Equities advance in calm before Fed rate decision
European equity futures climbed alongside Asian shares while contracts for US stocks were steady ahead of the Federal Reserve’s much-anticipated interestrate decision later yesterday.
Futures for the region-wide Euro Stoxx 50 rose about 0.2%, placing the index on track for a third day of gains. Stocks climbed in China, Japan and Australia, following a rally in US equities on Tuesday. The S&P 500 rose 1.3% and the tech-heavy Nasdaq 100 advanced 1.4% as the two benchmarks rose for a third consecutive session.
Investors were again focused on UBS Group AG after the bank said Wednesday it wanted to buy back some of its euro-denominated senior unsecured bail-in notes.
Treasury yields fell slightly after a surge on Tuesday that added 19 basis points to the two-year maturity and 12 basis points to the 10-year benchmark. Australian and New Zealand government bond yields moved higher yesterday, as did the rate on Japan’s benchmark 10-year rate.
The Australian dollar strengthened against the greenback in an otherwise muted day for major currencies. A Bloomberg index of the dollar was little changed.
The mix of rising stock prices and a broadly calm Treasuries market indicated fresh appetite for risk taking as investors looked to signs of stability after the collapse of three US banks and UBS’s takeover of Credit Suisse Group AG.
Traders placed greater odds that the Fed will raise interest rates 25 basis points after market pricing was split between a hike and a pause earlier in the week. Officials at the central bank were set to issue updated rate projections for the first time since December, offering guidance on whether they still expect any additional increases this year.
“The failures of banks that we’ve seen so far are idiosyncratic,” Yuting Shao, macro strategist for State Street Global Markets, said in an interview with Bloomberg Radio. She expected the Fed to increase interest rates by 25 basis points yesterday. “Once we look beyond the current volatility, restrictive policy staying for a bit longer is still warranted.”
Every stock in a measure of US financial heavyweights climbed Tuesday. Shares in First Republic Bank fell about 9% in after-hours trading after the stock surged almost 30% in its best day ever. The gain came amid optimism over a new plan under discussion to aid the regional lender. Further intervention to shore up the bank may include US government backing, people with knowledge of the situation said.
Still, many see more problems ahead. Michael Wilson, Morgan Stanley’s chief US equity strategist, said the risk of a credit crunch is increasing materially. Bank of America’s latest global survey that polled fund managers between March 10-16 showed a systemic credit event has replaced stubborn inflation as the key risk to markets.
Elsewhere in markets, Hong Kong’s monetary authority said a recent surge in the city’s interbank funding rates was spurred by demand for the local currency amid market volatility and quarter-end needs. The cash squeeze eased yesterday following Tuesday’s jump in the overnight cost to borrow, which was the biggest since Bloomberg started compiling the data in 2006.
West Texas Intermediate slid, trimming some of its gains from rallies on Monday and Tuesday. The energy sector led gains in Australian shares yesterday, echoing the sector’s lead in the S&P 500 on Tuesday.