U.S. Treasuries tumbled and equity-index futures fluctuated as investors weighed Federal Reserve Chair Jerome Powell’s willingness to embrace bigger rate hikes earlier in the tightening cycle.
 

Contracts on the Nasdaq 100 and S&P 500 indexes swung between gains and losses, as traders received conflicting cues from Fed-hike bets and earnings reports.

Shorter-dated Treasury yields surged. The dollar rose to the highest level since July 2020 amid losses for the British pound with data showing the U.K.’s cost-of-living crisis is hampering consumer spending.

Even as the Fed and the European Central Bank have made a deeper hawkish tilt in recent days, U.S. equities have remained resilient thanks to what’s developing into another stellar earnings-reporting season.

At the same time, traders are mindful of the inevitable risk repricing, especially after Powell outlined his most aggressive approach yet to taming inflation, potentially endorsing two or more half percentage-point rate increases.

“Equities are really torn between these two forces right now and the first one is that earnings are actually pretty good,” Anastasia Amoroso, chief investment strategist at iCapital Securities LLC, said on Bloomberg Television.

But “anytime equities rally it seems like the Fed officials are coming in with more and more hawkish talk,” she said.

Powell on Thursday cited minutes from last month’s policy meeting that said many officials had noted “one or more” 50 basis-point hikes could be appropriate to curb the hottest inflation in four decades.

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Investors are now betting on half-point increases in May, June and possibly July.

Meanwhile, early trends in earnings were supportive of stocks. Of the 91 S&P 500 companies that have reported quarterly results so far, more than 80% have beaten estimates for-profit and 65% have surpassed sales forecasts.

Positive surprises are seen in all industry groups, underpinning a broad-based recovery.

“The unknown is Powell’s ability to deliver the needed finesse without completely derailing the recovery, while not falling short of the required magnitude to anchor inflation,” Ian Lyngen, head of interest-rate strategy at BMO Capital Markets, wrote in a note.

European equities joined Friday’s selloff as financial results in the continent proved to be a mixed bag and stronger tightening signals from the ECB undermined risk appetite.

Investors are also braced for the second round of voting in the French presidential election this Sunday, where Emmanuel Macron will face off against Marine Le Pen.

Losses in the pound and euro contributed most to the dollar’s rally, with the U.S. currency on course for the third week of gains. Treasury yields surged after a wobbly start to the European trading session.

The two-year rate added 8 basis points and the five-year yield was 6 basis points higher.

-Yahoo Finance

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