- US stock futures fell Thursday in the wake of a relief rally sparked by Fed Chair Jerome Powell’s rate-hike comments.
- Investors are assessing whether Powell signaled a 75-basis-point rate hike is unlikely in future policy decisions.
- European stocks surged after upbeat corporate earnings and a Bank of England interest rate increase.
US stock futures fell in premarket trading Thursday as investors digested the Federal Reserve’s signals on upcoming rate hikes, indicating a pullback from the previous day’s relief rally.
Meanwhile, European equities surged as they caught up with the previous day’s jump in US stocks, and as a string of strong quarterly earnings reports from oil giant Shell and others lifted the mood.
The Fed on Wednesday hiked interest rates by 50 basis points, the largest increase since 2000, taking the target federal funds rate range to between 0.75% and 1%. The central bank raised rates by 25 basis points in March, marking its first increase since 2018.
US stocks initially surged after Fed Chairman Jerome Powell signaled this month’s half-point hike isn’t likely to be followed by bigger rate rises.
“A 75-basis-point increase is not something the committee is actively considering,” he said during a briefing.
Before the Fed comments, some strategists had believed the central bank might hike by 75 basis points, as it tackles the strongest inflation in more than 40 years.
“In fact, Mr Powell didn’t specifically rule out a 0.75% hike next month, citing the need to be nimble’,” Jeffrey Halley, senior market analyst at Oanda, said.
Leading economist Mohamed El-Erian suggested the equity market reaction could be “too exuberant”. The sharp drop in short-term Treasury yields after Powell’s comments may weigh on economic growth in the near term, he indicated in a tweet.
The Bank of England followed suit by hiking interest rates for the fourth consecutive meeting on Thursday, taking UK rates to a 13-year high of 1%.
Expectations that the Fed will bring in a series of rate hikes have driven bond yields, which move inversely to prices, to gain in 2022. Investors demand a better return on bonds if they expect interest rates to be higher in the future.
The yield on the key 10-year US Treasury note rose past 3% for the first time since late 2018 this week. But it was down 6 basis points at 3.956% as of 7:05 a.m. ET Thursday.
Meanwhile, upbeat quarterly earnings updates were helping lift stocks in Europe. The continent-wide Stoxx 600 index rose 1.3%, while Frankfurt’s DAX was up 1.6%. The FTSE 100 was up 1.1% after the BoE’s hike.
Elsewhere in markets, oil prices extended gains after the European Union gave details of its proposed sanctions to phase out imports of Russian oil and to ban provision of services for transporting the oil worldwide.
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