investy

(C) Reuters

By Peter Nurse

Investing.com – European stock markets traded higher Tuesday, rebounding as confidence returns to the banking sector ahead of the start of the latest Federal Reserve policy-setting meeting.

At 04:45 ET (08:45 GMT), the DAX index in Germany traded 1.1% higher, the CAC 40 in France climbed 1.2% and the FTSE 100 in the U.K. rose 1.2%.

Investors have taken some heart from the rescue of troubled lender Credit Suisse (SIX:CSGN) by its Swiss rival UBS (SIX:UBSG), with UBS stock climbing over 3% Tuesday, dragging the rest of the embattled sector higher.

Additionally, global banks borrowed on Monday only small amounts from the Federal Reserve’s dollar swap line, suggesting there was little funding stress.

That said, it’s probably too early to call an end to the banking turmoil, given difficult conditions still exist for the smaller U.S. banks as well as potential ructions in the bond markets after the losses imposed on Credit Suisse’s junior bondholders.

Attention is now on this week’s meeting of the Federal Reserve, with its two-day get-together starting later this session. The turmoil in the banking sector has created a degree of uncertainty over whether the U.S. central bank will continue to lift interest rates to fight elevated inflation.

The same applies in Europe.

“Clearly financial stability tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes,” European Central Bank President Christine Lagarde told European lawmakers on Monday.

The ECB raised its benchmark interest rates by 50 basis points to 3% last week, hiking rates at six consecutive meetings since July.

The main economic release due Tuesday will be Germany’s ZEW survey of economic sentiment for March, which is expected to show a drop to 17.1 from 28.1.

In corporate news, RWE (ETR:RWEG) stock rose 2.9% after Germany’s largest utility announced plans to increase its dividend even as it expects operating profit to fall in 2023, citing lower margins at its gas-fired power plants.

Kingfisher (LON:KGF) stock rose 0.6% after the British home improvement retailer reported better-than-expected annual income and said its operations were “well positioned” in the current fiscal year.

Oil prices rose Tuesday, bouncing after recent hefty losses but confidence remains frail after a week of turmoil in the banking sector and ahead of a Federal Reserve interest rate decision this week.

The American Petroleum Institute is scheduled to release its estimate of U.S. crude inventories later in the session. They rose by just over 1 million barrels last week, resuming their climb after a one-week decline,

The API numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

By 04:45 ET, U.S. crude futures traded 1.1% higher at $68.57 a barrel, while the Brent contract climbed 1% to $74.54. The benchmarks fell to 15-month lows at the start of the week.

Additionally, gold futures fell 0.7% to $1,969.75/oz, while EUR/USD traded 0.1% higher at 1.0731.

(C) Reuters.

By Peter Nurse

Investing.com – European stock markets are expected to open higher Tuesday as signs of confidence returning to the banking sector emerge ahead of the start of the latest Federal Reserve policy-setting meeting.

At 03:00 ET (07:00 GMT), the DAX futures contract in Germany traded 1.1% higher, CAC 40 futures in France climbed 0.6% and the FTSE 100 futures contract in the U.K. rose 0.5%.

Investors have taken some heart from the rescue of troubled lender Credit Suisse (SIX:CSGN) by its Swiss rival UBS (SIX:UBSG), with UBS’s shares closing trade on Monday higher after sharp early losses were pared by the end of the day.

There remain concerns about the risk of shockwaves on smaller U.S. banks, as well as potential ructions in the bond markets after the losses imposed on Credit Suisse’s junior bondholders.

Attention is now on this week’s meeting of the Federal Reserve, with its two-day get-together starting later this session. The turmoil in the banking sector has created a degree of uncertainty over whether the U.S. central bank will continue to lift interest rates to fight elevated inflation.

European Central Bank President Christine Lagarde implied on Monday that the current financial market disorder could mean that the central bank can stop hiking interest rates earlier than previously expected.

“Clearly financial stability tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes,” Lagarde told European lawmakers.

The ECB raised its benchmark interest rates by 50 basis points to 3% last week, and Lagarde reaffirmed that the inflation outlook alone would warrant more rate hikes.

