US stocks edged higher on Tuesday with central bankers on either side of the Atlantic poised to raise borrowing rates to their highest levels in 15 years.
Wall Street’s benchmark S&P 500 was up 1 per cent in afternoon trading and the tech-heavy Nasdaq Composite gained 1.3 per cent.
The moves come as US Federal Reserve officials have gathered for their first policy meeting of the year, a two-day event ending Wednesday. Investors expect the central bank to raise interest rates by a quarter percentage point, which would leave the policy rate in a range of 4.5-4.75 per cent.
Such a rise would mark a return to a more normal tempo of rate increases after the Fed last year delivered four consecutive 0.75 percentage point increases before decelerating to a 0.5 percentage point rise in December. Though inflation remains far from the Fed’s 2 per cent target, December’s level was the lowest since October 2021, at 6.5 per cent.
The European Central Bank and the Bank of England will also meet later this week, and both are expected to lift interest rates by 0.5 percentage points.
Trading in US equities will probably be relatively subdued in the run-up to the Fed’s announcement. Tuesday “might be interesting but will ultimately be irrelevant”, said Mike Zigmont, head of trading and research at Harvest Volatility Management. “Whatever the market does will either be undone or reinforced by what the Fed says Wednesday.”
Among the biggest losers of the day were Caterpillar, down 3.6 per cent, after it missed profit estimates in its fourth-quarter earnings and warned on softer demand from China. McDonald’s slipped 1.6 per cent as a miss on operating margin expectations in the fourth quarter outweighed better than expected earnings and sales.
A measure of the dollar’s strength against a basket of six other currencies slipped 0.2 per cent, erasing earlier gains, while US government bonds rallied. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, fell 0.06 percentage points to 4.21 per cent. Bond yields move inversely to prices.
The region-wide Stoxx Europe 600 traded 0.3 per cent lower even after data showed the eurozone economy grew in the final quarter of 2022, raising hopes that the region will avoid a deep recession. London’s FTSE 100 closed 0.2 per cent lower.
In Asia, Hong Kong’s Hang Seng index, China’s CSI 300 and South Korea’s Kospi fell 1 per cent. Japan’s Nikkei fell 0.4 per cent.
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