Stocks rise ahead of Fed, but UK data sparks talk of rate pause

LONDON (Reuters) – European stocks gained ground on Wednesday, while U.S. Treasury yields fell after hitting multi-year highs, as the recent rise in oil prices stoked concerns about inflation, setting up the scenario for the Federal Reserve to project that rates will stay high for longer.

However, in Europe, sterling came under pressure after data showed Britain’s high inflation rate. dropped unexpectedly in Augustprompting speculation that the Bank of England could halt its historic streak of interest rate hikes as soon as Thursday.

Brent crude oil futures fell 0.8% and moved away from 10-month highs. But at around $93.60 a barrel, prices are still up 30% in three months as Saudi Arabia and Russia cut production.

Higher energy costs caused a larger than expected increase in canadian inflationlifting the Canadian dollar on Wednesday and sparking selling in bond markets around the world.

The Federal Reserve is expected to leave rates unchanged at the current range of between 5.25% and 5.5% when it concludes a two-day meeting later on Wednesday.

His policy statement is expected at 1800 GMT, followed by a press conference with Federal Reserve chief Jerome Powell.

“While the Federal Reserve is not expected to change its policy rate today, the US rates market has been reducing expectations for rate cuts in 2024 ahead of today’s FOMC meeting, which has helped to raise short-term rates in the US,” said the MUFG senior currency analyst. Lee Hardman, referring to the Federal Reserve’s interest rate-setting body.

Two-year Treasury yields fell 3.5 basis points in London trading to 5.07%, after rising sharply on Tuesday, when five- and 10-year Treasury yields reached maximum of 16 years.

Benchmark 10-year Treasury yields were last trading at 4.34%, having hit 4.371% overnight.

WAITING FOR THE FED

The Federal Reserve meeting caps a week packed with central bank meetings, with policy announcements in Sweden, Switzerland, Norway, Brittany and Japan everything is due later in the week.

Global stock markets were up slightly ahead of the Federal Reserve’s rate decision.

European stocks rose 0.7% (.STOXX) and US stock futures were also rising.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.5% with Hong Kong (.HSI) Stocks drag as China ditches interest rates on holdNikkei of Japan (.N225) fell 0.7%.

Sterling underperformed most other major currencies following the British inflation data, last trading down 0.25% at $1.2365.

UK bond yields fell sharply as investors reduced bets on a rate hike on Thursday, with two-year yields falling more than 14 basis points to 4.85%.

“With today’s data, two of the three indicators that the Monetary Policy Committee has established to monitor the persistence of inflation have now shown markedly greater progress than expected since the August meeting,” Goldman Sachs economists said. , directed by Sven Jari Stehn. saying.

“Combined with its recent dovish comment, we now expect the MPC to keep the bank rate unchanged tomorrow and reduce our forecast for the terminal policy rate to 5.25%,” Stehn and co. aggregate.

Meanwhile, the Japanese yen continued to face pressure, prompting a response from Japan’s top financial diplomat.

Masato Kanda He told reporters that Japanese authorities were always in close communication with their American counterparts and that he would not rule out any options if “excessive measures persist.”

The yen is down 11% against the dollar this year on firm expectations that US rates will stay high and Japanese rates will stay low, previously hitting a 10-month low of 148.17 per dollar.

Benchmark 10-year Japanese government bonds are at 0.72%, but have been moving closer to the Bank of Japan’s tight tolerance for yields of 1% on either side of zero.

The euro was trading a little firmer at $1.0704. Commodity exporters’ currencies held firm, with the New Zealand dollar maintaining modest recent gains to $0.5964 following strong gains in dairy prices at auctions.

The Australian dollar held at $0.6486 and analysts said markets could be more sensitive to a moderate surprise from US authorities.

“We think the market may already be half-prepared for an aggressive pause,” said DBS strategist Eugene Low in Singapore.

“Unless the Fed delivers more than reasonably expected – that is, raises rates or eliminates two cuts per year – we think the rise in two- and three-year dollar rates may be limited.”

Rising yields have capped gold prices, with spot gold last trading at $1,930 an ounce.

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