US Stocks Rise Ahead of Fed; Short-Term Bonds Gain: Markets Wrap

US stocks advanced and short-term Treasuries gained as investors debated whether inflation had eased enough to encourage the Federal Reserve to slow monetary tightening.
The S&P 500 and the tech-heavy Nasdaq 100 jumped after wavering earlier in the session. The policy-sensitive two-year Treasury yield hovered around 4.17%. The dollar slipped for a second day.
A softer-than-expected figure for the US consumer price index stoked a rally across stocks and bonds on Tuesday, but the gains were tempered by caution that the Fed may still remain resolute on continuing rate hikes. While a 50 basis-point increase in Fed’s policy rate later Wednesday is firmly priced in, traders remain on the edge over what signals policymakers may offer on when the hikes will stop and whether a rate cut is possible next year.
“The whole concept that the Fed is going to pivot to us is way overdone,” said David Spika, president and chief investment officer of GuideStone Capital Management. “The bottom line is that inflation is still running over 7%, the Fed is going to have to continue to raise interest rates — Jerome Powell is going to make that very clear today.”
If Powell highlights how perplexed he is that markets have eased since the last meeting, that would be interpreted as a hawkish signal, George Goncalves, head of US macro strategy at MUFG Securities Americas Inc., said in a note.
“Markets are priced to a dovish outcome,” he said. “Anything short of it could still end up viewed as disappointing.”
In the UK, two-year gilts advanced. Inflation in the country fell from a 41-year high in November, raising the possibility that the worst of the cost-of-living squeeze is over.
Europe’s equity benchmark fell after posting the biggest single-day advance since Nov. 10 as caution prevailed over Fed’s messaging later in the day as well as expectations for rate hikes by the European Central Bank and Bank of England on Thursday.
West Texas Intermediate contracts rose for a third day and traded around $76 a barrel. Traders also weighed the demand outlook amid a rapid relaxation of Covid restrictions in China against the effect of new cases on economic activity in the country.
Key events this week:
FOMC rate decision and Fed Chair news conference, Wednesday
China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
ECB rate decision and ECB President Lagarde briefing, Thursday
Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
US cross-border investment, business inventories, empire ...
14 Dec 2022 10AM English South Africa Business News · Business

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