US stock index futures extended gains amid a moderation in February's consumer prices. At 8:32 am ET, Dow e-minis were up 253 points, or 0.79%, S&P 500 e-minis were up 35.5 points, or 0.92%, and Nasdaq 100 e-minis were up 100.5 points, or 0.84%.
Traders' bets that the Federal Reserve will hold rates at the current level at its March meeting stayed at 23%, while bets of a 25 basis point rate hike stood at 77% earlier.
“A policy mistake is hands down the biggest risk in the market," Mary Manning, global portfolio manager for Alphinity Investment Management, said on Bloomberg Television. “Controlling inflation but also addressing the fact there is some instability in the banking system is difficult."
Goldman Sachs Group economists as well as asset managers from the world’s largest actively managed bond fund, Pacific Investment Management, said the US Fed could take a breather on the policy rate following the collapse of SVB. Nomura Holdings economists took it one step further, saying the Fed could cut its target rate next week.
All eyes were on the CPI report as the recent collapse of Silicon Valley Bank has spurred hopes that the central bank would soften its policy stance to avoid a broader financial crisis.
The SVB meltdown has also caused a swift repricing in credit risk. Yield premiums on company debt, which had trended lower for much of this year, have climbed back to levels seen in November, as per a Bloomberg index that includes investment-grade and junk bonds.
