Stocks up, U.S. yields at 3% as markets ready for Fed hike

Milan, May 3 (BNA): Global stocks rose on Tuesday and US 10-year Treasury yields held above 3% as investors braced for the Fed’s biggest rate hike since 2000.

In a busy week of central bank meetings, the Reserve Bank of Australia raised its key interest rate by 25 basis points more than expected on Tuesday, raising the Australian dollar by as much as 1.3% and hitting local stocks.

Reuters reported that the Bank of England is expected to raise interest rates for the fourth consecutive time on Thursday.

The benchmark MSCI World Stocks Index (.MIWD00000PUS) was up 0.1% by 0813 GMT as European shares rose after having escaped a “quick crash” on Monday due to a single sell trade by Citigroup.

European stock index STOXX 600 (.STOXX) rose 0.8%, rebounding from Monday’s losses with a tech-led rally on Wall Street 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 is not encouraging,” said Enrico Vaccari, head of institutional sales at Consultinvest in Milan.

He added, “Although there is room for stock markets to rally from oversold levels, there are too many headwinds in the long run, simply because the speed of interest rate hikes by the Fed will drive stocks and especially bond market moves.”

In the UK, the FTSE 100 (.FTSE), which reopened after a long weekend, was down 0.2%. In France, BNP (BNPP.PA) shares are up 4% after a sharp increase in trading activity aided earnings growth expectations for the country’s largest bank.

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In Asia, shares were mostly flat in thin trade during the holidays, with both China and Japan markets closed, but in Hong Kong, Alibaba (9988.HK) shares fell 9% on concerns about the status of its billionaire founder Jack Ma.

An official media report that Chinese authorities took action against someone surnamed Ma severely damaged the shares, but they made up for the losses after reviewing the report to make it clear that he was not the founder of the company.

Hong Kong’s Hang Seng Index (.HSI) changed little and South Korea’s Kospi (.KS11) was down 0.3%. Australia’s S&P/ASX 200 Index (.AXJO) fell 0.4% as the central bank raised interest rates and announced more increases ahead to contain inflation.

US stock futures rose, with the Nasdaq and S&P 500 electronics gaining about 0.4% each.

Wall Street closed on Monday a swing higher as investors bought technology shares in the final hour of trading on bets that they were overly beaten ahead of this week’s Federal Reserve meeting.

Investors expect the Federal Reserve to raise interest rates by 50 basis points at the end of the two-day meeting on Wednesday, despite uncertainty over how optimistic President Jerome Powell will be in comments after the decision.

About 250 basis points of rate hikes by the end of this year have already been priced in by money markets, which some analysts say reduces the scope for hawkish surprises this week.

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US Treasury yields remained above 3% in European morning trade, after breaching this key psychological milestone for the first time since December 2018 on Monday.

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

Consultinvest’s Vacari said that if US 10-year yields were to reach 4%, there would be a “very strong shift towards bonds although that risk seems far out of reach today”.

The dollar, bolstered by safe haven buying amid concerns about the economic outlook, remained just below the two-decade high hit in April and the euro settled above the more than five-year low hit last month.

The dollar index was last at 103.44, down 0.1 percent on the day. The euro was trading up 0.1% at $1.0536.

Elsewhere in currency markets, the Australian dollar jumped after the central bank unexpectedly raised its cash rate by 25 basis points to 0.35%, the first increase in more than a decade. He also pointed to more interest rate hikes in the future as he draws the curtain on massive stimulus linked to the pandemic.

“The Reserve Bank of Australia joined the club, with the rate hike today being a bit larger than we had anticipated. The case for starting policy moving out of emergency settings was clear and the RBA responded to it,” said Joe Masters, chief economist. At Barrenjoey in Sydney.

And the Australian dollar rose 0.8 percent to $ 0.7107, as most analysts in a Reuters poll expected a rise to only 0.25 percent.

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The British Pound rose off 22-month lows against the Dollar as traders took profits from the recent rally in the US currency ahead of the Bank of England monetary policy meeting.

The pound rose 0.5% to $1.254, compared to the lowest level of $1.2412 recorded last week.

Oil prices fell, driven in opposite directions by China’s COVID-19 lockdown, which could affect fuel demand, and the prospects for supply damage from a possible European oil embargo on Russia.

Brent crude fell 0.5 percent to $ 107 a barrel, and US crude lost 0.5 percent to $ 104.6.

Copper prices in London fell to three-month lows as COVID-19 curbs in consumer China and the prospect of massive interest rate hikes in the United States fueled concerns about weak global growth hurting demand for the metals.

The three-month benchmark copper on the London Metal Exchange fell 1.7% to $9608.50 per ton.

Gold prices hit their lowest levels since mid-February, as a stronger dollar and an impending interest rate hike by the Federal Reserve reduced the allure of bullion as a way to hedge against inflation.

Spot gold fell 0.4% to $1,854.4 an ounce.

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