The main economic release due Tuesday will be Germany’s ZEW survey of economic sentiment for March, which is expected to show a drop to 17.1 from 28.1.

In corporate news, RWE (ETR:RWEG) will be in the spotlight after Germany’s largest utility announced plans to increase its dividend even as it expects operating profit to fall in 2023, citing lower margins at its gas-fired power plans.

Oil prices fell Tuesday as market confidence remained frail after a week of turmoil in the banking sector and ahead of a Federal Reserve interest rate decision this week.

The American Petroleum Institute is scheduled to release its estimate of U.S. crude inventories later in the session. They rose by just over 1 million barrels last week, resuming their climb after a one-week decline,

The API numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

By 03:00 ET, U.S. crude futures traded 0.6% lower at $67.44 a barrel, while the Brent contract dropped 0.6% to $73.36.

Additionally, gold futures fell 0.1% to $1,980.00/oz, while EUR/USD traded 0.1% lower at 1.0708.

(C) Reuters.

By Yasin Ebrahim

Investing.com — The Federal Reserve is expected to opt for the “safest” path and meet the market expectations of a quarter-point hike later this week as the risk of a pause causing inflation to reaccelerate is too much too bear just as the current turmoil in banking system sparks uncertainty and the lingering ghosts of the central bank’s previous transitory inflation call that dented its credibility continue to linger.

“To go with the market pricing of a hike by 25 basis points is the safest way for the Fed,” Zhiwei Ren, Managing Director and Portfolio Manager at Penn Mutual Asset Management told Investing.com’s Yasin Ebrahim in a recent Interview. “I don’t think the Fed can have a strong conviction in this market … What do you do when you don’t have a strong conviction … You go with the market expectation,” Ren added.

About 80% of traders expect the Fed to hike rates by 0.25% on Wednesday.

The Fed, however, would likely prefer to wait, Zhiwei says, but it doesn’t have the luxury nor the option as it is still on a mission to restore credibility – a central bank’s most valuable asset.

Much of that credibility took a hit following the Fed’s unwillingness to ditch its transitory inflation call. Any action that could cause a reacceleration in inflation, particularly when price pressures remain sticky, would be too much too bear.

“If there’s a pause or even cut on rates, and the economy were to reaccelerate, and the CPI (consumer price index) goes up to six or seven percent again, then the Fed is going to face a lot of backlash from the politicians and there’s a risk of credibility,” Ren added.

“They made the mistake of calling inflation transitory, so they have wasted some of the political capital,” Ren added “I don’t know if they still have more have more political capital to spend at this point.”

Other market participants, however, believe the ongoing turmoil in banks – following the collapse of Silicon Valley Bank, Signature Bank (NASDAQ:SBNY), and Credit Suisse – provides enough reason for the Fed to pause rate hikes, arguing that it won’t derail the Fed’s inflation fight.

“We expect the FOMC to pause at its March meeting this week because of stress in the banking system,” Goldman Sachs said.

A pause in the fight against inflation should “not be such a problem,” Goldman Sachs adds, as bringing inflation back to 2% is a medium-term goal … and “the FOMC can get back on track quickly if appropriate, and the banking stress could have disinflationary effects.”

Beyond the rate decision, the Fed’s summary of economic projections, or “dot plots,” about future economic growth, inflation, unemployment, and rate hikes will come into focus.

The Fed’s most recent projections in December pointed to the peak level of rates reaching a 5% to 5.25% range, or 5.1% at the midpoint, suggesting two further rate hikes.

The current banking turmoil, however, means that the Fed’s rate hike path is far less certain than before the stresses in the banking sector started to emerge. Earlier this month Powell had teed up the idea of a larger rate hike in March.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said earlier this month in prepared remarks for a hearing before the Senate Banking Committee.

Beyond the monetary policy decision and dot plots, Powell’s messaging is expected to serve as an important gauge of whether the bumps in banking sector have eased the Fed’s conviction to fight inflation with higher rates.

“The hawkish or dovish market read may come down to whether Powell focuses more on financial or price stability in the press conference,” Citi said in a note, forecasting the Fed to not only hike by a quarter-point but also upgrade its rate-hike path by another 25-basis-points.