Jerome Powell.
Joshua Roberts/Reuters
- Global stocks rose Tuesday after Fed chief Jerome Powell signaled more aggressive rate hikes are to come.
- “The Fed sees little option but to try and chip away inflation with even bigger interest rate hikes,” an analyst said.
- Oil climbed to $118 a barrel, but reversed gains as EU nations appeared to disagree about a Russian embargo.
Global stocks inched higher Tuesday, as investors digested Jerome Powell’s more hawkish tone on Federal Reserve interest-rate hikes and oil pulled back with the focus on Russia-Ukraine developments.
US stock futures signaled a relief rally for Wall Street from losses in the previous session, as the market reset for a higher chance of a half percentage point rate increase at the Fed meeting in May.
Futures on the Dow Jones were up 0.5% as of 6:45 a.m. ET. S&P 500 futures rose 0.4%, and Nasdaq futures added 0.4%, suggesting a positive open to trading later in the day.
“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability,” Fed Chair Powell said Monday, noting inflation is “much too high”.
If required, the Fed would move more aggressively to raise the benchmark interest rate by 50 basis points, he added.
”Caught between a rock and a hard place, the Fed sees little option but to try and chip away inflation with even bigger interest rate hikes this year, if price pressures keep mounting,” Susannah Streeter, markets analyst at Hargreaves Lansdown, said.
Goldman Sachs now forecasts a 50 basis point hike at both the May and June meetings of Fed policymakers.
“Our best guess is that the shift in wording from ‘steadily’ in January to ‘expeditiously’ today is a signal that a 50bp rate hike is coming,” its analysts said.
Powell’s comments helped lift US bond yields to multiyear highs, with the 10-year Treasury note last up 2 basis points at 2.34% — its highest since May 2019.
Powell is due to speak Wednesday at a panel hosted by the Bank for International Settlements.
Meanwhile, investors continue to monitor developments in the Russia-Ukraine conflict. Russia has escalated its bombing of cities in Ukraine,
Russia has continued to bombard several cities in Ukraine, and said it hit a Kyiv shopping center because it was used to store rockets. Late Monday, Ukraine President Volodymyr Zelenskyy offered to end Ukraine’s NATO membership ambitions in exchange for a withdrawal of Russian troops.
European stocks reflected hopes for a peace deal, according to Saxo Bank’s head of equity strategy, Peter Garny.
London’s FTSE 100 rose 0.5%. The pan-European Euro Stoxx 600 gained 0.5%, and Frankfurt’s DAX advanced 1%.
On Monday, ECB President Christine Lagarde said central banks in the US and Europe will fall out of sync on policy as the war in Ukraine will have a bigger impact on its neighbors in the region.
Oil prices rose towards $118 a barrel Tuesday, before turning lower, as European leaders debated a Russian crude embargo, with Germany and the Netherlands are resisting a ban. EU leaders will meet Thursday, and the decision to ban would need to be made by all 27 states.
Brent crude futures were 1.6% lower at $113.72 a barrel at last check, while West Texas Intermediate lost 1.8% to $107.94 a barrel.
The Japanese yen fell 0.8% to a six-year low of 120.50 against the dollar after Powell’s remarks. Asian stocks were driven higher partly by a climb in export-dependent Japan, as a weaker yen could boost trade outlooks.
Tokyo’s Nikkei added 1.5%. The Shanghai Composite rose 0.2%, and Hong Kong’s Hang Seng gained 3.2%.
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