The stock market barely budged after retracing all of its losses since the start of the banking turmoil, with traders awaiting one of the most-challenging Federal Reserve decisions in recent memory.
(Bloomberg) — The stock market barely budged after retracing all of its losses since the start of the banking turmoil, with traders awaiting one of the most-challenging Federal Reserve decisions in recent memory.
After the extreme volatility of the last few weeks, things have calmed down and the market has settled for another quarter-point Fed hike — a bet that has recently trumped the odds of a pause or even a bigger increase. While several market observers say a 50 basis-point boost would be a shock, many expect the central bank to raise its projections for rates this year in a bid to sound tough when it comes to its war against inflation.
“This period of calm will no doubt be welcomed by the Fed and allow for it to continue hiking by 25 basis points without much controversy,” said Craig Erlam at Oanda. “The question is whether it will adopt a similar position to its counterpart in Europe and refrain from commenting directly on future moves or sending any strong signals.”
Read: Fed Caught Between Inflation and Bank Crisis: Decision-Day Guide
As of Wednesday morning, markets were pricing in about 85% odds that the Fed will raise rates by a quarter point, to a range of 4.75% to 5%, the highest since 2007 on the eve of the global financial crisis. The decision and forecasts will be released at 2 p.m. in Washington. Chair Jerome Powell will hold a press conference 30 minutes later.
The S&P 500 fluctuated around its 4,000 level, Treasury two-year yields edged higher to around 4.2% and the US dollar was little changed.
While policymakers’ extraordinary actions to stem the fallout from banking system stress and financial contagion risk have sparked a “risk on” rally, we are sticking with our intermediate-term bearish base case, saod Chris Senyek at Wolfe Research.
“In our view, inflation is even more likely to remain ‘sticky,’ the Fed is likely to be much tighter than consensus expects, and we now expect the upcoming downturn to be even more protracted,” he added.
Key events this week:
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 9:39 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0781
- The British pound rose 0.2% to $1.2244
- The Japanese yen was little changed at 132.62 per dollar
Cryptocurrencies
- Bitcoin rose 1% to $28,439.32
- Ether rose 0.4% to $1,808.28
Bonds
- The yield on 10-year Treasuries was little changed at 3.60%
- Germany’s 10-year yield advanced seven basis points to 2.36%
- Britain’s 10-year yield advanced 13 basis points to 3.49%
Commodities
- West Texas Intermediate crude fell 0.2% to $69.54 a barrel
- Gold futures rose 0.2% to $1,963.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.