And after a disturbing return to double digit inflation in
the UK last month, the Bank of England is now almost certain to
lift rates by another quarter point to 4.25% later on Thursday.
If these monetary policymakers felt higher interest rates
were the main cause of this month's banking shock, or that the
fallout from it was truly systemic and economically damaging,
the decision to push ahead with the hikes would seem perverse.
That they have pushed ahead suggests some confidence perhaps
that the financial firestorm is contained, unlike inflation.
Whether that's down to over focus on the rear-view mirror
remains to be seen and what may be coming down the pike best
explains how markets are trying to react to the latest policy
twists.
Even though the Fed indicated one more rate rise may still
be in the works and no rate cuts are likely this year, markets
are doubting that stance yet again.
With Treasury Secretary Janet Yellen's pushback against
suggestions of a blanket insurance of all U.S. banking deposits
unnerving investors again after the Fed decision, few believe
the financial stress has fully dissipated. And no one is certain
yet how it will hit lending and the wider economy.
So markets have read the Fed move as a "dovish hike",
preferring to focus on aspects of the decision, such as the
removal of wording in the statement on "ongoing" rate hikes.
"Our view is that the Fed is at or near the end of the
hiking cycle," PIMCO economists Tiffany Wilding and Allison
Boxer told clients on Thursday, stressing that small U.S.
regional banks are key in providing credit for small businesses
that account for about 50% of overall U.S. employment.
After wild swings in rate futures markets and short-term
Treasury yields over the past month, the former now sees a 50%
chance of another quarter point Fed hike in May - but, facing
down Fed guidance, also more than half a point of cuts by year
end.
Two-year Treasury yields settled just under 4% early on
Thursday - almost a full point below the new Fed funds rate
target - and equity and bond market volatility
gauges have ebbed somewhat.
Even though stock markets swooned after the Yellen comments
on Wednesday, S&P500 futures were back up smartly ahead of
Thursday's open. European bourses and banking stocks were only a
touch lower in the face of the latest European rate rises.
The dollar hit its lowest since early February but
regained its footing ahead of the U.S. open and BoE decision.
Key developments that may provide direction to U.S. markets
later on Thursday:
* U.S. weekly jobless claims, Feb new home sales, Kansas City
Fed's March business survey, Chicago Fed's Feb activity index,
U.S. Q4 current account
* Bank of England policy decision
* European Central Bank chief economist Philip Lane and ECB
policymakers Klaus Knot and Robert Holzman all speak;
* U.S. Treasury auctions 10-year inflation-protected securities
* U.S. corporate earnings: General Mills, Darden Restaurants,
Factset Research, Accenture
* European Union summit in Brussels
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Traders bet on Fed rate cut by year end Rising unemployment and recession Rates to catch up with inflation? ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(By Mike Dolan, editing by Jane Merriman
mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
A look at the day ahead in U.S. and global markets from Mike
Dolan
Even with a nod to greater banking stress, the major central
banks all seem determined to tighten the monetary screw another
notch.
After the Federal Reserve settled on another quarter point
rate rise late Wednesday, the Swiss National Bank - in the eye
of its own domestic banking storm - followed suit on Thursday
with a half-point hike to 1.5%. Norway's central bank raised
rates by 25 bps.
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