US stock futures inch higher as Fed officials eye big rate hikes, and Europe weighs more Russia sanctions
The Washington Post/Getty Images
- US stock futures edged higher Monday as investors monitored the Federal Reserve and the Ukraine conflict.
- Fed official Mary Daly said the case has grown for a 50 basis point rate hike in May, in an FT interview Sunday.
- European governments are weighing more sanctions on Russia as reports emerged of war crimes in Ukraine.
US stock futures edged higher in cautious trading Monday as investors monitored the noises coming out of the Federal Reserve, and as European governments weighed further sanctions on Russia over the Ukraine war.
Futures on the S&P 500 were up 0.13%, and those on the Dow Jones were broadly flat as of 5:30 a.m. ET. Nasdaq 100 futures were up 0.3% in cautious trading.
In Europe, stocks inched lower after a choppy start, with the continent-wide Stoxx 600 down 0.4%.
Mainland Chinese markets were closed for a holiday, but the Hang Seng index closed 2.1% higher after Beijing said it would change a rule that currently prevents US officials from auditing Chinese companies listed in Hong Kong. Tokyo's Nikkei 225 rose 0.25%.
Investors have been keeping a close eye on both the Fed's policy and Russia's invasion of Ukraine, and developments around both have weighed on stocks this year.
Over the weekend, San Francisco Fed President Mary Daly told the Financial Times that the case has grown stronger for increasing interest rates by 50 basis points in May.
Normally, the Fed hikes in 25 basis point (0.25 percentage point) increments. But the strongest inflation in 40 years has caused officials to think again, prompting markets to now expect a 50 basis point hike in May and another one in June.
"I'm more confident that taking these early adjustments would be appropriate," Daly told the FT.
Some analysts are worried the central bank's policymakers could tip the US into a recession by choking off borrowing, spending and employment growth.
Recession alarms started ringing loudly on Wall Street last week, when the yield on the 2-year US government bond — known as a Treasury note — rose above the yield on the 10-year note. That's traditionally seen as a sign investors expect growth to show sharply in the future, and such "inversions" have historically preceded recessions.
On Monday, the yield on the 2-year Treasury — which is the most sensitive to interest rate expectations — rose to 2.497%, before paring its gains. That took it above the yield on the 30-year bond for the first time since 2007. Bond yields move inversely to prices.
However, many strategists are far from convinced.
"We see little evidence that we are currently in a late-cycle economy," Jefferies chief financial economist Aneta Markowska said in a note to clients Sunday. "In fact, several data points suggest we are firmly mid-cycle."
She pointed to Friday's strong US employment numbers, which showed the country's economy added 431,000 jobs in March.
Traders were also watching Europe closely, where governments have suggested putting new sanctions on Russia following reports of war crimes around Ukrainian capital Kyiv.
Oil prices wavered around the flatline. Brent crude, the international benchmark, was broadly flat at $104.30 a barrel. WTI crude was 0.16% higher at $99.43 a barrel.
Prices have cooled in recent days, after the US said it would release oil from its strategic reserves and as China implemented new lockdowns in response to rising COVID-19 cases.
"We think that tapping the strategic reserves will provide some near-term relief, but not resolve the long-term structural imbalance," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "We still think oil prices are well-supported."
Key events this week include a speech by senior Fed official Lael Brainard Tuesday; the release of the minutes from the Fed's March meeting on Wednesday; and the US Energy Information Administration's crude oil inventories report the same day.
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