BNN Bloomberg's mid-morning market update: Mar. 28, 2023
A slide in technology shares halted a three-day advance in U.S. stocks as investors continued to recalibrate bets on the Federal Reserve’s path forward on interest rates. Treasuries were little changed.
The Nasdaq 100 slumped 1 per cent — paring a March advance to 4 per cent — with tech stalwarts from Apple Inc. to Alphabet Inc. among the biggest drags.
Tech stocks had found favor in recent weeks with the rotation out of financials following the collapse of three U.S. banks. However, the trade has started to unwind with increased speculation turbulence in the banking sector will be contained.
Two-year Treasury yields held just above 4 per cent, while a gauge of the dollar was on track for its lowest close in eight weeks.
“Part of the giant bid in Treasuries last week was fear of contagion in financials,” said Tom Hearden, senior trader at Skylands Capital LLC. “That’s abated so far this week” with thin markets, off side positioning, and a financial contagion bid.
The moves come as investors prepare for a raft of data on the American economy this week, including the central bank’s preferred measure of inflation, which is likely to factor into the Fed’s next rate decision.
St. Louis Fed President James Bullard said “appropriate monetary policy can continue to put downward pressure on inflation” despite the turmoil in banking. Meanwhile, U.S. consumers appear to have shrugged off the bank failures, with the latest consumer confidence figures unexpectedly higher.
Swaps traders have priced in more than a 50 per cent probability the Fed will lift rates by a quarter point at its next gathering, with plans to ease then sharply thereafter. However, several strategists have joined BlackRock Investment Institute in saying markets are wrong in expecting imminent rate cuts.
“Recent events in the U.S. and European banking sectors have not altered our macroeconomic views,” wrote Joe Davis, chief global economist at Vanguard, in a note. “The Federal Reserve still has work to do to bring down inflation — a task that was always going to be a challenge, likely to entail higher unemployment and tighten credit and financial conditions.”
In Europe, stocks fell after French prosecutors said banks including Societe Generale SA and BNP Paribas SA face collective fines of more than US$1.1 billion as part of a probe into tax fraud and money laundering.
Elsewhere, oil was higher after a clash between Iraq and its Kurdish region curtailed exports. Gold gained and Bitcoin traded around $26,900.
Key events this week:
- EIA Crude Oil Inventory Report, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- U.S. GDP, initial jobless claims, Thursday
- Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
- China PMI, Friday
- Eurozone CPI, unemployment, Friday
- U.S. consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
- The S&P 500 fell 0.5 per cent as of 2:20 p.m. New York time
- The Nasdaq 100 fell 1 per cent
- The Dow Jones Industrial Average fell 0.3 per cent
- The MSCI World index rose 0.2 per cent
- The Bloomberg Dollar Spot Index fell 0.4 per cent
- The euro rose 0.4 per cent to US$1.0838
- The British pound rose 0.4 per cent to US$1.2331
- The Japanese yen rose 0.6 per cent to 130.72 per dollar
- Bitcoin fell 0.6 per cent to US$26,880.2
- Ether rose 1.8 per cent to US$1,738.83
- The yield on 10-year Treasuries advanced two basis points to 3.54 per cent
- Germany’s 10-year yield advanced six basis points to 2.29 per cent
- Britain’s 10-year yield advanced nine basis points to 3.46 per cent
- West Texas Intermediate crude rose 0.6 per cent to US$73.27 a barrel
- Gold futures rose 1 per cent to US$1,991.50 an ounce