Stocks rise slightly ahead of Fed minutes, dollar at lowest in a month

LONDON, May 25 (Reuters) – Stock markets and the dollar rose cautiously on Wednesday ahead of the final minutes of the Federal Reserve meeting, while the New Zealand dollar soared as its central bank joined those which were now aggressively raising interest rates.

Nerves about a global recession were rattled on Tuesday by weak U.S. housing market data, but European and Asian exchanges saw the mood gradually pick up.

Hints of further stimulus from China and a rise in German consumer sentiment pushed Europe’s STOXX 600 (.STOXX) up 0.6% early after the main Asian indexes from MSCI rose by around 0.5% overnight (.MIAPJ0000PUS).

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Oil has started to climb again, which, along with rising food prices, has further fueled the rise in inflation that central banks around the world are now struggling to contain.

The US Federal Reserve has pledged to act aggressively in raising the cost of borrowing and the minutes of its latest meeting, scheduled for later, will be analyzed for clues as to the speed and extent of these actions.

Investors are currently expecting a series of 50 basis point rate hikes over the next few months, fueling fears that it could easily cripple the world’s largest economy.

“From our perspective, the fears of recession are real,” said Salman Baig, portfolio manager with Unigestion’s multi-asset solutions team, adding that “the Fed has a very tough job between its hands” to organize a “soft landing”.

The U.S. dollar index – which measures the currency against six major rivals – rebounded 0.16% to 101.92, a level not seen since April 26.

Meanwhile, the Kiwi dollar hit a three-week high of $0.65 after its central bank raised rates by 50 basis points and announced much more to come. Read more

However, bond markets were largely on hold, ahead of Fed minutes and after ECB chief Christine Lagarde hinted this week that she would soon make her first interest rate hikes in more than a decade. ‘a decade.

DISLOCATION

Overnight, Wall Street was reeling from weak housing and manufacturing data and some senior Fed policymakers backed two more big interest rate hikes as early as June and July to fight inflation. American, bred for 40 years.

US new home sales fell 16.6% month-on-month in April, the biggest drop in nine years, sending US Treasury yields to one-month lows as investors were once again turning to safety. The benchmark 10-year note was at 2.766% in Europe, the 2-year yield at 2.522% and the 10-year German Bund yield at 0.946%.

Wall Street futures were slightly higher after the Nasdaq Composite (.IXIC) fell 2.35% and the S&P 500 (.SPX) lost 0.8% on Tuesday.

Atlanta Fed Chairman Raphael Bostic has warned that hasty rate hikes could create “significant economic dislocation” and was among a handful of Fed policymakers who favor a reduction in the pace of hikes. rates later in the year if inflation cools. Read more

Investors in Asia also remain worried that growth will be hurt by the effects of China’s lingering COVID-19 lockdowns, which threaten to undermine recent stimulus measures in the world’s second-largest economy.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) rose 0.7%, with Australian stocks (.AJXO) up 0.72%, Seoul (.KS11) in up 0.84% ​​and Taiwan (.TWII) up 1.07%.

Hong Kong’s Hang Seng (.HSI) and major Chinese indices (.SSEC) (.CSI300) also traded higher, while Japan’s Nikkei stock average (.N225) fell 0 .2%.

“In Asia, the investor debate centers on whether China’s easing policies are enough to offset downward pressures,” Stephen Innes of SPI Asset Management said in a note.

“Fiscal multipliers will be minimal in an economy where economic activity has slowed sharply. Breaking through short-term mobility restrictions is a prerequisite, but not a guarantee, for an Asia-led economic recovery.”

Among major commodities, gold prices fell 0.2% to $1,862.27 an ounce, after hitting a two-week high on Tuesday as the greenback gained.

Oil prices climbed more than 1% on tight supply prospects. U.S. crude futures rose to $111.05 a barrel and Brent to $114.86. Read more

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Editing by Kirsten Donovan

Our standards: The Thomson Reuters Trust Principles.

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