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Stocks up, US yields 3% as markets brace for Fed hike

In a busy week of central bank meetings, Australia’s central bank raised its key rate by 25 basis points more than expected on Tuesday, pushing the Australian dollar up to 1.3% and hurting local actions.

On Thursday, the Bank of England is expected to raise rates for the fourth consecutive time.

The MSCI benchmark for global equities gained 0.1% 0813 GMT as European stocks rose after surviving a “flash crash” on Monday caused by a single sell order traded by Citigroup.

The pan-European STOXX 600 index was up 0.8%, rebounding from Monday’s losses on the back of a tech rally on the Wall Exchange and buoyed by upbeat earnings reports and gains in banking stocks that track higher bond yields.

“These are small flashes of sunshine in the markets. The broader scenario, however, is not encouraging,” said Enrico Vaccari, head of institutional sales at Consultinvest Milan.

“While there is room for equity markets to recover from oversold levels, long-term, there are too many headwinds, simply because the speed of the Fed’s rate hikes will determine market moves. stock market and especially bondholders,” he added.

In the UK, the FTSE 100 index, which reopened after a long weekend, fell 0.2%. In France, BNP rose 4% after a surge in trading activity helped the country’s largest creditor beat profit growth forecasts.

In Asia, shares remained mostly flat in holiday trading as Chinese and Japanese markets were closed, but in Hong Kong, Alibaba shares fell as much as 9% on concerns over the status of its billionaire founder Jack Ma.

A state media report that Chinese authorities had taken action against a person named Ma hit the stock hard, but she recouped her losses after the report was edited to clarify. that it was not about the founder of the company.

Hong Kong’s Hang Seng was little changed and South Korea’s KOSPI was down 0.3%. Australia’s S&P/ASX 200 index fell 0.4% as the central bank raised rates and announced further hikes to contain inflation.

US equity futures rose, with the Nasdaq and S&P 500 e-minis indexes up around 0.4%.

The stock market closed a choppy session on Monday as investors bought tech stocks in the last hour of trading because they believed the stocks had been priced too low ahead of this week’s Fed meeting.

Investors expect the Fed to raise rates by 50 basis points at the end of a two-day meeting on Wednesday, although there is uncertainty over Chairman Jerome Powell’s hawkish stance in comments following the news. decision.

Around 250 basis points of rate hikes by the end of the year are already priced in by money markets, which some analysts say reduces the possibility of hawkish surprises this week.

Yields on US Treasuries remained above 3% in morning European trading, after crossing that key psychological threshold on Monday for the first time since December 2018.

The benchmark US 10-year yield added 2 basis points to 3.0025%.

Vaccari, of Consultinvest, said that if US 10-year yields were to hit 4%, there would be a “very strong move into bonds, even though that risk now seems quite remote”.

The dollar, which was supported by safe-haven buying amid concerns over the economic outlook, remained just below the nearly two-decade high reached in April and the euro held above the level the lowest in more than five years reached last month.

The Dollar Index was at 103.44, down 0.1% on the day. The euro traded 0.1% higher at $1.0536.

THE RBA JOINS THE CLUB

Elsewhere in the currency market, the Australian dollar surged after the central bank surprisingly raised its interest rate by 25 basis points to 0.35%, the first rise in more than ten years. She also announced more rate hikes to come as she draws the curtain back on massive pandemic-related stimulus.

“The RBA joined the club, with a rate hike today that was a bit bigger than we had anticipated. The need to start pulling the policy out of the contingency parameters was clear and the RBA responded to it.” , said Jo Masters, chief economist at Barrenjoey Sydney.

The Aussie was up 0.8% at $0.7107, while the majority of analysts polled by Reuters had expected a rise of just 0.25%.

The pound rose, moving away from its 22-month low against the dollar, as traders took profits on the greenback’s recent rise ahead of the Bank of England’s general policy meeting.

The British pound rose 0.5% to $1.254 from the low of $1.2412 hit last week.

Oil prices have slid, pulled in opposite directions by China’s COVID-19 shutdowns, which could weigh on fuel demand, and the outlook for a supply impact from a possible European fuel embargo. Russian oil.

Brent crude oil fell 0.5% to $107 a barrel, and US crude oil also lost 0.5% to $104.6.

London copper prices fell to a three-month low as COVID-19 restrictions in major consumer China and the prospect of an aggressive rate hike in the US stoked concerns over weak growth world that is hitting the demand for metals.

The three-month benchmark copper on the London Metal Exchange was down 1.7% at $9,608.50 a tonne.

The price of gold hit its lowest level since mid-February as the rising dollar and an impending Fed rate hike reduced bullion’s appeal as an inflation hedge.

Spot gold was down 0.4% at $1,854.4 an ounce.

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