Fed's James Bullard Cautions on Hawkish Minutes Reaction; Dow Futures Pop
New York (Feb 22) U.S. equity futures turned positive Thursday after St. Louis Federal Reserve President James Bullard cautioned that investors may be "getting ahead of themselves" in anticipating four rate hikes from the central bank this year.
Speaking with CNBC Television, Bullard said he doesn't see the case for a 1.2% increase in the Fed Funds rate this year, adding that "one hundred basis points in 2018 seems a lot to me." He also said there was a "ways to go" with respect to sustainable upward move on inflation and reiterated the view that U.S. GDP will likely grow between 2.4% and 2.5% this year.
The comments pushed Wall Street futures into the green, with contracts tied to the Dow Jones Industrial Average marked at +15.5 points, indicating an opening bell gain of 13 points compared to its Wednesday close. S&P 500 futures were seen 9.25 points, or 0.34%, higher following Bullard's CNBC interview and ahead of jobless claims data and leading economic indicators data that may further bolster the Fed's bullish case for GDP growth and, by extension, an upward trend in consumer price inflation.
The stock market reactions overnight in Europe and Asia, however, reflect a global re-pricing of risk in the face of persistent rate hike signals from central banks in Britain, Europe, Japan and the United States, all of which are contributing to the upward moves in government bond yields, and U.S. Treasury notes in particular.
Benchmark U.S. 10-year paper touched a fresh four-year high of 2.957% yesterday before easing back to 2.92% in overnight Asia trade, but with more auctions on the slate for today, 10-year notes could test the 3% level that many analysts suggest could trigger major portfolio allocation changes as early as this week.
"Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate," the Fed said in the first release of minutes under the tenure of new chairman Jerome Powell. The language helped lift the market's assumption of a March rate hike to 84.5%, according to the CME Group's FedWatch tool, compared to 71.8% only a month ago.
"The U.S. economy appears to be performing very well and, certainly, is in the best shape that it has been in since the crisis and, by many metrics, since well before the crisis," said Fed Governor Randal Quarles during a speech in Tokyo Thursday. ""With a strong labor market and likely only temporary softness in inflation, I view it as appropriate that monetary policy should continue to be gradually normalized."
In Europe, the Stoxx Europe 600 index, the region's broadest measure of share prices, fell 0.65%, even as the euro slipped below 1.23 against the resurgent U.S. dollar as investors rushed to re-price stocks in the wake of rising government bond yields and a weaker-than-expected reading of German business confidence published by the Ifo Institute in Munich.
Britain's FTSE 100 slumped 1% at the opening bell as the pound held onto gains against the dollar despite a downwardly-revised reading of Q4 GDP, to 0.4% from 0.5%, that challenges the narrative of improving expectations for the U.K. economy and more rate hike suggestions from the Bank of England.
Rising bond yields have also continued to lift the U.S. dollar from its recent three-year lows against a basket of its global peers, with the dollar index rising a two-week high of 90.23 during Asia trading hours, a move which helped keep regional stocks -- especially in markets that are heavily-reliant on dollar-priced commodities -- in the red.
The region-wide MSCI Asia ex-Japan index was marked 0.89% lower heading towards the close of the Thursday session, although markets in China gained around 2% on the first day of trading after the country's week-long lunar New Year celebrations. Japan's Nikkei 225 benchmark, however, fell 1.1% to end the trading day at 21,736.44 points.
TheStreet
