European markets head for positive open ahead of Fed rate decision

Holly Ellyatt

European markets are heading for a positive open Wednesday as global investors brace themselves for the U.S. Federal Reserve’s latest monetary policy decision.

Overnight, Asia-Pacific markets largely fell Wednesday as investors look ahead to the Fed’s policy decision, while U.S. stock futures fell slightly on Tuesday night.

Most economists surveyed by Reuters said said they expect the Fed to hike rates by 25 basis points, with the remainder forecasting a pause.

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— Ganesh Rao

A mild recession won’t trigger a quick Federal Reserve response, BofA says

Maybe Monday’s stock market slide shows investors are finally tempering their optimism that the Federal Reserve will cut interest rates later this year to counterbalance an economic slowdown.

″[T]he markets may be too optimistic about how easy it is going to be to bring inflation back to target and will be surprised when the Fed does not cut rates in the face of a mild recession, Bank of America global economist Ethan Harris wrote in a note to clients before markets opened Monday.

Simply put, investors have bid up stocks since mid-March on a belief that the Fed will pivot policy, and cut rates by half a percentage point in reaction a shallow recession, BofA said.

Unfortunately, the bank says such hopes will be dashed. “We see four risks this summer: an ugly debt ceiling battle, a significant tightening of bank credit, a geo-political event and disappointingly hawkish central banks. The plan for many central banks, in our view, is to raise rates into modestly restrictive territory and then hold them there to finish the job of bringing inflation back to target. Hence a mild recession in the US—and flat growth in other major economies—will not trigger an immediate policy response,” Harris wrote.

— Scott Schnipper

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‘March returns in May,’ says Goldman Sachs

Goldman Sachs says investors haven’t fully moved past March’s bank crisis as banking stocks trade lower on Tuesday. The firm’s analysts noted that following the failures of Silicon Valley Bank and Signature Bank in March, the market’s worries were quickly alleviated by a deposit injection at First Republic Bank.

“Since bottoming out at 3808 on Mar. 13, the S&P 5000 gained almost 10% [as of] Monday night on the back of relaxed banks tensions, as well as a strong earnings season (so far) and a growing consensus that the Fed will soon pause its year-long rate hiking cycle,” several Goldman analysts wrote in a Tuesday note.

“But today, we appear to be seeing some return of the March concerns following JPM’s announced acquisition of FRC Monday. Regional bank stocks are down 4% to 13%. [Managing director Richard] Ramsden sees the JPM acquisition as accretive and points out that the transaction highlights that G-SIBs will be allowed to bid on FDIC transactions even if they are above the deposit cap,” the note continued.

— Hakyung Kim

Former Fed official Rosengren advocates no rate hike

Eric Rosengren thinks his former colleagues at the Federal Reserve will be making a mistake if they raise interest rates again Wednesday.

The former Boston Fed president, who retired from the board in September 2021, told CNBC on Tuesday that turmoil in the banking industry and an economic slowdown should push policymakers to end the rate-hiking campaign that began in March 2022.

“My own view is that the economy is quite likely to slow down in the second half of the year and that it’s not necessary at this point to be raising rates until we get a better view of what the second half of the year looks like,” Rosengren said on “Squawk Box.”

Traders in the futures market are pricing in a 96% chance that the Federal Open Market Committee approves a quarter percentage point rate hike when the two-day meeting ends, according to the CME Group’s FedWatch tracker.

—Jeff Cox

European markets: Here are the opening calls

European markets are heading for a higher open Wednesday ahead of the U.S. Federal Reserve’s monetary policy decision.

The U.K.’s FTSE 100 index is expected to open 22 points higher at 7,792, Germany’s DAX 58 points higher at 15,771, France’s CAC up 36 points at 7,408 and Italy’s FTSE MIB 81 points higher at 26,501, according to data from IG.

Earnings are set to come from Lloyds Banking Group, Aston Martin Lagonda, BNP, Airbus, Stellantis, Deutsche Post DHL and Lufthansa. The unemployment reading for the euro zone in March is also due.

— Holly Ellyatt

Sorce : cnbc