Stocks Bounce as Yields Drop in Countdown to Fed: Markets Wrap

The Fed is widely expected to raise rates by 75 basis points on Wednesday for a third straight meeting, delivering the most-aggressive tightening since Paul Volcker led the central bank in the early 1980s. The decision, as well as quarterly forecasts, will be announced at 2 p.m. in Washington. Chair Jerome Powell will hold a press conference 30 minutes later.

“The consensus is looking for a 75 basis points hike... and we’re in that camp,” wrote Matt Maley, chief market strategist at Miller Tabak. “The Fed would have telegraphed a 100-basis point hike in a more significant way if they were going to do something that drastic. Of course, Chairman Powell has talked a lot about Paul Volcker in the past year, so maybe he’ll want to shock the markets the way Mr. Volcker did 40 years ago. However, we still don’t expect that kind of a surprise.”

That doesn’t mean Powell will walk back some of his hawkish rhetoric as that could harm the central bank’s credibility, according to Maley, who remarked that even the Fed officials who had been “quite dovish in the past have been quite hawkish recently.”

Nicholas Colas at DataTrek Research expects the Fed’s boss to sound much like his Jackson Hole speech at the end of August: “unapologetically resolute.” While fed fund futures are pricing in a possible cut or two in rates next year, Colas noted that the central bank’s new summary of economic projections may change that scenario.

In corporate news, General Mills Inc. raised its profit and revenue forecast for the year, citing strength in its fiscal first-quarter results. Coty Inc. came out with a bullish outlook for the current quarter because of stronger-than-expected sales of more expensive fragrances and personal-care products, showing demand for higher-end items remains robust despite inflation.

Key events this week:

• Bank of Japan monetary policy decision, Thursday
• The Bank of England interest rate decision, Thursday
• US Conference Board leading index, initial jobless claims, Thursday

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Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5% as of 9:57 a.m. New York time
• The Nasdaq 100 rose 0.4%
• The Dow Jones Industrial Average rose 0.6%
• The Stoxx Europe 600 rose 0.4%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.7% to $0.9905
• The British pound fell 0.4% to $1.1336
• The Japanese yen fell 0.2% to 143.99 per dollar

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.53%
• Germany’s 10-year yield declined five basis points to 1.88%
• Britain’s 10-year yield advanced two basis points to 3.31%

Commodities

• West Texas Intermediate crude rose 0.7% to $84.53 a barrel
• Gold futures rose 0.6% to $1,681.10 an ounce

--With assistance from Cecile Gutscher, Vildana Hajric and Peyton Forte.