Optimism About End Of Rate Hikes May Lead To Rebound On Wall Street

The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to regain ground following the sell-off seen late in the previous session.

The upward momentum on Wall Street comes as traders continue to react to yesterday’s monetary policy announcement by the Federal Reserve.

While some traders were initially disappointed the Fed decided to continue raising rates despite recent banking industry turmoil, indications the central bank is nearing the end of its tightening cycle may generate some buying interest.

The latest projections suggest the Fed plans just one more quarter-point rate hike this year, with CME Group’s FedWatch Tool currently showing a roughly 50-50 chance of another rate increase in May.

Even if the Fed raises rates again at its next meeting, traders may take some comfort in knowing officials feel a range of 5.0 to 5.25 percent will be the so-called “terminal rate.”

Stocks showed a lack of direction throughout much of the session on Friday before coming under pressure in the final hour of trading. The major averages all moved sharply lower, with the tech-heavy Nasdaq pulling back after reaching its best intraday level in over a month.

The major averages finished the session at their worst levels of the day. The Dow plunged 530.49 points or 1.6 percent to 32,030.11, the Nasdaq tumbled 190.15 points or 1.6 percent to 11,669.96 and the S&P 500 dove 65.90 points or 1.7 percent to 3,936.97.

The late-day sell-off on Wall Street came after the Federal Reserve announced its decision to continue raising interest rates despite recent turmoil in the banking industry.

The Fed said it has decided to raise the target range for the federal funds rate by another 25 basis points to 4.75 to 5.0 percent.

While the interest rate hike was widely expected, some traders may have been holding out hope the Fed would leave rates unchanged.

The Fed also said additional policy firming may be appropriate, although that marks a shift from saying ongoing increases in rates will be appropriate.

The central bank’s latest projections suggest the Fed plans to raise rates just one more time this year to a range of 5.0 to 5.25 percent.

In its statement, the Fed described the U.S. banking system as “sound and resilient” despite the recent failures of Silicon Valley Bank and Signature Bank.

The Fed acknowledged recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation but noted the extent of these effects is uncertain.

Banking stocks fell sharply following the rate hike by the Fed, resulting in a 4.7 percent nosedive by the KBW Bank Index.

Substantial weakness also emerged among rate-sensitive commercial real estate stocks, with the Dow Jones U.S. Real Estate Index plunging by 3.6 percent.

Oil service stocks also moved sharply lower despite an increase by the price of crude oil, dragging the Philadelphia Oil Service Index down by 3.0 percent.

Airline, networking and natural gas stocks also saw considerable weakness, while gold stocks bucked the downtrend amid an uptick by the price of the precious metal.

Commodity, Currency Markets

Crude oil futures are slipping $0.29 to $70.61 a barrel after jumping $1.23 to $70.90 a barrel on Wednesday. Meanwhile, after rising $8.50 to $1,949.60 an ounce in the previous session, gold futures are surging $29.50 to $1,979.10 an ounce.

On the currency front, the U.S. dollar is trading at 131.57 yen versus the 131.44 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0868 compared to yesterday’s $1.0856.

Asia

Asian stocks turned in a mixed performance on Thursday as investors made largely cautious moves after the U.S. Federal Reserve raised rates by 25 basis points and signaled another hike to fight inflation.

The central bank’s latest projections suggest the Fed plans to raise rates just one more time this year to a range of 5.0 to 5.25 percent.

U.S. Treasury Secretary Janet Yellen’s comments that regulators are not considering “blanket insurance” for bank deposits weighed on sentiment.

The Chinese markets ended higher, extending recent gains, with technology stocks leading the surge. The Shanghai Composite Index advanced 0.6 percent to 3,286.65, and the Shenzhen Component Index climbed 0.9 percent to settle at 11,605.29.

Hong Kong’s Hang Seng Index surged 2.3 percent to 20,049.64, led by gains by technology stocks. Tencent Holdings soared more than 6 percent on fairly encouraging results. Alibaba Group Holdings, JD.com and Baidu Inc. also posted strong gains.

