US Futures Decline as Rate-Cut Repricing Takes Control – Europe Market Wrap

US market futures slightly declined, indicating more losses on Wall Street as investors are being forced to downgrade their expectations for interest rate cuts by the Federal Reserve due to persistent inflation.

S&P 500 contracts saw a 0.2% decline after the US benchmark fell 1% on Wednesday due to the consumer price index exceeding estimates for a third consecutive month. The STOXX 600 index in Europe fell as well, with the majority of sectors seeing losses.

Following the spike in rates the day before, Treasuries steadied, with the 10-year yield remaining above 4.5%. European bond prices fell as investors reduced their bets for easing, with all eyes on the European Central Bank’s policy statement later.

This week’s market turmoil has been caused by a dramatic repricing of rate-cut expectations. Investors anticipated six rate decreases by the Federal Reserve totalling 1.5% percentage points over 2024 at the beginning of the year. They are only pricing the two now, delaying the first until after the summer. A Treasury index saw its biggest decline since August 2022 in response to yesterday’s inflation report.

At its fifth meeting on Thursday, the European Central Bank is expected to maintain record-high borrowing costs, but it is also generally expected to hint that easing will begin in June as inflation approaches its 2% target. After then, it is still unclear how the economy and price pressures will develop.

Traders pare BoE rate-cut bets to less than 50 BPS this year.