Morning Bid: Unrushed Fed sees out buoyant Q1, dollar revs up

By Thomson Reuters Mar 28, 2024 | 5:04 AM

A look at the day ahead in U.S. and global markets from Mike Dolan

With Wall St set for its final trading day of a bumper first quarter, the Federal Reserve seems in “no rush” to lower interest rates just yet – buoying the dollar as other central banks chomp at the bit.

Fed Governor Christopher Waller set the tone for the Easter break on Wednesday indicating the central bank was being patient rather than hesitant in lowering borrowing costs this year.

Although the comments marginally shaved expectations for a rate cut as soon as June – and nudged two-year Treasury yields back up – it was also clear Waller was merely talking about timing. “It’s just a question of when you start,” he said.

Fed chair Jerome Powell is likely to echo that on Friday, when he takes part in a panel discussion in San Francisco after the release of the February’s Fed-favored PCE inflation gauge. Stock markets will be shut for the Good Friday holiday at the point.

But with U.S. GDP revisions for the fourth quarter expected to confirm a 3%-plus real growth rate later on Thursday and Atlanta Fed estimates still showing the expansion cruising above 2% through Q1, the S&P 500 clocked another record closing high on Wednesday and futures held that ahead of the bell on Thursday.

Lifted by both the stubborn Fed views and strength of both the U.S. economy and stock market, the dollar pushed higher.

The greenback’s index pushed to near six-week highs early on Thursday, with the dollar advancing against the euro, sterling, Swiss franc, Swedish crown, Chinese yuan and Australian dollar.

Japan’s yen – held in by further warnings about intervention from Japanese officials – was one of the few that held the line.

Monetary easing hopes around the world are building regardless of Fed pushback. The Swiss National Bank already cut last week, Sweden’s Riksbank indicated rate cuts may be coming in the second quarter and European Central Bank officials continue to lean dovish.

With data showing euro zone bank lending stagnated again last month and German retail sales fell unexpectedly, ECB council member Fabio Panetta was the latest to flag a turn in the rate cycle. “The risks to price stability have diminished and the conditions are materialising to launch monetary easing,” he said.

Although Bank of England hawk Jonathan Haskel was more in Christopher Waller’s camp of holding back on rate cuts for now, UK economic numbers on Thursday confirmed Britain’s economy recorded a recession late last year.

China’s government too looks set to lean heavily on monetary policy to revive its economy.

Not only have People’s Bank of China officials indicated more easing in the pipeline, but the South China Morning Post reported on Thursday that President Xi Jinping had urged the PBOC into buying government bonds there too.

And with Japan’s yen testing 34-year lows this week, there’s concern about a wave of competitive currency depreciation across Asia’s major exporting economies as global trade tensions build.

U.S. Treasury Secretary Janet Yellen said on Wednesday she intended to warn China about the negative effects of Beijing’s subsidies for its clean energy industries, including solar panels and electric vehicles, during a visit to the country.

More broadly, stock markets around the world were steady to high – with Japan’s Nikkei the underperformer unusually, due mostly to quarter-end effects.

In company news, Britain’s biggest water utility Thames Water said shareholders had refused to stump up the 500 million pounds ($630 million) of equity promised, heightening concerns about its survival, after it failed to agree future bills and conditions with the regulator.

Back on Wall St, Reddit’s stellar market debut has drawn significant bearish bets against the social media forum in its first few days of trading and its stock was down 5% premarket after falling almost 12% on Wednesday.

Key diary items that may provide direction to U.S. markets later on Thursday:

* U.S. Q4 GDP revision, weekly jobless claims, Kansas City Fed’s March business survey, March Chicago purchasing managers survey, February pending home sales, final reading of University of Michigan’s March sentiment index

* U.S. corporate earnings: Walgreens Boots Alliance

* U.S. Treasury sells 4-week bills

($1 = 0.7944 pounds)

(By Mike Dolan, editing by XXXX mike.dolan@thomsonreuters.com)