Stocks edge higher, dollar sags eyeing Fed pause
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[June 14, 2023] By
Yoruk Bahceli
(Reuters) - Global shares edged higher and the dollar held near
three-week lows on Wednesday as traders were all but certain that the
U.S. Federal Reserve will refrain from hiking interest rates later in
the session.
Overnight, the much-watched U.S. CPI report showed prices barely rose in
May, with just a 0.1% increase from the prior month. On an annual basis,
consumer prices rose 4%, the smallest in more than two years, slowing
from April's 4.9%.
That has crystallised traders' views that the Fed is unlikely to hike
rates later on Wednesday. They now see more than a 90% chance of the
bank staying put.
Expecting a pause global stock markets were in an upbeat mood. The
pan-regional Euro Stoxx 600 index was up 0.5% by 0910 GMT. S&P 500
futures and Nasdaq futures were both up 0.2%, setting Wall Street for
further gains after U.S. stocks rallied to 14-month highs overnight.
"Having already flagged the possibility of a pause I think it's unlikely
that (the Fed) would veer off course at this particular juncture," said
Richard McGuire, head of rates strategy at Rabobank in London.
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"They do clearly appear to be approaching this on a somewhat cautious
basis given the elevated level of uncertainty. The CPI data yesterday
was pretty much bang in line so nothing there to challenge this
outlook."
Market pricing suggests a pause is all but certain, but traders are also
bracing for the possibility of a hawkish surprise, with a 60%
probability of a 25 basis-point hike priced in by July.
After hitting the highest since March on Tuesday, two-year Treasury
yields were down 5 bps to 4.65%.
The benchmark 10-year yield was last down 3 basis points to 3.81% after
hitting the highest in 2-1/2 weeks on Tuesday.
"We think it will be a hawkish pause as the Fed emphasises that the
hiking cycle might not be done. Whether the pause turns into a skip will
depend on incoming data," said Eugene Leow, senior rates strategist at
DBS Bank.
The U.S. dollar was down 0.1% against major peers, hovering near a
three-week low it hit on Tuesday.
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A passerby walks past an electric
monitor displaying various countries' stock price index outside a
bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato/File Photo
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Stocks were also upbeat in parts of Asia. Tokyo's Nikkei continued
to outperform, closing at a fresh 33-year high, ahead of the Bank of
Japan's policy meeting on Friday where it is expected to maintain
its ultra-loose policy.
Chinese blue chips marked the fifth straight session of gains on
hopes for more economic stimulus, which could come on Thursday when
China's central bank is expected to cut rates on medium-term policy
loans, following a short-term lending rate cut on Tuesday.
But the inflation outlook is causing jitters elsewhere.
In the UK, where data showing a rapid pickup in UK wage growth on
Tuesday has prompted traders to raise their bets on Bank of England
rate hikes, sterling touched a fresh one-month high of $1.2638,
boosted by the rate hike bets.
UK government bonds calmed on Wednesday and yields were slightly
lower on the day, following Tuesday's sell-off that sent two-year
yields surging 25 basis points, above levels seen during September's
"mini budget" crisis.
German two-year bond yields touched a fresh high since March.
The euro was up 0.1% hovering just below Tuesday's three-week high.
Oil prices reversed earlier losses after receiving a 3% boost on
China's policy rate cut with Brent crude futures up 1% to $75.04 per
barrel. [O/R]
But Chinese stimulus is denting the yuan, which fell to a 6-1/2
month low following Tuesday's rate cut and anticipation of more.
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Gold prices were 0.4% higher at $1,950.99 per ounce
(Reporting by Yoruk Bahceli and Stella Qiu; Editing by Shri
Navaratnam, Jacqueline Wong and Sharon Singleton)
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