A look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street’s early-week wobble seems to have stabilised as Federal Reserve Chair Jerome Powell plays it straight on Capitol Hill, with the European Central Bank deciding on policy on Thursday and after a fresh yen surge knocked Japan’s Nikkei.
See-sawing speculation over when the Bank of Japan may end its negative interest rate stance tipped back overnight in favor of a move as soon as this month, sending the yen surging to its best level in a month in its biggest one-day gain this year. That side swiped the Nikkei stock index by more than 1%.
The move followed press reports on an imminent move and comments from BOJ governor Kazuo Ueda and a colleague, who said inflation was sustainably moving up toward the 2% target. Reinforcing that view, Japan’s largest trade union group Rengo said average wage rise demands hit 5.85% for this year – topping 5% for the first time in 30 years.
In China, surprisingly upbeat trade numbers for the first two months of the year did little to lift stocks there, with markets still puzzling over just what level of government stimulus may be in the works after this week’s annual government plans were unveiled. China’s CSI300 lost 0.6%.
And in Europe, much like Powell and his Fed colleagues, the ECB is set to leave rates on hold at its March meeting on Thursday – likely re-emphasizing patience in getting inflation back down to its 2% target even as the regional economy flatlines.
Remarkably, given the recent gulf in economic performance between the United States and euro zone, market expectations for ECB easing are identical to those of the Fed – with both central banks odds on to deliver their first cuts in June this year and roughly 90 basis points of cuts each seen this year.
The euro, euro zone stocks and euro government bond prices were all a touch firmer ahead of the decision.
Back stateside, Powell reprises his congressional testimony to the Senate Banking Committee later on Thursday – possibly offering more clues to Fed thinking in the question-and-answer session that follows.
He revealed little new on Fed thinking in Wednesday’s appearance, merely restating hopes that rates would be lowered later this year but saying the still-strong economy allowed the Fed more time to assess data on whether inflation was durably licked.
Some labor market softening in the latest soundings from private sector surveys and job openings data helped give his words a dovish tilt. Ten-year Treasury yields fell to their lowest in a month, just above 4%, and held that move on Thursday. Wall St stocks regained much of the prior day’s shakeout in megacaps and were steady ahead of today’s bell.
Some of Powell’s focus in his House exchange was on how the Fed and other regulators were considering significant changes to a contentious plan to raise large bank capital requirements – the so-called “Basel III endgame” proposal unveiled in July.
And in the background, ailing New York Community Bancorp jumped 7% after it said it had raised $1 billion from investors including former U.S. Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.
In politics, ‘Super Tuesday’ U.S. primaries and the withdrawal of Republican challenger Nikki Haley from that race now sets up a likely re-run of 2020’s White House race between President Joe Biden and former president Donald Trump.
Biden spent last weekend at the Camp David presidential retreat fine-tuning Thursday’s State of the Union speech, which will focus on economic growth, tackling inflation and staying the course on his policies, White House officials said.
Biden is expected to preview proposals to hike the corporate minimum tax and curb deductions for executive pay – part of a proposed fiscal 2025 budget released next week that aims to cut the federal deficit by $3 trillion while reducing taxes for low-income Americans.
In company news, Novo Nordisk said early trial data for its highly anticipated experimental drug amycretin showed participants had a weight loss of 13.1% after 12 weeks, prompting the company’s shares to jump 5%.
The pharma giant, its fortunes soaring on sales of its obesity drug Wegovy, said it was expanding its focus on diabetes and weight-loss therapies to include cardiovascular treatments.
And lender Virgin Money UK jumped 37% after Nationwide Building Society agreed to buy it in a potential 2.9 billion-pound ($3.69 billion) all-cash deal that would create Britain’s second-largest savings and mortgage provider.
Key diary items that may provide direction to U.S. markets later on Thursday:
* US Jan international trade, Jan consumer credit, weekly jobless claims
* European Central Bank policy decision, followed by press conference from ECB President Christine Lagarde
* Federal Reserve Chair Jerome Powell reprises semi-annual testimony before the Senate Banking Committee. Cleveland Fed President Loretta Mester. Fed issues quarterly financial accounts of the United States
* US President Joe Biden’s State of the Union speech
* US Treasury auctions 4-week bills
* U.S. corp earnings: Broadcom, Costco, Kroger
(By Mike Dolan, editing by Emelia Sithole-Matarise mike.dolan@thomsonreuters.com)
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