Global stocks bounce due to rebound in tech shares as market awaits Fed decision on US rates
World stock markets rose on Tuesday as technology shares recovered from a recent sell-off while short-dated US bond yields briefly hit multi-week highs ahead of an anticipated interest rate increase from the Federal Reserve.
The S&P 500, Dow industrials and Russell 2000 set record closing highs. The S&P technology index ended up 0.9 per cent after a two-session sell-off that put the spotlight on areas of the stock market where valuations appear stretched.
The US central bank is widely expected to raise its benchmark interest rate on Wednesday and may also provide details on its plans to shrink US$4.5 trillion of assets it amassed to nurse the economic recovery.
Analysts say the Fed could take an aggressively hawkish posture of signalling a balance sheet reduction this year and another rate increase in December.
The Dow Jones Industrial Average was up 92.8 points, or 0.44 per cent, to close at 21,328.47, the S&P 500 gained 10.96 points, or 0.45 per cent, to 2,440.35 and the Nasdaq Composite added 44.90 points, or 0.73 per cent, to 6,220.37.
The pan-European STOXX 600 ended up 0.6 per cent, while MSCI’s gauge of stocks across the globe was up 0.5 per cent.
Short-dated U.S. Treasury yields briefly hit multi-week highs but the market was barely changed after a strong 30-year debt auction ahead of Wednesday’s Fed decision. Short-dated Treasuries in particular are considered most vulnerable to Fed rate increases.
US three-year Treasury yields hit 1.511 per cent, their highest since May 16, while two-year yields touched their highest in a month at 1.367 per cent.
Yields eased from session highs to be roughly unchanged from levels as of late Monday, with three- and two-year yields last at 1.503 per cent and 1.363 per cent, respectively.
“The markets have to build in a little bit of risk that the Fed may say something about tapering tomorrow,” said John Herrmann, director of interest rates strategy at MUFG Securities in New York.
In the equity market, big technology names like Microsoft and Alphabet helped prop up US stocks, along with materials and energy shares. Tech has led the S&P 500’s 9-per cent rally this year.
The US dollar fell to its lowest against the Canadian dollar since late February after hawkish comments from Bank of Canada Governor Stephen Poloz.
Poloz said the central bank’s 2015 rate cuts “have largely done their work,” signalling that it could raise rates sooner than previously thought.
The US dollar index was down 0.1 per cent.
Besides the Fed, the Bank of Japan and the Bank of England also meet this week, although no major policy changes are expected.
The gap between benchmark USand European bond yields held near its widest in a month as the Fed meeting also shone a light on the slow pace of change in European Central Bank policy.
Oil prices edged higher after OPEC detailed supply cuts around the world.
Brent crude futures rose 0.9 per cent to settle at US$48.72 per barrel, while benchmark US crude gained 0.8 per cent to settle at US$46.46.