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.
Advanced Micro Devices Inc. rose in US premarket trading after the chipmaker showed off its planned line of artificial intelligence processors. Tesla Inc. was set to extend gains to a record 14th consecutive session, having already added $240 billion to its market value in this winning streak. Shell Plc shares got a boost after the oil major said it will increase its dividend. Vodafone Group Plc gained as it agreed with CK Hutchison Holdings Ltd. to combine their UK mobile businesses.
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 Europe, a rally in miners helped push the Stoxx 600 benchmark to the highest in three weeks.
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
Treasury yields steadied 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:
- Stephanie Niven, Ninety One UK portfolio manager:
“We’re very much expecting a skip. The Fed is very data-focused. We see them having factored in some of the interesting inflation data we saw yesterday. And we continue to see them doubling down on their policy. Let’s not forget this has been one of the fastest hiking cycles we’ve seen — this is historic. And we will see that lag come through. We will continue to see that effect trickle through. But we are by no means done.”
- James Searle and Saumesh Dutta, Citigroup strategists:
“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.”
- 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.”
Wall Street’s “fear gauge” — the Cboe Volatility Index — has dropped back below 15, against an average of 23 for the past year, underscoring support for risk assets. In another sign of the calm prevailing in equity markets, it’s now almost 80 trading days since the S&P 500 declined by 2% or more.
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
- S&P 500 futures rose 0.2% as of 6:36 a.m. New York time
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.1% to $1.0804
- The British pound rose 0.3% to $1.2647
- The Japanese yen rose 0.2% to 140.00 per dollar
Cryptocurrencies
- Bitcoin rose 0.4% to $25,960.72
- Ether rose 0.4% to $1,745.65
Bonds
- The yield on 10-year Treasuries was little changed at 3.82%
- Germany’s 10-year yield advanced four basis points to 2.46%
- Britain’s 10-year yield was little changed at 4.43%
Commodities
- West Texas Intermediate crude rose 1.4% to $70.37 a barrel
- Gold futures rose 0.2% to $1,963 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jan-Patrick Barnert and Tassia Sipahutar.
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