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Stocks rise ahead of Fed minutes, as the dollar falls to a one-month low. Marc Jones's contribution

Images: Reuters Berita 24 English - Stock markets and the dollar edged higher on Wednesday ahead of the release of the latest Federal Reser...

Images: Reuters


Berita 24 English - Stock markets and the dollar edged higher on Wednesday ahead of the release of the latest Federal Reserve meeting minutes, while the New Zealand dollar jumped as its central bank joined those raising interest rates quickly.

Weak U.S. housing market statistics jangled nerves about a worldwide recession on Tuesday, but the mood gradually improved in European and Asian trading.

After MSCI's key Asian markets surged roughly 0.5 percent overnight, hints of additional stimulus from China and a rise in German consumer sentiment pushed Europe's STOXX 600 0.6 percent early on [.EU].

Oil prices were rising again, which, along with higher food prices, provided further fuel for growing inflation, which central banks throughout the world are fighting to control.

The Federal Reserve of the United States has promised to act swiftly in raising borrowing costs, and minutes from its most recent meeting will be scrutinized for hints as to the speed and scope of those efforts.

Investors are anticipating a succession of 50-basis-point rate hikes over the next few months, raising fears that the world's largest economy may come to a halt.

"Recession fears are legitimate from our perspective," said Salman Baig, a portfolio manager on Unigestion's cross-asset solutions team, adding that "the Fed has a very difficult job on its hands" to create a "soft landing."

The dollar index, which compares the greenback to six major currencies, rose 0.16 percent to 101.92, the highest level since April 26.

Meanwhile, the New Zealand dollar soared to a three-week high of $0.65 after the country's central bank lifted rates by a whopping 50 basis points and signaled that there would be more to come.

Bond markets, on the other hand, were mostly in a holding pattern ahead of the Fed minutes and after ECB chief Christine Lagarde hinted this week that the bank will soon deliver its first interest rate hike in almost a decade. [GVD/EUR]

DISLOCATION

Wall Street was rocked overnight by disappointing housing and industrial data, and several senior Fed members advocated two more hefty interest rate hikes as early as June and July to combat the US's 40-year-high inflation.

In April, new home sales in the United States plunged 16.6% month over month, the greatest drop in nine years, pushing U.S. Treasury yields fell to one-month lows as investors sought safety once more. In Europe, the benchmark 10-year note yielded 2.766 percent, the 2-year yield was 2.522 percent, and German 10-year Bund yields were 0.946 percent.

After the Nasdaq Composite fell 2.35 percent and the S&P 500 fell 0.8 percent on Tuesday, Wall Street futures were modestly higher .N]

Headlong rate hikes, according to Atlanta Fed President Raphael Bostic, may cause "substantial economic upheaval," and he is one of a small group of Fed policymakers who favor slowing rate hikes later this year if inflation falls.

Investors in Asia are also concerned about the impact of frequent Chinese COVID-19 lockdowns on growth, which threaten to undo recent stimulus measures in the world's second-largest economy.

The MSCI Asia-Pacific ex-Japan index increased 0.7 percent, with Australian shares up 0.72 percent, Seoul up 0.84 percent, and Taiwan up 1.07 percent. The Hang Seng in Hong Kong and China's main indexes also rose, while the Nikkei in Japan fell 0.2 percent.

In a note, Stephen Innes of SPI Asset Management said, "In Asia, investor debate focused on whether China's easing efforts are adequate to offset downward pressures."

"Fiscal multipliers will be small in an economy that has slowed dramatically." Moving beyond mobility restrictions in a timely manner is a pre-condition, but not a guarantee, for an Asia-led economic recovery." Gold prices fell 0.2 percent to $1,862.27 per ounce, after rising to their highest in two weeks on Tuesday, as the dollar rose. Oil prices rose more than 1% on the prospect of tight supplies, with U.S. crude futures rising to $111.05 a barrel and Brent rising to $114.86.

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