U.S. bonds and stocks weaken ahead of the Fed meeting

As traders became cautious ahead of the two-day U.S. central bank meeting that began on Tuesday, and U.S. government bond prices weakened, Wall Street stocks failed to continue rising at the historic highs set last week.

after that assembly Last week, the yield on the benchmark 10-year U.S. Treasury rose by 0.02 percentage points to 1.485% as investors placed hopes on the Fed’s past high inflation rate to maintain its support for the financial market during the pandemic.

The Wall Street S&P 500 Index fell 0.3% in early New York trading, following Friday’s record high. The technology-focused Nasdaq Composite Index rose 0.1%. The Stoxx Europe 600 Index also rose 0.1% and is expected to hit a new closing high.

It is widely expected that the Fed will maintain its monthly bond purchase plan of 120 billion US dollars, which has eased the financial situation of businesses and households since March last year.

Interest rate setters in Europe and the United Kingdom followed suit with these asset purchases, lowering the yield on government bonds, lowering corporate borrowing costs, and increasing the attractiveness of riskier assets such as stocks.

However, after the coronavirus vaccine and President Joe Biden’s massive stimulus plan promoted the rapid recovery of the US economy, some analysts believe that Fed policymakers have put forward their forecasts for the first interest rate hike after the pandemic.

Tiffany Wilding, an American economist at the bond investment company Pimco, said in a research report: “We expect the Fed to raise its growth outlook and substantially increase its inflation forecast.” “We think most Fed officials will also advance their first interest rate hike forecasts. By 2023. [from 2024]. ”

Fed Vice Chairman Richard Clarida last month call The debate on reducing central bank asset purchases as the United States restore accelerate.

Grace Peters, investment strategist at JPMorgan Chase Private Bank, said: “We look forward to more discussions about future reductions.” “The actual taper will begin early next year.”

As investors hold a wait-and-see attitude towards the long-term path of monetary policy, the FTSE Global Index of developed and emerging market stocks has been hovering near historical highs for several weeks.

Headline U.S. consumer price inflation takes a hit 5% Within 12 months of May. Federal Reserve Chairman Jay Powell insisted that the rise is a temporary effect of the reopening of the US economy after the coronavirus shutdown. “But others worry that inflation is more structural,” said Marco Pirondini, Amundi’s head of US equities. “I want to say 50-50 on both sides.”

According to data from the US Bureau of Labor Statistics, after global semiconductor shortages led to a decline in new car production, the price of used cars and trucks rose, accounting for about one-third of the CPI increase in May.

But Pilondini said that after Biden, U.S. wages may also “rise in a more sustained manner.” sign An executive order in late April increased government wages, forcing private companies to also raise wages.

The U.S. dollar index, which measures the exchange rate of the U.S. dollar against its trading partners, fell 0.1%. The euro rose 0.2% against the dollar, buying $1.212. The pound rose 0.1% to 1.411 US dollars. The dollar index has risen by 0.7% this year, and currency traders are also waiting for a clearer picture of the future path of US monetary policy.

International oil benchmark Brent crude oil rose 1% to $73.39 per barrel.

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About the Author: Agnes Zang