Stock index futures struggled to find strong direction Tuesday, although growth was still feeling the pinch of rates re-adjusting to a calmer banking scene.
Nasdaq 100 futures (NDX:IND) -0.2% were lower. S&P futures (SPX) -0.1% were slightly off and Dow futures (INDU) were little changed.
Later today the Senate Banking Committee will hold a hearing on bank failures. Witnesses include FDIC Chairman Martin Gruenberg, Fed Vice Chairman Michael Barr and Treasury Undersecretary Nellie Liang.
“Sanity seems to prevail, at least so far this week, with no new contagion fears weighing on sentiment,” ING said. “Realized volatility in rates remains elevated, with double-digit moves in basis point terms on the 2Y-10Y segment of main developed market curves on Monday. This is also reflected in still high implied swaption volatility, celebrating lower banking worries but dreading a return of inflation angst.”
The 10-year Treasury yield (US10Y) rose 3 basis points to 3.55% and the 2-year yield (US2Y) was little changed at 4.01%.
The May Fed meeting is now up in the air, according to the market, with fed funds futures pricing in a 50/50 chance between no hike and 25 basis points.
“No banking contagion news allows rates to jump back but we doubt more than one Fed hike can be priced by the curve,” ING said. “This means the 2Y hovering around a 4% yield.”
“This level has proved a magnet since the breakout of the SVB crisis and a decisive break below would require the curve to price more than the three 25bp cuts we’re forecasting for this year, and which the curve is currently pricing,” they added. “This is far from impossible, but this would require data to catch up to the economic gloom in markets, or further bank contagion. The path of least resistance seems to be higher yields for now, but setting up for a more meaningful drop when rate cuts come into view.”
Highlighting the economic calendar, the Conference Board’s measure of March consumer confidence arrives after the opening bell. Economists predict a small drop to 101.
“US Conference Board consumer confidence may capture some of the sentiment following banking problems, but popular opinion was not necessarily engrossed in the bank failures,” UBS’ Paul Donovan wrote. “Deposit shifts have favored larger banks, which have driven recent credit card lending.”
Before the start of trading, figures on wholesale and retail inventories arrive. In addition, the S&P Case Shiller home price index for January is due. The forecast is for a drop to an annual increase of 2.5%.
Among active stocks, Lyft rallied after appointing a new CEO.
More on the Market
- Ray Dalio Says Economy Is At A ‘Turning Point’ – SPY Implications
- Systemic credit event races to the top of tail risks for fund managers