U.S. Index Futures Tumble as Post-Powell Disappointment Deepens

(Bloomberg) -- U.S. stock-index futures retreated on Thursday amid investor disappointment over the Federal Reserve’s monetary tightening.

March e-mini contracts on the S&P 500 slid as much as 1.1 percent, reversing a 0.5 percent gain. Futures on the Nasdaq 100 Index and Dow Jones Industrial Average dropped 0.5 percent. Losses deepened as early risers on European trading desks had their first chance to react to the Fed’s continued expectation for at least some tightening in 2019, with balance-sheet contraction continuing on what Chairman Jerome Powell called “automatic pilot.”

“The market was deluding itself” in expecting something more dovish from the Fed, Taimur Baig, chief economist and managing director for group research at DBS Bank, said on Bloomberg Television.

European equities slumped at the open to the lowest level in two years as all sectors in the Stoxx Europe 600 Index declined. Miners, tech and banks paced the drop.

Key Insights

  • The S&P 500 fell 1.5 percent on Wednesday, breaking its February intraday low as markets revolted from what they saw as a less-dovish-than-hoped for Fed rate increase. The central bank trimmed its outlook for hikes and cited softening global economic conditions.
  • The drop pushed the benchmark gauge’s 14-day relative strength index into oversold territory.
  • The Fed’s lowered growth forecast followed FedEx Corp.’s warning on Tuesday about a souring business outlook and Micron Technology Inc.’s planned cuts to capital spending. The corporate news reinforced worries that the global economy will weaken in 2019.
U.S. Index Futures Tumble as Post-Powell Disappointment Deepens

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Market Reaction

  • Stoxx 600 falls 1.5% to the lowest level since Dec. 2016
  • The MSCI Asia Pacific Index slumped 1.4 percent
  • Japan’s Nikkei 225 Stock Average declined 2.8 percent, while the Topix index dropped 2.5 percent, entering a bear market
  • Australia’s S&P/ASX 200 Index closed at 2-year low

“Powell could never satisfy the market,” Viktor Shvets, head of Asian strategy at Macquarie Commodities & Global Markets, said on Bloomberg Television. “Eventually, the Federal Reserve always overtightens, they always go too far down the line. I think they’ve already gone too far.”

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