Nasdaq, S&P, Dow Jones futures ease back after big post-Fed rally

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Stock index futures point to a slightly lower open Thursday following a surge in equities after the Fed started its tightening cycle.

A denial by the Kremlin this morning that there is progress in ceasefire talks is weighing on sentiment.

Nasdaq 100 futures (NDX:IND) -0.4%, S&P futures (SPX) -0.3% and Dow futures (INDU) -0.3% are slightly lower.

Rates are falling, but the yield curve is still flattening. The 10-year yield is down 5 basis points to 2.14%, while the 2 year is down 4 basis points to 1.93%.

Stocks rallied into the close yesterday as Fed chief Jerome Powell played down the possibility of a recession, but the flattening of the curve is signaling worries in the bond market about a hard landing.

The 5s-10s curve inverted yesterday for the first time since March 2020.

On average, “it takes around three years from the first Fed hike to recession,” Deutsche Bank’s Jim Reid said. “However the bad news is that all but one of the recessions inside 37 months (essentially three years) occurred when the 2s10s curve inverted before the hiking cycle ended.”

“We think the Fed is using a modified forward guidance framework that has fewer disadvantages than the one from which it is now exiting,” Standard Chartered’s Steve Englander wrote. “Formal forward guidance reduces the uncertainty around future policy, encouraging the market to lever up on the Fed’s policy commitments.”

“This modified forward guidance framework allows the Fed to take hawkish monetary policy out for a spin and see how well the economy deals with it. If the underlying economic or inflation momentum is weaker (as we expect), the Fed rhetoric can back off. If inflation turns out to be even more resilient, it can follow up on the rates already priced in and up the hawkish ante.”

The economic calendar is busy this morning.

Weekly jobless claims are expected to dip slightly, while February housing starts are seen rising. The Philly Fed index is forecast to dip slightly for March, while February industrial production is expected to rise, but less than the month before.

Among global equities, Hong Kong rallied again as tech and real estate continue to rebound.

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