Don't trust a dovish Fed too much
STOXX 600 down 0.9%
Fed, SNB, Norway raise rates
BoE rate decision next
Tech up, banks down
Nasdaq futures up 0.8%
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DON'T TRUST A DOVISH FED TOO MUCH (1028 GMT)
A more dovish tone by Federal Reserve Chair Jerome Powell triggered expectations that the next rate hike, or even the one the Fed delivered yesterday, might be the last.
But there are 'ifs and buts' investors should be aware of.
"Nobody can say with any certainty to what extent credit conditions will be tightened medium-term. Not even the Fed. It could revise its current view at any time – in both directions," says Ulrich Leuchtmann, head of forex research at Commerzbank.
"In the end, there is still a large discrepancy between market and FOMC expectations. The market expects rapid rate cuts; the FOMC does not expect that it will do that," he adds.
Bottom line, "without the currently expected tighter credit conditions (due to bank troubles in the U.S.), the FOMC would be much more aggressive. That is why there are risks towards U.S. dollar strength too."
Powell acknowledged that much of the assessment of the regional banking situation's impact on growth and inflation is guesswork for now, Citi analysts flag.
U.S. Treasury yields fell on Wednesday after the Fed said policymakers believe beating back inflation may require only one more rate hike this year.
"The median dot for 2023 still shows one further 25bp hike, but we are unconvinced at this stage of that hike being delivered and see yesterday's as more likely the last," says Derek Halpenny, head of research at MUFG.
STOXX DOWN WITH BANKS, TECH UP (0907 GMT)
As investors parsed the latest interest rate hikes in the U.S., Switzerland and Norway, just ahead a policy decision in the UK, European shares got off to a muted start on Thursday.
The STOXX Europe 600 .STOXX index fell 0.3%, with renewed weakness in financials offsetting a more buoyant tech sector .SX8P which rose 1%, indicating hopes the Fed is close to pausing after its ninth straight rate hike on Wednesday.
Most sectors were softer and so were country indices.
EUROPE TICKS LOWER (0738 GMT)
European shares were expected to open slightly lower on Thursday after the Fed raised interest rates by an expected 25 basis points, sticking to its plan despite the transatlantic bank turmoil that has threatened financial stability.
The U.S. move comes before a raft of likely hikes in Europe later in the day, with policy decisions in Norway, Switzerland and the UK due to take centre stage. The Fed's message was initially viewed as dovish, which propped up U.S. indices.
But during Fed Chair Jerome Powell's news conference Wall Street turned lower. Also weighing were remarks from Treasury Secretary Janet Yellen who told lawmakers she is not considering "blanket insurance" for deposits.
Reflecting the weaker U.S. close, European futures were ticking lower in early trading. Contacts on the EuroSTOXX50, DAX and FTSE 10 indices fell around 0.3%. U.S. stock index futures meanwhile rose more than 0.5%.
Financials remained very much in focus. Swiss wealth manager Julius Baer BAER.S, which analysts expect could gain market share following UBS's takeover of Credit Suisse, reportedly said its balance sheet was rock-solid and highly liquid.
Elsewhere in corporate news, traders were calling for declines in Zur Rose ROSEG.S shares after the online pharmacy reported results. Jeronimo Martins JMT.LS was expected to rise slightly after Q4 profits the Portuguese retailer increased 23%.
EUROPE'S HIKERS LOOK TO CARRY ON AS FED HESITATES (0654 GMT)
Markets reckon the Fed is pretty much done now with rate hikes, but see a different story in Europe. FEDWATCH
The European Central Bank set the tone last week by sticking with a 50 basis point hike. Today, it's over to Norges Bank, the Bank of England and the Swiss National Bank to see whether the gap that traders have priced with the Fed is warranted.
Norges Bank has been steadily hiking since September 2021 and economists reckon it has at least two more 25 bp hikes to go.
Markets expect another 50 bps each for the ECB 0#ECBWATCH and BoE 0#BOEWATCH, and see the SNB raising rates 50 bps to 1.5% at 0830 GMT this morning.
Surprisingly hot British inflation seems to have washed out any doubt that the BoE will be in serious hiking mode today, too, with a 25 bp hike expected at 1200 GMT, its 11th consecutive rate rise.
The idea that central bankers in Britain and on the continent still have work to do - despite the effect of bank stresses on financial conditions - stands in contrast to the watchful tone at the Fed.
The result so far has been to send U.S. and European yields in opposite directions and to sell the dollar.
Janet Yellen gave things a wobble overnight by telling Congress that she hasn't considered or discussed blanket insurance on bank deposits.
But her remark that deposits at smaller banks might get a backstop if there were contagion risks went down well with community bank managers, even if it didn't with shareholders.
And Asia seems to have focused on the Fed's shift - driving Treasury yields lower, the euro EUR=EBS back to seven-week highs above $1.09 and the yen JPY=EBS to a six-week peak, while bank shares held steady. MKTS/GLOB
Rhetoric from Threadneedle Street and Europe's central bankers today can test those shifts.
Key developments that could influence markets on Thursday:
Policy meetings in Norway, Switzerland and Britain
Eurozone consumer confidence, U.S. jobless claims
The race to raise rateshttps://tmsnrt.rs/3ncfxRI
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