Stocks climbed on Wednesday, with markets positioned for Federal Reserve Chairman Jerome Powell to announce a pause in the US central bank’s interest-rate hiking campaign later.
(Bloomberg) — Stocks climbed on Wednesday, with markets positioned for Federal Reserve Chairman Jerome Powell to announce a pause in the US central bank’s interest-rate hiking campaign later.
Autos and construction stocks led a modest advance in Europe’s Stoxx 600. US futures inched higher following the S&P 500’s fourth consecutive increase — the longest winning run since early April. It is approaching the 4,400 mark, a level it hasn’t traded at for more than a year.
In corporate news, Shell Plc shares got a boost after the oil major said it will increase its dividend. Advanced Micro Devices Inc. rose in US premarket trading after the chipmaker showed off its planned line of artificial intelligence processors.
Global investors embraced Tuesday’s data showing a slowdown in US inflation as confirmation that the Federal Open Market Committee will hold rates in the 5%-5.25% range. Swap traders put the odds of an increase at only 10%, while still seeing the potential for a July move, given that inflation is still more than twice the central bank’s goal.
“A hawkish skip is the most likely scenario for today’s FOMC,” said Evelyne Gomez-Liechti and Helen Rodriguez, strategists at Mizuho International. “We expect Powell will follow up with a relatively hawkish tone in the press conference in order to prevent a dovish market reaction, stressing that inflation is still too high and the Fed will be resolute in returning inflation to target.”
Fed to Pause and Keep Option to Hike in July: Decision-Day Guide
Wall Street’s “fear gauge” — the Cboe Volatility Index — dropped back below 15, against an average of 23 for the past year, underscoring support for risk assets.
Treasury yields ticked lower following a surge in short-term yields to the highest levels since March on Tuesday amid a decline in expectations of rate cuts in 2023. An index of dollar strength held near a one-month low.
Comments on the Fed:
- James Searle and Saumesh Dutta, Citigroup:
“If the Fed does skip a hike in June — a difficult decision to communicate as growth, inflation, and policy rate forecasts are very likely to be revised higher — some hawkish surprise at some point would be expected as underlying inflation remains stably too strong.”
- Jim Reid, Deutsche Bank macro strategist:
“Our US economists think that the Fed’s statement will see a hawkish adjustment, and will note the potential for more tightening at ‘coming meetings.’ They also think the dot plot will show a further hike pencilled in for this year. And at the press conference, they think there’s little downside from Chair Powell delivering a hawkish message, considering the resilient data recently, easing financial conditions, and a desire to prevent near-term rate cuts being priced.”
- Michael Hewson, chief market analyst, CMC Markets:
“While markets are fully expecting the Fed to announce no change today, Powell’s biggest challenge will be in keeping the prospect of a July rate hike a credible outcome.”
- Mark Haefele, CIO, UBS Global Wealth Management:
“While our base case is for the Fed to skip a rate hike at today’s monetary policy meeting, we don’t interpret the data for May as being sufficient to allow the Fed to call a final end to tightening. Nor do we believe the data will justify the recent optimism among equity investors.”
- Susannah Streeter, Hargreaves Lansdown:
“The expected pause by the Fed has already been priced in, which is why you are seeing a muted run up to the decision. The direction of stocks going forward will depend on Jay Powell’s comments and whether the door, which appears to be left open on future rate hikes, is one he’s willing to go through.”
Meanwhile in Asia, an index of the region’s equities rose for a fourth day amid bets for supportive monetary policy from central banks in China and Japan, where the Topix extended its three-decade high. The People’s Bank of China is projected to cut its medium-term lending facility rate on Thursday, while the Bank of Japan is expected to keep its ultra-easy policy unchanged Friday.
China will most likely focus on consumers in stimulus that’s in the works, according to Aisa Ogoshi, Asia equities portfolio manager at JPMorgan Asset Management. “We cannot expect the kind of stimulus that we’ve seen in the past, i.e. the property sector-led stimulus,” she said on Bloomberg Television. Instead, investors will see steady stimulus focusing on consumers and “the macro backdrop is good for stock pickers,” she added.
Key events this week:
- Eurozone industrial production, Wednesday
- US PPI, Wednesday
- Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday
- IEA oil market report, Wednesday
- China property prices, retail sales, industrial production, Thursday
- European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
- US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
- Bank of Japan rate decision, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.4% as of 9:42 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures rose 0.3%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The MSCI Asia Pacific Index rose 0.3%
- The MSCI Emerging Markets Index fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.0798
- The Japanese yen rose 0.2% to 139.96 per dollar
- The offshore yuan was little changed at 7.1678 per dollar
- The British pound rose 0.2% to $1.2631
Cryptocurrencies
- Bitcoin rose 0.3% to $25,925.7
- Ether rose 0.3% to $1,744
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.80%
- Germany’s 10-year yield advanced one basis point to 2.44%
- Britain’s 10-year yield was little changed at 4.43%
Commodities
- Brent crude rose 1.2% to $75.18 a barrel
- Spot gold rose 0.3% to $1,949.69 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jan-Patrick Barnert, Tassia Sipahutar and Sagarika Jaisinghani.
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