LONDON (Reuters) – U.S. stock index futures rallied on Wednesday ahead of the outcome of a Federal Reserve policy meeting, with rate hikes this year already priced in, while oil hit highs seven years ago due to tensions between Russia and Ukraine.
The Fed is due to update its policy plan at 7:00 p.m. GMT after a two-day meeting. A first rate hike is observed in March, and three more quarter-point increases are expected by the end of the year.
US S&P futures jumped 1.34%, indicating a stronger open on Wall Street, after the S&P 500 index lost 1.22% in the previous session.
Nasdaq futures rose 2% after Microsoft Corp jumped in premarket trading as the tech giant forecast current-quarter revenue well ahead of Wall Street targets.
The Nasdaq Composite lost 2.28% on Tuesday.
The MSCI World Index rose 0.35%, European stocks climbed 1.97% and Britain’s FTSE 100 gained 1.71%.
“There was some foam in the markets, particularly in the US and particularly in technology and some of that air came out,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.
“I don’t think this is a dead cat bounce – we’re far from being in a recession by any measure.”
US stocks posted their worst week since 2020 last week. The MSCI index is also on track for its biggest monthly decline since the COVID-19 pandemic hit markets in March 2020, although analysts at Goldman Sachs said stocks failed to hit highs. levels of the “danger zone”.
Sebastien Galy, senior macro strategist at Nordea Asset Management, said that given the recent volatility, he expected the Fed to be “much more cautious about the timing and pace of balance sheet reduction and that will be fine. received by the stock market”.
The Fed’s balance sheet roughly doubled in size during the pandemic to nearly $9 trillion, as it grabbed bonds to help keep long-term interest rates low to support the economy.
But this has led to rising inflation, excessive leverage and high valuations in some segments of the stock market.
Growing tension as Russian troops massed on the Ukrainian border added to a risk-averse environment for investors.
US President Joe Biden said on Tuesday he would consider personal sanctions against President Vladimir Putin if Russia invades Ukraine, as Western leaders step up military preparations and draw up plans to protect Europe from a possible energy shock.
Brent crude rose 0.61% to $88.81 a barrel. It reached $89.50 on January 20, the highest since October 2014.
U.S. crude rose 0.4% to $85.95 a barrel. [O/R]
Kristina Hooper, global market strategist at Invesco, said that in the event of an invasion, “ensuing sanctions against Russia could drive up the price of oil, which could in turn add to inflationary pressures in the short term. term”.
However, Ukrainian and Russian government bonds have rallied, with political advisers from Russia, Ukraine, France and Germany set to hold talks in Paris. Andriy Yermak, chief of staff to the Ukrainian president, tweeted upon his arrival in Paris that it was “a strong signal of readiness for a peaceful settlement”.
The dollar index rose slightly to 96.09 against a basket of major currencies, while the euro fell 0.2% to $1.1277, near one-month lows set on Tuesday.
The Canadian dollar strengthened by about 0.5% to 1.2568 against the dollar. The odds are mixed on whether or not the Bank of Canada will raise rates for the first time since 2018 on Wednesday, with Omicron likely to delay the start of an aggressive tightening campaign aimed at tackling inflation.
The benchmark 10-year Treasury yield was 1.7886%, down from a two-year high of 1.9% hit last week. [US/]
German 10-year government bond yields were little changed at -0.072%.
MSCI’s broadest index of Asia-Pacific stocks outside Japan was flat, following steep losses earlier in the week that left the index down 2.8% this year.
The Japanese Nikkei closed down 0.44%, after hitting its lowest level since December 2020.
China’s blue chip index hit its lowest since October 2020 before falling back to close up 0.72%. Hong Kong’s Hang Seng Index rose 0.19%.
Gold prices fell to $1,845 an ounce after hitting a 10-week high in the previous session. [GOL/]
Additional reporting by Sujata Rao in London, Stella Qiu in Beijing and Alun John in Hong Kong; Editing by Kim Coghill and Chizu Nomiyama