Futures climb as rate-hike pause hopes rise

[March 23, 2023]  By Amruta Khandekar and Ankika Biswas

(Reuters) -U.S. stock index futures climbed on Thursday after the Federal Reserve hinted it was close to pausing its market-punishing interest rate hikes following the recent turmoil in the banking sector.

The Federal Reserve on Wednesday raised rates by an expected 25 basis points, but its policy statement no longer said "ongoing increases" would likely be appropriate.

The shift in the central bank's tone relieved markets that have been roiled by concerns about a liquidity crisis in the banking sector since the failure of two U.S. regional lenders earlier this month.

However, Wall Street's main indexes closed sharply lower on Wednesday after Powell said the central bank was still intent on fighting inflation even as he flagged credit issues due to banking troubles could have "significant" implications for the economy.

"The impression given by Powell has taken away any hopes the market had that we might get some cut in interest rates later this year," said Stuart Cole, head macro economist at Equiti Capital.

"It seems that the message that the central banks have been giving to date, that returning inflation to target is their number one priority is very much still the message that they're going to deliver despite the banking failures."

Traders' odds are equally split between the Fed pausing its rate hikes in May and another 25 bps hike, according to CME Group's Fedwatch tool.

Bank of America and UBS now see the Fed funds rate target peaking at 5-5.25% in May compared to earlier forecasts of 5.25-5.5%.

While U.S. Treasury yields slipped on growing hopes of an end to the Fed's tightening cycle, major growth stocks such as Apple Inc, Microsoft and Amazon.com jumped over 1% each in premarket trading.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 22, 2023. REUTERS/Brendan McDermid

Nvidia Corp rose 1.9% after Needham raised its price target on the chipmaker on likely benefit from near-term data center strength.

Those premarket gains helped the tech-heavy Nasdaq futures fare better than its peers.

Troubled regional lender First Republic Bank rose 2% after slumping on Wednesday following Treasury Secretary Janet Yellen's remark that there was no discussion on insuring all bank deposits.

PacWest Bancorp, Truist Financial Corp and Western Alliance Bancorp also gained between 0.8% and 3%.

On the data front, a reading due at 8:30 a.m. ET is expected to show a rise in jobless claims last week, hinting at some cooling in labor demand. Data on home sales is also expected after the opening bell.

Among other stocks, Coinbase Global Inc slid 12.9% after the U.S. Securities and Exchange Commission (SEC) threatened to sue the crypto exchange over some of its products.

Regeneron Pharmaceuticals Inc jumped 8.6% on promising results on its blockbuster asthma drug Dupixent from a lung disease trial.

(Reporting by Amruta Khandekar and Ankika Biswas in Bengaluru; Editing by Savio D'Souza and Vinay Dwivedi)

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