(Bloomberg) — Stocks rose with U.S. futures Thursday on speculation that Federal Reserve policy tightening will help fight elevated inflation without derailing economic growth.
European equities climbed the most in a week, with all sectors in the green, while a gauge of Asia-Pacific shares also gained. S&P 500 and Nasdaq 100 contracts advanced, after technology shares powered Wall Street to a strong close Wednesday, reversing initial declines following the Fed’s policy statement.
The U.S. central bank said it will double the pace at which it tapers bond purchases to $30 billion a month and projected three quarter-point interest-rate increases in 2022, another three in 2023 and two more in 2024. It also flagged economic risks from the omicron virus strain.
The Treasury yield curve steepened and the dollar was lower. The euro and the pound strengthened ahead of policy decisions later Thursday from the European Central Bank and the Bank of England.
Equities have whipsawed in recent weeks as investors attempted to price in the prospect of rate hikes, while assessing risks from the spread of the omicron variant. The market’s early response to the Fed signals some relief arising from policy clarity, and optimism that the rebound from pandemic lows can weather the pivot away from ultra-loose monetary settings.
“The initial market reaction does not always stick, but we suspect that both the Fed and investors are satisfied that the Fed is aware of and responding to inflation risks, while taking a measured, data-dependent approach in responding,” Steve Englander, head of global G10 FX research at Standard Chartered Bank, wrote in a note.
The five-year breakeven rate on Treasury inflation protected securities — or the difference between those yields and the ones on typical Treasuries — approached 2.8%. That suggests the Fed still faces a challenge to get inflation down toward its 2% target.
“The markets seem to be complacent about the idea the Fed can get a soft landing, can engineer this graceful soft landing with not a lot of rate hikes,” Diane Swonk, chief economist at Grant Thornton, said on Bloomberg Television.
Elsewhere, oil rose and gold ticked up. Bitcoin retreated below $49,000.
Here are some key events this week:
- BOE rate decision, Thursday.
- ECB rate decision, Thursday.
- U.S. housing starts, initial jobless claims, industrial production, Thursday.
- BOJ monetary policy decision, Friday.
- S&P Dow Jones Indices quarterly rebalance effective after markets close, Friday.
- “Quadruple witching” day in the U.S. market, when options and futures on indexes and equities expire, Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 1.4% as of 8:19 a.m. London time
- Futures on the S&P 500 rose 0.4%
- Futures on the Nasdaq 100 rose 0.5%
- Futures on the Dow Jones Industrial Average rose 0.3%
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.1306
- The Japanese yen was little changed at 114.12 per dollar
- The offshore yuan was little changed at 6.3733 per dollar
- The British pound rose 0.2% to $1.3286
Bonds
- The yield on 10-year Treasuries was little changed at 1.45%
- Germany’s 10-year yield was little changed at -0.36%
- Britain’s 10-year yield was little changed at 0.74%
Commodities
- Brent crude rose 1% to $74.62 a barrel
- Spot gold rose 0.5% to $1,785.69 an ounce
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