US Futures Edge Higher After Powell-Shock Selloff: Markets Wrap

(Bloomberg) — US stock futures steadied on Wednesday, after a selloff triggered by Federal Reserve Chair Jerome Powell whose hawkish comments drove up Treasury bond yields, boosted interest rate wagers and revived fears that the world’s largest economy will not be able to dodge a recession.

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As the rise in global bond yields paused, contracts on the S&P 500 and Nasdaq rose about 0.2% after the underlying index suffered their biggest daily losses in two weeks. Europe’s Stoxx 600 equity benchmark slipped about 0.2%. Markets remain on tenterhooks, however, ahead of more testimony from the Fed chief later on Wednesday, with Treasury yields still marginally higher on the day and the dollar holding close to this year’s peak.

Money markets are now pricing US interest rates to rise above 5.6% later this year after Powell signaled readiness to speed up policy tightening, should inflation keep running hot. That lifted the rate-sensitive two-year Treasury yield past 5% for the first time since 2007, raising its premium over 10-year rates to a full percentage point for the first time since 1981, a level which according to Deutsche Bank strategists signals recession within a maximum eight months.

“We would be foolhardy to expect we can’t reach 6% on Fed rates, and clearly that has an impact on asset markets across the globe,” Rabobank strategist Jane Foley told Bloomberg Television. If the Fed has to work harder to get inflation down, “that certainly does imply recession,” she added.

Read more: Deepest Bond Yield Inversion Since Volcker Suggests Hard Landing

Read more: Global Investors Contemplate Fallout From US Rates Reaching 6%

This so-called curve inversion deepened further on Wednesday to reach 107.9 basis points, as chances grew of a 50 basis-point move at the Fed’s March 21-22 meeting and analysts at Goldman Sachs added a July Fed hike to their forecasts. Rates are repricing higher elsewhere too, with wagers on the Bank of England rising to 5% on Wednesday, while an additional 155 basis points of tightening priced from the European Central Bank.

The pain is hitting emerging markets, with MSCI’s emerging equity gauge losing as much as 1.6%, while a decline in China’s yuan saw the central bank signal its intention to support the currency.

Rabobank’s Foley predicted that dollar strength — the currency rose 1% on Tuesday — would filter through to emerging economies, which could find themselves having to tighten policy further. “That leads to the impression global growth will also be slowing,” she said.

The next highlight for traders will be Friday’s February jobs data. Payroll growth has topped estimates for 10 straight months in the longest streak in decades, a trend that, if extended, will boost pressure on the Fed to keep raising interest rates.

Key events this week:

  • Euro area GDP, Wednesday

  • US MBA mortgage applications, ADP employment change, trade balance, JOLTS job openings, Wednesday

  • Fed Chair Powell’s semiannual Monetary Policy Report to the House Financial Services Committee, Wednesday

  • Canada rate decision, Wednesday

  • EIA crude oil inventories, Wednesday

  • China CPI, PPI, Thursday

  • US Challenger job cuts, initial jobless claims, household change in net worth, Thursday

  • Bank of Japan policy rate decision, Friday

  • US nonfarm payrolls, unemployment rate, monthly budget statement, Friday

Some of the main moves in markets:


  • S&P 500 futures rose 0.2% as of 5:58 a.m. New York time

  • Nasdaq 100 futures rose 0.2%

  • Futures on the Dow Jones Industrial Average rose 0.1%

  • The Stoxx Europe 600 was little changed

  • The MSCI World index fell 0.3%

  • S&P 500 futures rose 0.2%

  • Nasdaq 100 futures rose 0.2%

  • The MSCI Asia Pacific Index fell 1%

  • The MSCI Emerging Markets Index fell 1.3%


  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0540

  • The British pound was little changed at $1.1837

  • The Japanese yen fell 0.2% to 137.40 per dollar

  • The offshore yuan rose 0.3% to 6.9719 per dollar


  • Bitcoin rose 0.3% to $22,111.01

  • Ether rose 0.6% to $1,559.04


  • The yield on 10-year Treasuries was little changed at 3.97%

  • Germany’s 10-year yield was little changed at 2.69%

  • Britain’s 10-year yield was little changed at 3.82%


  • West Texas Intermediate crude fell 0.2% to $77.43 a barrel

  • Gold futures fell 0.1% to $1,817.60 an ounce

This story was produced with the assistance of Bloomberg Automation.

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