Wall Street stocks rise as traders assess future direction of monetary policy

Wall Street stocks rose on Wednesday as traders awaited details of the Federal Reserve’s early May meeting, which could shed further light on the future direction of monetary policy.

The S&P 500, which dipped into bear market territory last week during a difficult few months for global equities, rose 0.3 per cent in choppy trading. The technology-heavy Nasdaq Composite was up 0.8 per cent by the early afternoon in New York.

The moves on Wednesday came even as an important proxy for future US manufacturing output missed expectations and consumer-facing businesses continued to issue gloomy outlooks.

Orders for long-lasting goods edged up 0.4 per cent in April from the previous month, a slowdown from the 0.6 per cent month-on-month rise in March and below economists’ estimates collated by Refinitiv of a 0.6 per cent increase. A core reading that strips out transportation orders, which can skew the data, also missed forecasts, rising 0.3 per cent.

The Fed, which influences monetary policy worldwide and releases minutes of its early May rate-setting meeting later on Wednesday, has sent strong signals that it will raise borrowing costs until it has tamed inflation, which is running at four-decade highs. However, some analysts are questioning how far the US central bank is prepared to lift rates.

“Markets are telling us that the risks of a recession are rising,” said Mary Nicola, multi-asset portfolio manager at PineBridge Investments.

But if the Fed’s account of its latest rate-setting meeting included “language that suggests a pause, or that they are concerned about growth, that could obviously really change how markets are priced”, Nicola added.

Salman Baig, portfolio manager at Unigestion, said: “I wouldn’t be surprised if we started seeing more language about looking at the data. It’s unlikely to be a really meaningful shift at this point, as they are going to want some pretty clear indications that inflation has turned and we are not there yet.”

Analysts said stocks were also finding support from rebalancing by funds that needed to buy equities, following strong falls in recent months, to maintain asset allocation mandates.

On the corporate front, Dick’s Sporting Goods on Wednesday became the latest US consumer business to cut its earnings outlook, sending its shares down in early trading before they rebounded sharply. This followed a bruising session across equity markets on Tuesday after social media group Snap warned on macroeconomic conditions, and investors took fright over disappointing US housing data and business surveys.

In fixed income markets the yield on the 10-year Treasury note, which underpins borrowing costs worldwide and falls as the price of the debt instrument rises, traded flat at 2.76 per cent.

The two-year Treasury yield, which tracks interest rate expectations, slipped 0.02 percentage points lower to 2.5 per cent, having risen above 2.8 per cent in early May.

Reflecting continued uncertainty about the direction of markets and monetary policy, the dollar index, which measures the US currency against six others, rose 0.5 per cent.

The euro lost 0.7 per cent against the dollar to just under $1.07, as a bounce fueled by European Central Bank president Christine Lagarde signaling the end of negative interest rates in the eurozone faded out.

Elsewhere in equity markets, Europe’s regional Stoxx 600 gauge added 0.6 per cent.

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