Wall Street stocks gain as investors feel emboldened by Fed minutes

Wall Street stocks closed higher on Wednesday after minutes from the Federal Reserve’s most recent meeting suggested the Federal Reserve may be easing its attempt to raise interest rates.

The S&P 500 Index ended the session up 0.6 percent, while the tech-heavy Nasdaq Composite gained 1 percent after ending 1.4 percent higher the previous day.

The moves came as minutes from the US Federal Reserve’s meeting in early November showed that a “substantial majority” of officials supported slowing rate hikes any time soon – although some warned monetary policy would need to be tightened more than expected next year.

In Treasury markets, the yield on the 10-year US Treasury — which is used as an indicator of global borrowing costs — fell 0.06 percentage point to 3.7 percent. The policy-sensitive two-year yield fell 0.03 percentage points to 4.48 percent. Both yields, which move inversely with debt prices, were broadly unchanged leading up to the minutes’ release.

The dollar fell further after the minutes were released, with an index tracking the US currency against six peers falling 0.9 percent.

Stocks and bonds have come under pressure this year as the Fed and its international peers tighten monetary policy to curb rapid price growth. Even after a weaker-than-expected US inflation rate in October, markets are pricing in expectations that interest rates in the world’s largest economy will peak at around 5 percent in June.

After four consecutive hikes of 0.75 percentage points, the Fed’s “target range” for interest rates is 3.75 percent to 4 percent.

Elsewhere, oil prices were lower on Wednesday, with international benchmark Brent crude falling 4.1 percent to just under $85 a barrel.

The renewed slide in oil prices came as global demand concerns were highlighted by a disappointing US Purchasing Managers report. The S&P Global US Composite PMI for November, which includes the service and manufacturing sectors, hit a three-month low of 46.3, suggesting the pace at which business conditions are deteriorating is deteriorating.

“Business conditions in the US deteriorated in November. . . with production and demand declining at accelerating rates, consistent with a 1 percent annual contraction in the economy,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Eurozone PMI reports also pointed to a continued slowdown in business activity. “That [eurozone] Data suggests the outlook has improved marginally and some tail risks are less likely but still consistent with a meaningful recession,” Barclays said in a note to clients.

The line chart of the S&P Global Composite US PMI shows that US business activity is in reverse gear

The reports come as analysts remain concerned about China embarking on large-scale lockdowns in a fight against Covid-19 outbreaks.

The European share index Stoxx 600 closed up 0.6 percent. In Asia, Hong Kong’s Hang Seng index rose 0.6 percent, while China’s CSI 300 rose 0.1 percent. Elsewhere, Kospi from South Korea gained 0.5 percent.

Willem Sels, global chief investment officer at HSBC’s private bank, said he is generally bearish on equities but has recently “dived” into Chinese retail, hospitality and airline stocks as he saw further support for the struggling real estate sector of the country and expect a gradual relaxation from zero Covid guidelines in the second quarter of 2023.

If implemented, the measures would reduce the likelihood of a full-blown housing crisis and boost economic growth, Sels added. “Combine that with very attractive valuations and an underweight to other investors, and [China] is a good risk/reward ratio.”

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