The Hong Kong Monetary Authority today lifted its benchmark rate by 25 basis points, following the policy announcement by the U.S. Federal Reserve a day earlier. The HKMA adjusted the Base Rate upward to 5.25 percent from 5.00 percent with immediate effect.

Taiwan’s Weighted Average Index climbed 103.49 points or 0.7 percent to 15,863.95.

Data from the Ministry of Economic Affairs showed Taiwan’s industrial production contracted for the sixth straight month in February, falling by 8.7 percent year-on-year. Industrial production fell 21.0 percent in January, the steepest decline since May 2009.

The Japanese market ended marginally lower, with the Nikkei 225 Index dropping 47.00 points or 0.2 percent to 27,419.61.

Dai-ichi Life, T&D Holdings, Takeda Pharmaceuticals, Concordia Financial Group, Rakuten Inc., Fujisu, Nippon Sheet Glass, Chugai Pharma and Konami Corp. lost 2 to 3 percent.

NH Foods, Okuma Corp, Suzuki Motor, Dainippon Screen Manufacturing, Advantest Corp., Ebara Corp., Mitsubish Motors and Recruit Holdings ended sharply higher.

South Korea’s KOSPI ended higher by 7.52 points or 0.3 percent at 2,424.48 after moving in a very tight range.

The Australian market closed weak. The benchmark S&P/ASX 200 Index ended down 47.00 points or 0.7 percent at 6,968.60, and the broader All Ordinaries Index settled lower by 52.10 points or 0.7 percent at 7,148.60. Shares from the mining and resources sectors posted notable losses.

Polynovo tumbled more than 12 percent. Megaport and Unibail Rodamco Westfield dropped about 8.4 percent and 7.6 percent, respectively. Lake Resources fell 8 percent.

Brickworks, United Malt Group, Resolute Mining and G.U.D. Holdings were among the prominent gainers.

Europe

European stocks are firmly in negative territory on Thursday as investors weigh the impact of the Federal Reserve’s policy move and react to U.S. Treasury Secretary Janet Yellen’s comments.

While the U.K.’s FTSE 100 Index has slid by 0.8 percent, the German DAX Index and the French CAC 40 Index are both down by 0.3 percent.

The Fed raised rates by 25 basis points as expected on Wednesday and signaled one more hike to continue its fight against inflation.

Yellen told Congress that regulators are not looking to provide any “blanket” deposit insurance to stabilize the U.S. banking system without working with lawmakers.

Meanwhile, the Bank of England raised interest rates by 25 basis points, as widely expected, with the rate hike coming after data showed U.K. inflation unexpectedly jumped to an annual rate of 10.4 percent in February.

The Swiss National Bank also raised its key rate by 50 basis points to 1.5 percent, as widely expected. The bank, which has now raised rates for the fourth time in succession, also said further hikes are likely.

“It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term,” the central bank said, adding that further sales of its foreign currency reserves to support the franc are also possible.

The SNB raised rates despite the financial turmoil. Last week, the central bank agreed to lend troubled lender Credit Suisse up to 50 billion Swiss francs to shore up liquidity.

Sanofi has moved sharply higher. The company announced that its asthma and eczema drug Dupixent, jointly developed with Regeneron, met all targets in a trial to treat “smoker’s lung.”

U.S. Economic Reports

A report released by the Labor Department on Thursday unexpectedly showed a slight decrease by first-time claims for U.S. unemployment benefits in the week ended March 18th.

The Labor Department said initial jobless claims slipped to 191,000, a decrease of 1,000 from the previous week’s unrevised level of 192,000. Economists had expected jobless claims to rise to 201,000.

The report said the less volatile four-week moving average also edged down to 196,250, a decrease of 250 from the previous week’s unrevised average of 196,500.

At 10 am ET, the Commerce Department is scheduled to release its report on new home sales in the month of February. New home sales are expected to pull back to an annual rate of 645,000 in February after surging to a rate of 670,000 in January.

The Treasury Department is due to announce the details of this month’s two-year, five-year and seven-year note auctions at 1 pm ET.