(Bloomberg) — U.S. equity futures climbed as stocks were mixed Wednesday ahead of a Federal Reserve decision in which officials are expected to signal plans for tightening policy.
European stocks rose for a second day, with travel shares leading broad sectoral gains. Contracts on U.S. gauges were also higher, with those on the Nasdaq 100 up 1%, signaling a rebound for tech shares. An Asia-Pacific gauge treaded lower.
Markets have been volatile going into the Fed decision, with Russia-U.S. tension over Ukraine adding to investor concerns. Traders are waiting to see how hawkish the central bank sounds in its fight to tame inflation — both over interest-rate hikes expected from March and subsequent reductions in its holdings of Treasuries.
Still, there are some signs of easing turmoil. The Cboe Volatility Index known as the VIX fell from a one-year high, snapping six days of gains.
The benchmark U.S. 10-year Treasury yield was little changed, as was the dollar.
Global stocks have already shed 7% in January, on track for the worst month since the pandemic roiled markets back in 2020.
While the Fed could spur more selling if it comes off as hawkish, Chair Jerome Powell will likely say policy is data-dependent and supply chains are improving, while indicating that inflation could be peaking, Frances Stacy, portfolio strategist at Optimal Capital, said on Bloomberg Television.
“I think what that’s going to do is potentially reassure markets that the Fed put is ready, willing and able,” she said. “That could cause some serious enthusiasm and a short squeeze.”
Meanwhile, Bitcoin extended its gains for the week, heading toward $38,000. Crude held gains, in part on the risk that any Russia-Ukraine conflict could disrupt supplies.
U.S. President Joe Biden said he would consider personally sanctioning Vladimir Putin if he orders an invasion of Ukraine, escalating efforts to deter the Russian leader from war.
Elsewhere, Japanese shares fell, while China’s CSI 300 narrowly avoided a bear market after the state media called for investors to hold their nerves.
Here are some more views about the Fed:
- “For the Fed, the current risk-asset drawdown certainly makes their job more difficult, but we don’t see the level of financial conditions tightening as commensurate with a dovish message,” Ed Acton, a strategist at Citigroup Inc., wrote in a note. “Instead, the FOMC may seek to underline the current inflation risks as a ‘constraint’ on monetary policy going forward.”
- “They could end QE a month earlier” in February versus March, Kelsey Berro, fixed-income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television, referring to quantitative easing. “That would just reinforce the fact that we expect the first rate hike in March and then quarterly rate hikes after that.”
- “A moderately hawkish Powell would be dovish in market terms,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note. “If Powell says that the FOMC is committed to getting inflation on track and still hopeful that a couple of hikes combined with some QT will be enough, that is dovish by market pricing,” he said, referring to quantitative tightening.
What to watch this week:
- Fed, Bank of Canada monetary policy decisions Wednesday.
- EIA crude oil inventory report Wednesday.
- U.S. new home sales, wholesale inventories Wednesday.
- South African Reserve Bank rate decision Thursday.
- U.S. initial jobless claims, durable goods, GDP Thursday.
- Euro zone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 1.3% as of 8:27 a.m. London time
- Futures on the S&P 500 rose 0.8%
- Futures on the Nasdaq 100 rose 1.1%
- Futures on the Dow Jones Industrial Average rose 0.7%
- The MSCI Asia Pacific Index fell 0.1%
- The MSCI Emerging Markets Index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1292
- The Japanese yen fell 0.2% to 114.09 per dollar
- The offshore yuan was little changed at 6.3281 per dollar
- The British pound was little changed at $1.3506
Bonds
- The yield on 10-year Treasuries was little changed at 1.77%
- Germany’s 10-year yield was little changed at -0.07%
- Britain’s 10-year yield advanced one basis point to 1.18%
Commodities
- Brent crude rose 0.5% to $88.63 a barrel
- Spot gold fell 0.1% to $1,845.70 an ounce
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