US stocks opened higher Wednesday ahead of the Federal Reserve’s decision on interest rates, while European markets advanced after the European Central Bank said it would shield weaker economies from rising borrowing costs.
The S&P 500 climbed 1.0% shortly after the opening bell. The Dow Jones Industrial Average added 232 points, or 0.7%, and the Nasdaq Composite rose 1.1%.
The Federal Reserve will lay out details of its latest effort to quell inflation through tighter monetary policy at 2 pm ET. Investors expect a 0.75-percentage-point increase to the Fed’s target rate, which would be the biggest since 1994. The central bank had previously guided for a 0.5-percentage-point increase, but rate expectations shifted higher after data showed inflation running at its fastest pace in more than four decades.
Guidance the Fed gives about the direction of interest rates Wednesday is more important for markets than the size of the rate increase, said Dorian Carrell, a fund manager at Schroders. Uncertainty about interest rates has been driving volatility in stock and credit markets, he added. The S&P 500 fell into a bear market — a decline of more than 20% from its January peak — this week as mounting expectations that the Fed would raise rates faster than previously signaled sent a shudder through markets.
US government bonds steadied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade. The yield on 10-year Treasurys slipped to 3.374% from 3.482% Tuesday. Yields fall as bond prices rise.
European stocks and peripheral government bonds in the eurozone rallied after the ECB said it would hold an ad hoc meeting Wednesday to discuss turbulence in the region’s bond markets. Investors have dumped southern European government debt late after the ECB set out plans to wind down its bond-buying program and raise rates to tame inflation.
The yield on 10-year Italian government bonds fell to 3.851% from 4.111% Tuesday. They also declined in Greece, Spain and other eurozone members perceived as vulnerable to higher borrowing costs.
The Stoxx Europe 600 rose 1.4%, led by shares of banks and insurers. Shares of Italian banks, which own a substantial chunk of government bonds, had suffered as the debt fell in price. Intesa Sanpaolo and UniCredit were among the best performers in the European market Wednesday.
The ECB outlined a plan to buy more bonds of weaker eurozone governments under an existing bond-purchase program. It tasked ECB staff with accelerating the design of a new instrument that would narrow differences in borrowing costs across the region, addressing financial imbalances that have long posed a problem to the currency union.
“They wanted to make sure financing conditions did not deteriorate too much,” said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to cushion markets earlier than investors had expected.
Cryptocurrencies kept tumbling. Bitcoin fell 4.2% to $ 21,080, putting the digital currency on track for a ninth straight daily loss. Ethereum slid 6.4%, extending a rout in cryptocurrencies that has taken a toll on companies including Coinbase Global, which is laying off almost a fifth of its staff, and Celsius Network, a crypto lender now examining restructuring options. Coinbase shares fell 2.5% in premarket trading.
Behind the selloff in crypto, and the recent turbulence in traditional financial markets, is the Fed’s likely change of gears in efforts to douse decadeshigh inflation. For years after the 2008-9 financial crisis, stocks, bonds and more speculative assets climbed as central banks pinned borrowing costs at low levels to goose inflation and economic growth.
The pandemic, whose economic effects central banks and governments combined with unprecedented financial stimulus, turbocharged that upward trend. Rampant inflation has prompted the Fed and many of its counterparts to unwind easy-money policies, and the assets that had benefited most from them are suffering.
Corrections & Amplifications
Yields on 10-year government bonds in Italy settled at 4.111% on Tuesday. An earlier version of this article incorrectly said yields settled at 4,067%. (Corrected on June 15)
Write to Joe Wallace at firstname.lastname@example.org
Copyright © 2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8