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Wall St set to open higher as inflation data boosts softer Fed policy hopes

2023-03-31T13:15:43Z

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 30, 2023. REUTERS/Brendan McDermid

Wall Street’s main indexes were set to open higher on Friday after data showed inflation slowed in February, supporting hopes of a softer monetary policy approach from the Federal Reserve.

The Commerce Department’s report showed the personal consumption expenditure (PCE) index, which is the Federal Reserve’s preferred inflation gauge, rose 0.3% in February, on a monthly basis, compared with a 0.6% rise in January.

Traders’ bets of a 25-basis-point rate hike in May stand at 55.5%, with odds of a pause at 44.5%, according to CME Group’s Fedwatch tool.

“As the Fed rate hikes are now kind of starting to take hold right about a year later since they first began perhaps it is a sign that their hikes are starting to cool inflation,” said Brandon Pizzurro, director of public investments at Guidestone Capital Management.

“But in terms of the Fed’s calculus, they’ll have to have more confirmation that disinflation is really taking hold beyond just a few data points here and there.”

U.S. 10-year Treasury yields fell to a session low of 3.534% after the data.

Friday will cap a turbulent first quarter for stocks, marked by sticky inflation, shockwaves from the collapse of two regional U.S. banks and signs of trouble in some European banks, as well as a repricing of interest rate expectations from the Fed.

The Nasdaq (.IXIC) is set for its biggest quarterly percentage gain since the end of 2020 given a rotation into major technology and growth stocks from financial stocks amid fears of a bank contagion, while the cyclicals-heavy Dow Jones is in the red.

The benchmark S&P 500 (.SPX) is up nearly 6% so far in the first quarter, with the technology sector (.SPLRCT) up about 20% while the financials index (.SPSY) is set for its worst quarter since June.

Some Fed officials have noted a potential hit to the economy from banking sector problems, while recent data including an uptick in weekly jobless claims has supported hopes that the central bank is close to the end of its market-punishing rate hikes aimed at cooling demand.

The KBW Regional banking index (.KRX) and the S&P 500 banks index (.SPXBK), which houses major banks, have lost 19% and 14%, respectively, so far during the quarter.

Consumer sentiment data from the University of Michigan is due later in the day, while New York Federal Reserve Bank President John Williams and Fed Governor Lisa Cook are also scheduled to speak.

At 8:45 a.m. ET, Dow e-minis were up 122 points, or 0.37%, S&P 500 e-minis were up 11.5 points, or 0.28%, and Nasdaq 100 e-minis were up 18.5 points, or 0.14%.

Among specific stocks, Virgin Orbit Holdings (VORB.O) tanked 41.8% premarket, a day after the rocket maker said it was cutting about 85% of staff because it had not been able to raise new investment.

Rumble Inc (RUM.O) jumped 11.0% after the video-sharing platform reported a surge in fourth-quarter revenue.

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