Dow, S&P, Nasdaq futures up ahead of Fed; yields sink as ECB meets

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Stock index futures points to a higher open Wednesday, buoyed by confidence in Europe about emergency central bank action.

Nasdaq 100 futures (NDX:IND) +0.6%, S&P futures (SPX) +0.5% nad Dow futures (INDU) +0.3% are higher.

Major European indexes popped after the ECB called an emergency policy meeting. The DAX (DAX:IND) +1.1%, FTSE-100 (UKX) +1.3% and CAC-40 (CAC:IND) +0.9% are rallying.

“The Greek gods didn’t like humans who over-stepped their mark and tried to behave like gods,” SocGen’s Kit Juckes wrote. “The ECB’s carefully-communicated strategy was to end asset purchases, then raise rates, starting in small increments and accelerating if needed.”

“That would allow an escape from the current extraordinary policy regime. This strategy is in all sorts of trouble today as the ECB meet to discuss their anti fragmentation policy and tools.”

Worried about peripheral spreads, with Italian 10-year yields topping 4%, the central bank could make a move this morning to revinvest PEPP funds to stabilize bonds or even announce a new policy tool.

The prospect of global yields falling is arresting the recent surge in Treasury yields. The 10-year Treasury yield is down 10 basis points to 3.38% and the 2-year is down 11 basis points to 3.33%.

The FOMC announcement comes at 2 p.m. ET today, with markets pricing in a 95% of a hike of 75 basis points, and a 5% chance off 100 basis points.

But many Wall Street banks are still sticking with the Fed raising by 50 basis points, with members still reluctant to overshoot.

“A 0.75ppt move today means future Fed attempts to signal policy direction will be countered with ‘they don’t mean it, remember June 2022,'” UBS chief economist Paul Donovan said.

Fed policy is more straightforward than the ECB’s peripheral bond dilemma, Juckes said.

“Of course, straightforward isn’t the same thing as ‘simple’ when many of the drivers of inflation are unaffected by rates (energy and food prices, for starters) and others really are temporary (spending pivoting from goods to services as soon as summer approached), but if that means they need to tighten faster, at least they just need to brief the press, apparently.”

If the Fed does hike by 75 basis points, what does that mean for stocks?