Futures steady as banks rebound; inflation data on tap

By Shubham Batra and Amruta Khandekar

(Reuters) -U.S. stock index futures rose on Tuesday after a volatile session amid fears of a banking crisis, while investors looked ahead to an inflation report that could determine whether the central bank will pause its rate hikes in March.

The recent shutdown of SVB Financial and peer Signature Bank (NASDAQ:) has fueled fears of risks to the health of other banks from surging interest rates, hammering the sector and the broader market sentiment in the last few days.

Investors are now hoping that the threat of a financial crisis could force the U.S Federal Reserve to ease up on monetary tightening. Money market traders have already abandoned wagers of a steep 50 basis point increase next week.

They are largely expecting a 25-basis-point rate hike in March, while bets that the Fed would stay put stood at 27%..

The Labor Department’s February consumer prices report, due at 8:30 am ET, will also feed into the Fed’s policy decision at its March meeting.

A Reuters poll of economists showed that the U.S. Consumer Price Index (CPI) likely increased by 0.4% last month after accelerating 0.5% in January amid sticky rental housing costs.

On a yearly basis, CPI is expected to rise 6.0% in February, moderating from a 6.4% rise the previous month.

“If we get a slightly poorer figure, people will then hope for an outright pause but if we get a better figure, people will say the Fed will probably do a quarter (bps rate hike),” said Andrew Bell, chief executive officer of Witan Investment Trust.

“The central banks are either likely to hit a pause and raise rates more slowly than we thought only a week ago. If this proves to be small storm covering only a limited number of poorly run banks, then the Fed can certainly come back in and say inflation is a bigger problem.”

The yield on two-year Treasury notes, which best reflect interest rate expectations, tumbled below the 4% mark on Monday and is currently at 4.3%.

Regional bank stocks rebounded in premarket trading. First Republic Bank (NYSE:) jumped 22.1% a day after the mid-cap lender’s executive chair, Jim Herbert, told CNBC the bank has been able to meet withdrawal demands with additional funding from JPMorgan Chase & Co. (NYSE:)

At 6:29 a.m. ET, were up 139 points, or 0.44%, were up 18 points, or 0.47%, and were up 44.5 points, or 0.37%.

Big U.S. banks, including JPMorgan Chase & Co, Citigroup (NYSE:) and Wells Fargo (NYSE:), gained between 1.2% and 3.4% after losing ground in the previous session.

U.S.-listed Chinese stocks such as Alibaba (NYSE:) Group Holdings Ltd, JD (NASDAQ:).Com Inc and Baidu Inc (NASDAQ:) were down between 0.7% and 2% on fears of contagion from the SVB collapse.

Shares of ride-hailing companies Uber Technologies (NYSE:) Inc and Lyft Inc (NASDAQ:) rose 7.1% and 6.4%, respectively, after a California state court revived a ballot measure allowing app-based services to treat drivers as independent contractors rather than employees.

United Airlines Holdings (NASDAQ:) Inc fell 6% after the U.S. carrier on Monday forecast an unexpected loss in the current quarter, citing lower demand.