Stock futures hold steady as bank and Fed angst eases ahead of retail sales data

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U.S. stock futures were little changed on Wednesday as reduced volatility in government bond markets signaled an easing of financial sector angst and less uncertainty about Federal Reserve policy.

How are stock-index futures trading

  • S&P 500 futures rose 3 points, or 0.1% to 3957
  • Dow Jones Industrial Average futures fell 27 points, or 0.1% to 32375
  • Nasdaq 100 futures added 18 points, or 0.2% to 12355

On Tuesday, the Dow Jones Industrial Average rose 336 points, or 1.06%, to 32155, the S&P 500 increased 64 points, or 1.65%, to 3919, and the Nasdaq Composite gained 239 points, or 2.14%, to 11428.


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What’s driving markets

The mood in stock markets seemed calmer following a febrile several days when the failure of three U.S. banks sparked a flight to haven assets, notably Treasuries, as traders struggled to gauge the impact of the financial sector wobbles on the economy and central bank policy.

“After three sessions of massive turbulence, the last 24 hours has seen market volatility begin to stabilise for the first time since the SVB crisis began….The evidence from yesterday was that the back stopping of U.S. bank depositors has started to starve the immediate crisis of oxygen,” said Jim Reid, strategist at Deutsche Bank.

The main focus on Wednesday is likely to be the U.S. retail sales data for February, due for release at 8:30 a.m. Traders will also be keen to see how price pressures are percolating down the supply chain, with the producer price index for February also released at 8:30 a.m. All times Eastern.

Consumer prices data released on Tuesday showed inflation running in February at three times the Federal Reserve’s 2% target. Providing there are no shocks from the retail sales and factory gate prices reports, the market expects the central bank to raise interest rates by 25 basis points to a range of 4.7%% to 5.0% after its meeting on March 22nd.

Just two day’s ago traders were betting the Fed may leave rates unchanged in a week’s time in order to salve stresses in the banking sector.

Sharp movements in government yields pushed the ICE BofAML MOVE Index, a gauge of implied Treasury volatility, to a near 14-year high on Tuesday. A rising MOVE index has tended of late to pressure equities because the uncertainty in bonds makes it more difficult to value stocks.

However, the CBOE VIX index a measure of expected S&P 500 volatility, is trading back down around 24 after spiking to 30 earlier in the week.

“Crisis conditions are reversing. This is evident across the board, with equities (including bank stocks) seeing a major recovery, and sovereign bond yields paring back a good chunk of their declines over recent days,” Deutsche Bank’s Reid added.

“Furthermore, investors are rowing back on their predictions of an imminent pause in rate hikes, not least after the US CPI print offered a fresh reminder about high inflation. Obviously we’re still a long way from the pre-SVB state of affairs that prevailed last Wednesday, but with worries about bank contagion starting to subside, we’re finally seeing some optimism return to financial markets again,” he concluded.

Other U.S. economic updates set for release on Wednesday: the Empire State manufacturing survey for March, due 8:30 a.m.; January business inventories and a homebuilders survey for March, both at 10 a.m.

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