Stocks climbed amid a bout of investor relief after the Federal Reserve raised interest rates as expected to tackle high inflation while countering fears of super-sized hikes.
European shares jumped 1.8% at the open, following the S&P 500 index’s biggest daily advance since 2020 and a move higher in Asian bourses. Futures on the S&P 500 and Nasdaq 100 slipped while the dollar turned higher with Treasury yields.
Fed Chair Jerome Powell said a 75 basis points hike is “not something that the committee is actively considering,” spurring the market rally. The Fed raised rates a half point and signaled similar moves for the next couple of meetings.
“Removing some of the uncertainty is helpful in getting some of the cash that has been on the sideline back into the markets, whether it’s bonds or equities,” Erin Gibbs, chief investment officer at Main Street Asset Management LLC, said on Bloomberg Television.
The market reaction is likely to evolve as investors digest Powell’s commentary. A global wave of monetary tightening alongside commodity-fueled price pressures could yet hurt economic growth. Russia is also continuing its war in Ukraine and China’s Covid curbs are snarling global supply chains.
In Europe, German factory orders plummeted, highlighting the toll from the war. European Central Bank Executive Board Member Fabio Panetta said economic expansion has almost ground to a halt in the euro area.
The Bank of England is expected to raise rates later to their highest level in 13 years and clarify how it plans sell off some of its 847 billion pounds ($1.1 trillion) in government bond holdings.
Climbs in oil and wheat underlined the risks. Crude hit $108 a barrel on a European Union plan to ban Russian barrels over the next six months. Wheat rose on the possibility of export curbs by major grower India.
‘Too Optimistic’
“The market is way too optimistic about the Fed’s ability to tame inflation,” Nancy Davis, chief investment officer at Quadratic Capital Management LLC, wrote in a note. “We may be facing a stagflation environment.”
Swaps linked to Fed meetings are now pricing in less than 150 basis points of further rate increases over the June, July and September decisions. That hints at doubts about the scope for another three hikes of 50 basis points apiece.
The U.S. central bank will also allow its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over three months to $95 billion.
Gold rose 1% amid the drop in yields and cooling policy-tightening expectations. That dynamic also allowed Bitcoin to hold a climb toward $40,000.
Follow this link to participate in the MLIV Pulse Survey, which this week focuses on European assets.
Europe and the conflict in Ukraine is the theme of this week’s MLIV Pulse survey. Given the ECB is edging toward the end of quantitative easing, is it inevitable that Europe will have a hard landing and how would that affect assets? It takes only a minute and is anonymous, so share your thoughts in the survey by clicking, here.
Key events this week:
- Bank of England rate decision and briefing, Thursday
- OPEC+ convenes virtually for a regular meeting, Thursday
- U.S. April jobs report, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 1.8% as of 8:10 a.m. London time
- Futures on the S&P 500 fell 0.3%
- Futures on the Nasdaq 100 fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0598
- The Japanese yen fell 0.4% to 129.62 per dollar
- The offshore yuan fell 0.3% to 6.6435 per dollar
- The British pound fell 0.8% to $1.2531
Bonds
- The yield on 10-year Treasuries advanced two basis points to 2.96%
- Germany’s 10-year yield advanced one basis point to 0.98%
- Britain’s 10-year yield declined two basis points to 1.95%
Commodities
- Brent crude rose 0.6% to $110.82 a barrel
- Spot gold rose 0.8% to $1,895.46 an ounce
