher on the day. The Mag-7 (+1.67%) reversed much of the previous day’s -2.47% loss, while the VIX closed below the 20 level for first time since the end of February (-1.90pts to 19.90).
Ahead of the Fed’s decision, European equity markets had mostly seen modest gains, with the STOXX 600 rising +0.19%, led by gains for the CAC (+0.70%) and FTSE MIB (+0.45%). The DAX (-0.40%) underperformed for once, largely due to losses in its auto and defence stocks including notable declines for Rheinmetall (-4.53%) and Saab (-5.33%). European bonds saw a modest rally, with 10yr bund yields -0.8bps lower at 2.80%.
Those moves came as EU leaders presented their white paper on “Readiness 2030”, with European Commission President Ursula von der Leyen saying “we must buy more European” and create an “EU-wide” market for defence equipment. With much of the detail having already been well flagged in recent weeks, there was a hint of disappointment on the announcement. Notably, the EU announced that the US, UK and Turkiye will be excluded from the €150bn EU defence spending fund unless they sign defence and security pacts with the EU. The UK’s exclusion in particular was a surprise since PM Keir Starmer has been very vocal about the UK’s commitment to increased defence funding and cooperation on European defence. The UK is attempting to balance on a geopolitical tightrope between trying to get closer to the EU again after years of Brexit, but also trying to avoid the worst impact of Trump’s April 2 tariff deadline. The FT reported yesterday that the UK is engaging with Trump’s trade team over things like dropping the UK’s digital services tax in return for reduced tariffs.
Earlier yesterday morning, the European mood had seen some contagion from the news that Turkish authorities had detained Istanbul Mayor Ekrem Imamoglu, who is seen as a top political rival to Turkiye’s President Erdogan. The Turkish Lira saw an initial steep decline of as much as -11.15%, though it recovered to-3.19% by the close. Other Turkish assets also struggled, with the ISE equity index down -8.72% on the day and yields on Turkish 10Y dollar bonds rising +15.5bps to +7.38%. The news contributed to the euro (-0.38%) posting its worst day against the dollar so far this month after reaching a 5-month high on Tuesday.
Elsewhere in Europe yesterday, TTF natural gas futures (+8.46%) saw their biggest jump in nearly three weeks after the limited progress from the Trump-Putin call on Tuesday evening. Ukraine’s President Zelensky agreed to halt strikes on energy assets following a call with Trump yesterday, echoing a similar agreement between Trump and Putin the previous evening, but questions over the exact details of this remained.
Looking forward to today, Europe will see a triple header of central bank policy decisions from the SNB, Riksbank and BoE. On the SNB we are expecting a 25bp cut, in line with consensus. On the Riksbank, we think things are skewed towards a hold with hawkish messaging. Lastly on the BOE, the expectation is for a hold at 4.5% and a relatively quiet meeting (see our UK economist’s preview here).
Asian equity markets are showing a mixed performance this morning. Across the region, the Hang Seng (-1.18%) is leading losses, falling from a three-year high amid a pullback in technology stocks from their recent rally. The CSI (-0.39%) and the Shanghai Composite (-0.10%) are also edging lower. By contrast, the S&P/ASX 200 (+1.18%) is continuing to recover from a recent seven-month low as risk sentiment was boosted by softer-than-expected employment data (more below). The KOSPI (+0.33%) is also trading in positive territory. Elsewhere, Japanese markets are shut for a holiday. Outside of Asia, US stock futures are indicating a positive start, with those on the S&P 500 (+0.48%) and NASDAQ 100 (+0.66%) moving higher. Cash Treasuries are shut in Asia due to the holiday in Japan.
Coming back to Australia, the employment rate dropped sharply by -52.8k in February (v/s +30.5k in January), significantly missing market expectations of +30k gain. The broad-based decline raised expectations for an interest rate cut by the RBA.
On the monetary front, the People’s Bank of China (PBOC) kept the 1-year loan prime rate (LPR) at 3.1% and the 5-year LPR at 3.6%, where they have been since a quarter-percentage-point cut in October.
To the day ahead now, the main highlight will be all the central bank results. Today will also be heavy with data releases, including the March Philadelphia Fed business outlook, US existing home sales, UK January unemployment rate, Germany February PPI, and Eurozone January construction output. In terms of earnings releases, we can expect Nike, FedEx, Micron, Lennar, RWE, Accenture, and PDD Holdings.