The global rally in stocks faded as analysts expressed skepticism at the assumptions behind the Federal Reserve's guidance. The Bank of England is expected to follow the Fed in hiking later. The war in Ukraine escalated, as Russia sends reinforcements from thousands of miles away to replace its combat losses. Jobless claims and housing starts data are due, and oil is back at $100. Here's what you need to know in financial markets on Thursday, 17th March.
Fed rally fades; jobless claims, housing starts due
Global markets struggled to extend the gains they made in the wake of the Federal Reserve’s decision to raise U.S. interest rates for the first time in three years, amid skepticism at the assumptions behind the central bank’s guidance.
The Fed’s ‘dot-plot’ of expected rates over the next three years foresees at least another six quarter-point raises, but its economic analysis foresees no real rise in the jobless rate – something that would be a contrast with previous tightening cycles.
In the bond markets, the U.S. yield curve flattened markedly, a movement that usually heralds an economic slowdown ahead. That’s unlikely to be reflected much in today’s data, however, which should reflect continued strong growth. In addition to weekly jobless claims, and housing starts, and building permits data for February at 8:30 AM ET, there will be industrial production at 9:15 AM ET, as well as the Philadelphia Fed’s monthly business survey.
War rhetoric escalates; Russia says it made payment on debt
The war in Ukraine escalated, despite ongoing ceasefire talks, as the U.S. agreed to send an extra $1 billion in military assistance to resist the Russian invasion. U.S. President Joe Biden called Russia’s Vladimir Putin a ‘war criminal’, something that – by definition – will make negotiating with his regime harder.
Putin responded with a televised attack on domestic resistance to his war, calling his opponents ‘scum and traitors’ and saying that he looked forward to a ‘healthy and necessary cleansing’ of Russian society. The newspaper Vedomosti reported that demand for flights out of Russia rose by 650% year-on-year in the three weeks since the war started, with 65% of the flights booked being one-way.
Open-source video footage suggests that Russia is now moving large-scale reinforcements to Ukraine from the Far East and the Caucasus.
Western hopes to convince China and India to join the condemnation of Russia’s attack were again thwarted, with China angrily rebutting suggestions by Secretary of State Anthony Blinken that it was ignoring the UN charter by its support for Russia.
Elsewhere, Russia’s central bank said it had made an interest payment on the country’s foreign debt, but there has still been no confirmation from bondholders that they have been paid in dollars, as required.
Stocks set to open lower as yield curve flattens
U.S. stocks are set to open lower later, with Wednesday’s relief rally quickly running out of gas.
By 6:15 AM ET (1015 GMT), Dow Jones futures were down 146 points, or 0.4%, while S&P 500 futures were down 0.5% and Nasdaq 100 futures were down 0.6%.
The Dow had risen 1.6% on Wednesday in response to the Fed’s decision and guidance, while the S&P had risen 2.2% and the Nasdaq Composite 3.8%.
In the bond market, the benchmark 10-year yield fell to 2.12%, having risen as high as 2.24% on Wednesday.
Stocks likely to be in focus later include Accenture (NYSE:ACN) and Dollar General (NYSE:DG), which report earnings early, while FedEx (NYSE:FDX) reports after the close.
Bank of England set to hike again
The central bank action continues worldwide, with the Bank of England widely expected to raise its key rate by 0.25% later. That will be the third straight hike in as many meetings for the BoE which, like the Fed, faces overshooting inflation and a hot labor market.
European Central Bank President Christine Lagarde warned in a keynote speech that the war in Ukraine could start dangerous new inflationary trends, but again stressed that any interest rate hikes from the ECB would be measured and gradual.
The European economy is under much greater pressure from the war than the U.S., with energy prices having surged and disruptions to vital industrial inputs from Russia and Ukraine causing plants in sectors such as chip-making and car-making to be suspended. EU car sales fell 6.7% in February, a record low, even before the impact of the war was felt.
Elsewhere, the Brazilian central bank followed the Fed’s action by raising its key rate a full percentage point on Wednesday.
Oil back at $100; nickel turmoil continues
Crude oil prices rebounded as the prospects for a quick peace in Ukraine appeared to dissipate.
By 6:25 AM ET, U.S. crude was back at $99.42 a barrel, up 4.6% on the day, while Brent futures were up 4.7% at $102.51 a barrel.
On Wednesday, U.K. Prime Minister Boris Johnson returned empty-handed from a trip to Saudi Arabia and the United Arab Emirates, where he had hoped to persuade their two governments to increase oil output.
Other commodity markets also continued to show volatility, with the London Metals Exchange again forced to suspend trading in Nickel Futures almost immediately after reopening.
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Source: Investing.com
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