US EARLY MORNING: Equities are a touch higher, and Treasuries are rallying ahead of today's ADP jobs data, quarterly refunding, Services ISM, and the key FOMC meeting

OVERNIGHT: On Wall Street, Tuesday saw a risk-off trade with a focus on regional banking, leading to vast losses, with the regional banking ETF closing down over 6%. The latest JOLTS was cooler than expected, leading to fresh buying on haven demand and a dovish move in money market pricing, with markets pricing in a 25bps hike from the Fed with 85% certainty. Our US wrap is here. Most Asia-Pacific stocks were negative due to losses on Wall Street ahead of the FOMC rate announcement and regional bank jitters. The ASX 200 and KOSPI declined due to weak data releases, while the Hang Seng was pressured by weakness in energy and tech sectors, with traders expecting a rate hike from the Fed and a similar move by the HKMA. The RBNZ Financial Stability Report said NZ's financial system is well placed to handle the higher interest rate environment and international financial disruptions; data showed New Zealand HLFS Job Growth +0.8% Q/Q in Q1 (exp. 0.4%). Our APAC wrap can be accessed here. European equity indices open with gains amid a heavy slate of corporate earnings. There were constructive updates in the financial sector, with numbers from BNP (BNP FP), UniCredit (UCG IM) and Lloyds (LLOY LN), helping the risk mood this morning – these updates follow other well received updates from Europe’s banking sector in this earnings season. Our European morning equity open note can be accessed here

US PRE-MARKETS: US equity futures are trading in positive territory, Treasury yields are rallying (though headlines point out that 2-month Bills are rising in London trade despite the rally in Treasuries – perhaps alluding to some debt ceiling related concerns). The Dollar Index is slightly lower. Today, it is all about the Federal Reserve’s policy announcement, where a 25bps rate rise is the base case to 5.00-5.25%. However, traders will be focussed on whether the central bank signals that hikes have now concluded (are on a data-dependent pause); a pause would be in keeping with its March projections, where participants estimated the terminal rate would sit in the 5.00-5.25% bracket (5.1%). Powell will also be quizzed on market pricing for rate cuts (rate markets currently assume the Federal Funds Rate target will close out this year at between 4.25-4.50%). Analysts also note that the Fed has historically stayed at terminal for between 3-15 months, with the average being around 6.5 months; if the historical playbook is used, then traders might expect rate cuts by the end of the year. It is unlikely the Fed boss will endorse this view, and he will likely caveat the central bank’s future policy around data. Traders will also want to get Chair Powell’s view on the most recent banking sector jitters, a WSJ report recently suggested that officials would be considering the market reaction to regulators’ response. On Tuesday, regional banks slid amid concerns that while officials would be likely to protect deposits of failing institutions, equity and debt holders would likely be wiped out. The KRE index of regional banks found stability in afterhours trade, closing around flat levels after the 6.3% loss in regular trading hours. Before the Fed, the ADP’s gauge of payroll growth in the US will be eyed, and analysts are generally expecting a sequential cooling in the rate of jobs growth going forward, as reflected in other labour market metrics, like JOLTs data released on Tuesday; it will be curious to see the market reaction, given it appeared at one point after yesterday’s JOLTs data that equity traders were more focussed on the growth implications, while fixed income traders were more tuned into the immediate rate implications.

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03 May 2023 - 09:30- EquitiesData- Source: Newsquawk

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