Major Wall Street indexes closed higher after swinging during the session as investors wait to see how aggressively the Fed will step up interest rate hikes at this week’s policy meeting.
Asian stocks edged higher in early trade on Tuesday after rebounding in the final hour of trading in New York as investors focused on an expected sharp hike in interest rates from the Federal Reserve this week to fight inflation .
Even more than the war in Ukraine or corporate earnings, US central bank actions are boosting market sentiment as traders try to position themselves for a rising interest rate environment.
At the start of the Asian trading day, MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.7% while US equity futures, the S&P 500 e-minis, rose. by 0.11%.
The Japanese Nikkei advanced 0.38% and Australian stocks climbed 1.1%.
China’s blue-chip CSI300 index was 0.54% higher at the start of trading. Hong Kong’s Hang Seng index opened 0.92% higher.
On Monday, major Wall Street indexes closed higher after swinging during the session as investors wait to see how aggressively the Fed will step up interest rate hikes at this week’s policy meeting.
The S&P 500 and Nasdaq Composite rebounded after posting their worst weekly percentage decline since June, as markets were fully priced for an interest rate hike of at least 75 basis points by the end of the meeting. Fed policy of September 20 and 21.
Markets expect rates to climb to 4.5% by early 2023, compared to the current Fed policy rate range of 2.25-2.5%. That’s high enough to dampen growth, and it’s keeping bond yields low at the longer end of the curve.
The Dow Jones Industrial Average rose 0.64%, the S&P 500 0.69% and the Nasdaq 0.76%.
Rising interest rates prompted a sell-off in government bonds. The yield on benchmark 10-year Treasuries remained high at 3.48%, after hitting 3.51% on Monday, its highest level since April 2011.
The two-year yield, a barometer of future inflation expectations, touched 3.95% after hitting a new nearly 15-year high of 3.97%.
It is not just in the United States that interest rate hikes are expected. Most central bank meetings this week – from Switzerland to South Africa – are set to rise, with markets split on whether the Bank of England will move 50 or 75 basis points.
China’s central bank, however, went its own way, cutting the repo rate by 10 basis points on Monday to support its struggling economy.
The other exception is the Bank of Japan, which is also due to meet this week and has shown no sign of abandoning its ultra-loose yield curve policy despite a drastic drop in the yen.
The higher yields helped strengthen the dollar and made gold less attractive.
The dollar index, which measures the currency against six peers, was 0.037% stronger at 109.58.
Gold was slightly lower. Spot gold was trading at $1,675.63 an ounce.
Oil prices also fell, under pressure from a stronger dollar and weak prospects for global economic growth. U.S. crude fell 0.17% to $85.58 a barrel. Brent crude fell to $91.9 a barrel.
(Edited by : Sangam Sing)