Stocks inch up, US yields near 3pc as markets ready for Fed hike

MILAN, May 3 — World stocks rose slightly today and US 10-year Treasury yields held near 3 per cent as investors prepared for the Federal Reserve’s biggest rate hike since 2000.

In a busy week for central bank meetings, Australia’s central bank raised its key rate by a bigger-than-expected 25 basis points today, lifting the Aussie dollar as much as 1.3 per cent and hitting local shares.

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

MSCI’s benchmark for global stocks gained 0.1 per cent by 1216 GMT as European shares rose after surviving a “flash crash” yesterday caused by a single sell order trade by Citigroup.

The pan-European STOXX 600 equity benchmark was up 0.2 per cent, bouncing back from yesterday’s losses and supported by upbeat earnings reports and gains in banking stocks tracking 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 in Milan.

“Even though there’s room for stock markets to rally from oversold levels, in the long term the headwinds are too many, simply because the speed of the Fed’s rate hikes will drive equity and especially bond market movements,” he added.

In the UK, the FTSE 100 index, which reopened following a long weekend, fell 0.4 per cent. In France, BNP rose 4 per cent after a sharp increase in trading activities helped the country’s biggest lender top earnings growth expectations.

In Asia, equities were mostly steady in holiday-thinned trade, with both China and Japan markets shut, but in Hong Kong, Alibaba shares fell as much as 9 per cent on worries over the status of its billionaire founder Jack Ma.

A state media report that Chinese authorities had taken action against a person surnamed Ma hit the stock hard, but it recouped losses after the report was revised to make clear it was not the company’s founder. Read full story

Hong Kong’s Hang Seng index was up 0.1 per cent and South Korea’s KOSPI declined 0.3 per cent. Australia’s S&P/ASX 200 index fell 0.4 per cent as the central bank raised rates and flagged more hikes ahead to contain inflation. Read full story

US equity futures steadied, with the Nasdaq NQc1 and S&P 500 ESv1 e-minis hovering between flat and a rise of 0.1 per cent, held back by some underwhelming earnings reports.

On Monday, Wall Street closed a seesaw session higher as investors bought into tech stocks in the last hour of trading amid bets they had been overly beaten down 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 tomorrow, although there was uncertainty around how hawkish Chair Jerome Powell will sound in comments following the decision.

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

US treasury yields stayed near 3 per cent in European trade, after breaching that key psychological milestone for the first time since December 2018 yesterday.

The US benchmark 10-year yield fell 2 basis points to 2.955 per cent. In April, it rose 59 basis points, scoring its best month since 2009.

Consultinvest’s Vaccari said if 10-year US yields were to reach 4 per cent, there would be a “very strong shift towards bonds even though that risk today looks quite far away”.

The dollar, which has been supported by safe haven buying on worries over the economic outlook, stayed just below the nearly two-decade high reached in April and the euro steadied above the lowest level in more five than years hit last month.

The dollar index was last at 103.25, down 0.3 per cent on the day. The euro traded up 0.4 per cent at US$1.0546 (RM4.6).

RBA joins the club

Elsewhere in currency markets, the Australian dollar jumped after the central bank raised its cash rate by a surprisingly large 25 basis points to 0.35 per cent, the first hike in more than a decade. It also flagged more rate hikes to come as it pulls down the curtain on massive pandemic-related stimulus. Read full story

“The RBA has joined the club, with a rate hike today that was a little larger than we had expected. The case to start to move policy off emergency settings was clear and the RBA has responded to that,” said Jo Masters, chief economist at Barrenjoey in Sydney. Read full story

The Aussie was up 0.9 per cent at US$0.712 as a majority of analysts in a Reuters poll had expected a rise to only 0.25 per cent.

The UK pound rose, moving away from its 22-month lows against the dollar as traders took profits on the recent surge in the greenback ahead of the Bank of England policy meeting. GBP/

Sterling rose 0.3 per cent to US$1.253, against the low of US$1.2412 hit last week.

Oil prices slipped as concerns about the demand outlook due to prolonged Covid lockdowns in China outweighed support from a possible European oil embargo on Russia over its actions in Ukraine. O/R

Brent crude fell 1.1 per cent to US$106.4 per barrel, and US crude lost 1.2 per cent to US$103.9.

London copper prices fell to three-month lows as Covid-19 restrictions in top consumer China and the prospect of aggressive US rate hikes fuelled worries about weaker global growth hitting metals demand.

Benchmark copper on the London Metal Exchange was down 2.5 per cent at US$9,525.50 a tonne.

Gold prices hit their lowest since mid-February before recovering, as an elevated dollar and the imminent rate hike by the Fed dampened bullion’s appeal as an inflation hedge.

Spot gold was flat at US$1,863 per ounce. — Reuters