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Global stocks rebound as traders await Fed decision

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·Business Reporter, Yahoo Finance UK
·4-min read
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Stocks were rallying across the pond, with the S&P 500 rising 1.5% and the tech-heavy Nasdaq up 2.2%. The Dow Jones edged 0.9% higher by the time of the European close. Photo: Brendan Smialowski/Pool via REUTERS
US Federal Reserve chair Jerome Powell as stocks rallied as investors braced for the outcome of the Fed's upcoming meeting. Photo: Brendan Smialowski/Pool via Reuters

Global stocks staged an impressive rebound on Wednesday as investors braced for the outcome of the upcoming US Federal Reserve’s meeting, and any hints about faster tightening of monetary policy.

In London, the FTSE 100 (^FTSE) closed 1.4% higher on the day, with a boost in the travel, leisure and technology sectors, while the CAC (^FCHI) gained 2.1% in Paris and the Frankfurt DAX (^GDAXI) was also 2.1% up.

Cross currents of events on the Russia-Ukraine border seem to be affecting markets less during the session as the Fed interest rate decision looms. The decision will be announced at 7pm UK time, with a press conference with Fed chair Jerome Powell starting at 7:30pm.

The prospect of higher US interest rates has been impacting markets in recent weeks, and the Fed is expected to signal that its hiking cycle will begin in March amid rising inflation and low unemployment.

It is also expected to end its quantitative easing stimulus programme this quarter.

Read more: NHS and other key workers face year of poor pay, TUC warns

"The market is really looking for two things aside from the hike signal," Nick Chatters of Aegon Asset Management, said.

“First, is the fed going to hike by more than 25bps in March? And then how far will they be able to go until they reach their terminal rate? Second, what are they going to do with the $8.8tn of debt that they have bought and don’t want to own anymore?"

He added: “It’s likely that the statement will give some answer to the first question, but the press conference is going to be key to garner insight on the second. All quiet and waiting for now.”

Stocks were rallying across the pond, with the S&P 500 (^GSPC) rising 1.5% and the tech-heavy Nasdaq (^IXIC) up 2.2%. The Dow Jones (^DJI) edged 0.9% higher by the time of the European close.

On Tuesday, stocks across the major US markets each finished lower, although they recovered from deeper declines earlier in the trading day, with traders continuing to shift to safe haven investments such as the dollar and gold.

In the year to date the Dow Jones has shed 5.6%, the S&P 500 8.6% and the Nasdaq 13.5%.

Read more: Bitcoin follows stocks in cautiously reversing decline

“The year-to-date selloff of real rates and equity markets began with the Fed surprising markets by how much they were already considering an early and aggressive use of quantitative tightening (QT) to augment their tightening of policy, so any incremental information will be devoured,” Jim Reid of Deutsche Bank said.

“While it’s likely too early for the Fed to deliver specific QT details today, our economists believe it’s possible chair Powell begins to socialise a range of potential QT outcomes to start the give-and-take involved with guiding market expectations.”

Watch: S&P ends down after another wild session

Asian markets got off to a cautious start overnight, after the volatile Wall Street session, but managed to recover and eke out some gains.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.3% in early trade but has skidded 2.4% this year, and is testing mid-December's one-year low.

In Japan, the Nikkei (^N225) fell 0.4% on the day to hover around its lowest level since December 2020, while the Hang Seng (^HSI) rose 0.2% in Hong Kong, and the Shanghai Composite (000001.SS) ended 0.7% higher.

Elsewhere, Brent crude oil (BZ=F) hit $90 per barrel for the first time in over seven years due to concerns over supply constraints, increasing demand, and the tensions between Russia and NATO members over Ukraine. Brent has now gained 14% this year.

"Although the price of a barrel of Brent won’t immediately translate to mirror a similar price hike at the pumps, due to other factors to consider, such as refining capacity and demand for other oil fractions, petrol prices do follow oil’s trajectory albeit on a flatter curve," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

"After Brent reached a three year high in October of $86.9, prices at the pumps hit a 12 month high a few weeks later of 147.72p and diesel at 150.96p. Already prices are edging back close to those levels, with average petrol prices at 146.06p and diesel 149.42p, according to the RAC."

Watch: What is inflation and why is it important?

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