Stocks Rise, U.S. Yields Slip as Markets Await Fed Rate Hike

By Herbert Lash and Danilo Masoni

NEW YORK/MILAN (Reuters) – A gauge of global equity markets rose slightly on Tuesday while 10-year U.S. Treasury yields slid from 3% amid investor caution ahead of the biggest single-day rate hike expected by the U.S. Federal Reserve since 2000.

In a sign of the challenge the Fed faces in subduing rising consumer prices, data showed U.S. job openings hit a record in March as worker shortages persisted, suggesting employers may raise wages in a move that would likely fuel inflation.

The Fed is expected to hike rates by half a percentage point at the end of a policy meeting on Wednesday, and to soon start trimming its asset holdings. The U.S. central bank raised its policy interest rate by 25 basis points in March.

Major stock indices in Europe rose, as did the three big indices on Wall Street. MSCI’s gauge of stocks across the globe gained 0.23% and the pan-European STOXX 600 index rose 0.09% after surviving a “flash crash” on Monday in Nordic markets caused by a sell order trade by Citigroup.

“We could get a dead-cat bounce after the Fed meeting if it’s not more hawkish than what the market has been fearing,” said Jimmy Chang, chief investment officer at the Rockefeller Global Family Office, adding investor anxiety was running high.

“Potentially there could be a near-term rebound, but I do think the broader trend is still very cautious on the equity side.”

Overnight in Asia, Australia’s central bank raised its key rate by a bigger-than-expected 25 basis points, lifting the Aussie dollar as much as 1.3% and hitting local shares.

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

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% 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.

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

The yield on 10-year Treasury notes was down 7.4 basis points to 2.922%.

The benchmark note’s yield slid from 3% after breaching the key psychological milestone for the first time since December 2018 on Monday.

The dollar fell against a basket of major currencies as investors weighed how much of the Fed’s expected move to hike rates this week and beyond was already priced in.

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 fell 0.222%, while the euro was up 0.31% at $1.0537. The Japanese yen strengthened 0.20% to 129.89 per dollar.

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%, 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.

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

Oil slipped as concerns about demand due to China’s prolonged COVID lockdowns outweighed support from a possible European oil embargo on Russia over the war in Ukraine.

U.S. crude fell 0.77% to $104.36 a barrel and Brent was at $106.86, down 0.67% on the day.

London copper prices fell to three-month lows as COVID-19 restrictions in top consumer China and the prospect of aggressive U.S. rate hikes fuelled worries about weaker global growth hitting metals demand. [MET/L]

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

Gold firmed, tracking a slight retreat in U.S. Treasury yields and the dollar, while investors eyed an aggressive Fed rate hike on Wednesday.

Spot gold added 0.6% to $1,874.38 an ounce.

Bitcoin fell 0.64% to $38,272.79.

(Reporting by Herbert Lash, additional eporting by Danilo Masoni in Milan; Editing by Alexander Smith and Bernadette Baum)