Wall St set to open higher as rate hike pause hopes grow

By Amruta Khandekar and Ankika Biswas

(Reuters) -Wall Street was set to open higher on Thursday after the Federal Reserve hinted it was close to pausing interest rate hikes amid a turmoil in the banking sector that threatens to cause a severe economic downturn.

The Federal Reserve on Wednesday raised rates by an expected 25 basis points, but its policy statement no longer said "ongoing increases" would likely be appropriate, indicating a clear shift in its stance.

The central bank's softer tone relieved markets that have been roiled by concerns about a liquidity crisis in the banking sector since the failure of two U.S. regional lenders earlier this month.

Wall Street's main indexes had closed sharply lower on Wednesday after Fed Chair Jerome Powell said the central bank was still intent on fighting inflation even as he flagged credit issues due to banking troubles could have "significant" implications for the economy.

"The impression given by Powell has taken away any hopes the market had that we might get some cut in interest rates later this year," said Stuart Cole, head macro economist at Equiti Capital.

"It seems that the message that the central banks have been giving to date, that returning inflation to target is their number one priority is very much still the message that they're going to deliver despite the banking failures."

Traders' bets are almost equally split between the Fed pausing its rate hikes in May and another 25 bps hike, according to CME Group's (NASDAQ: CME ) Fedwatch tool.

Bank of America (NYSE: BAC ) and UBS now see the Fed funds rate target peaking at 5-5.25% in May compared to earlier forecasts of 5.25-5.5%.

While U.S. Treasury yields slipped on growing hopes of an end to the Fed's tightening cycle, major growth stocks such as Apple Inc (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ) and Amazon.com (NASDAQ: AMZN ) jumped above 1% premarket.

Troubled regional lender First Republic Bank rose 7.9% after slumping on Wednesday following Treasury Secretary Janet Yellen's remark that there was no discussion on insuring all bank deposits.

PacWest Bancorp and Western Alliance Bancorp gained 4.4% and 5.3% respectively.

Meanwhile, data showed signs of strength in the labor market, with jobless claims falling to 191,000 last week from the week prior, against expectations that the number would rise to 197,000

At 8:41 a.m. ET, Dow e-minis were up 55 points, or 0.17%, S&P 500 e-minis were up 20.25 points, or 0.51%, and Nasdaq 100 e-minis were up 120.25 points, or 0.95%.

Shares of Block Inc fell 19.7% premarket after Hindenburg Research said it held short positions in the Jack Dorsey-led payments firm.

Among other stocks, Nvidia Corp rose 2.5% after Needham raised its price target on the chipmaker on likely benefit from near-term data center strength.

Coinbase (NASDAQ: COIN ) Global Inc slid 14.4% after the U.S. Securities and Exchange Commission (SEC) threatened to sue the crypto exchange over some of its products.

Regeneron Pharmaceuticals Inc (NASDAQ: REGN ) jumped 8.2% on promising results on its blockbuster asthma drug Dupixent from a lung disease trial.

Accenture (NYSE: ACN ) Plc rose 3.1% after the company said it would cut about 2.5% of its workforce, or 19,000 jobs.