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Main U.S. indexes red: Nasdaq down ~1%
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U.S. Jan leading index change MM -0.3% vs -0.3% est
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Euro STOXX 600 index down ~0.3%
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Dollar, bitcoin gain; gold dips; crude slides >4%
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U.S. 10-Year Treasury yield rises to ~3.87%
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BOFA TACKS ON 25 BASIS POINT HIKE FOR JUNE FOMC MEETING
(1004 EST/1504 GMT)
After a couple of weeks full of data that included readings
on consumer and producer inflation along with some labor market
reports, economists at Bank of America Global Research have
added a 25 basis point (bps) hike in June to its forecast for
Federal Reserve rate hikes.
In a note to clients, BofA chief U.S. economist Michael Gapen said that while they see some of the strength in the labor market data as attributable to some seasonal adjustments and other data distortions, "it is hard to ignore revisions to employment growth in 2022 that leave labor market momentum in a more favorable position then before." Regarding the inflation data, BofA notes the details of the consumer price index (CPI) report earlier this week were "discouraging" while the producer price index (PPI) report on Thursday suggested personal consumption expenditures will "also be solid in January."
After initially forecasting 25 basis point hikes in March and May, followed by a pause from the Fed, BofA said "resurgent inflation and solid employment gains mean the risks to this outlook are too one-sided for our liking." As such, hikes in March and May appear very likely and the firm believes the central bank might have to hike further if inflation, job growth and consumer demand do not soften.
In adding the 25 basis point hike for June, the terminal
rate would go up to 5.25%-5.50%, but BofA is still forecasting a
first rate cut by the Fed in March 2024.
(Chuck Mikolajczak)
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U.S. 10-YEAR TREASURY YIELD HITS A MORE THAN 3-MONTH HIGH (0900 EST/1400 GMT) The U.S. 10-Year Treasury yield has hit its highest level since early-November. With this, U.S. equity index futures are lower on fears that accelerating inflation in the face of a sturdy U.S. economy could prompt the Federal Reserve to err on the side of caution by keeping monetary policy restrictive through the year. The yield hit a high of 3.9290%, and is on track to rise for a fourth-straight week: That said, it has since backed away to around 3.89%. There is yield resistance in the 3.9050%-3.98% zone which includes the late-December 2022 high, a weekly Gann Line (now around 3.94%), and the 23.6% Fibonacci retracement of the 1981-2020 yield bear market at 3.9765%.
This zone has the potential to cap this latest yield rise. In that event, the yield could once again chop its way back down to the 3.50%-3.30% area as a number of weekly Gann Lines are providing yield support in this zone. The yield's mid-January trough was at 3.3210%. A thrust above 3.98%, confirmed by the weekly close, however, can put traders on guard for the yield to challenge the 4.25%-4.3380% area. This zone includes another weekly Gann Line as well as the October 2022 high. The 4.3380% mark was the highest level since November 2007. The 4.3380% level protects against the potential for a further rise to the 5% area. Coming under 3.3210% would instead potentially refocus on the 2.5160% early-August 2022 trough.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
