US stocks were higher on Wednesday before the Federal Reserve’s interest rate decision, while European markets advanced after the European Central Bank said it would shield weaker economies from rising borrowing costs.
The S&P 500 rose 1.0% in morning trading. The Dow Jones Industrial Average rose 232 points, or 0.7%, and the Nasdaq Composite rose 1.1%.
The Federal Reserve will post details of its latest efforts to curb inflation through tighter monetary policy at 2 p.m. ET. Investors expect an increase of 0.75 percentage points to the Fed’s target interest rate, which will be the largest since 1994. The central bank had previously indicated an increase of 0.5 percentage points, but interest rate expectations changed higher after data showed that inflation reached its level. fastest pace in more than four decades.
Guidance The Fed provides whether the direction of interest rates on Wednesday is more important for the markets than the size of the interest rate increase, said Dorian Carrell, fund manager at Schroders. Uncertainty about interest rates has driven volatility in the stock and credit markets, he added. The S&P 500 fell into a bear market ̵[ads1]1; down more than 20% from its peak in January – this week as rising expectations that the Fed would raise interest rates faster than previously signaled sent shockwaves through the markets.
Shares rose broadly on Wednesday, with all but one sector of the S&P 500 rising early on US trading day.
Technology stocks, which have been among the hardest hit areas in the market this year, helped lead large indices upwards. Microsoft,
Amazon.com and Netflix added more than 2% each.
Economically sensitive areas in the market also increased. Bank shares, which had sold out due to investors’ fears of a slowdown in growth, climbed on Wednesday, with the KBW Nasdaq Bank index up 1.9%.
Meanwhile, US government bonds have stabilized after falling in recent weeks in a sell-off that has pushed interest rates to the highest level in more than a decade. The yield on 10-year government bonds fell to 3.394% from 3.482% on Tuesday. The returns, which fall when bond prices rise, help set interest rates for everything from mortgages to federal student loans to car loans.
Elsewhere, European equities and peripheral government bonds rose in the eurozone after the ECB said it would hold an ad hoc meeting on Wednesday to discuss turbulence in the region’s bond markets.
The ECB outlined a plan to buy more bonds from weaker eurozone states under an existing bond buying program. It instructed ECB staff to accelerate the design of a new instrument that would limit differences in borrowing costs across the region, and address financial imbalances that have long been a problem for monetary union.
“They wanted to make sure that financing conditions did not deteriorate too much,” said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to dampen markets sooner than investors had expected.
Stoxx Europe 600 rose 1.7%, led by shares in banks and insurance companies. Shares in Italian banks, which own a significant portion of government bonds, had suffered when debt fell in price. Intesa Sanpaolo and UniCredit were among the best in the European market on Wednesday.
Cryptocurrencies continued to plummet. Bitcoin fell to $ 21,599, putting the digital currency on track for a ninth daily loss in a row. Ethereum also crashed, expanding a route in cryptocurrencies that has taken a toll on companies including Coinbase Global, which is laying off nearly a fifth of its employees, and Celsius Network, a cryptocurrency lender that is now exploring restructuring options.
Behind the sales in crypto, and the recent turbulence in traditional financial markets, is the Fed’s probable change of gear in an attempt to curb decades of high inflation. In the years following the 2008-09 financial crisis, equities, bonds and more speculative assets rose as central banks tied low-cost borrowing to economic growth.
The pandemic, whose economic effects central banks and governments fought with unparalleled financial stimulus, turbocharged the upward trend. Fierce inflation has caused the Fed and many of its counterparts to relax with simple monetary policies, and the assets that had benefited most from them are suffering.
Corrections and reinforcements
The yield on 10-year government bonds in Italy fell to 4.111% on Tuesday. An earlier version of this article incorrectly stated that the return was set at 4.067%. (Corrected June 15)
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