Written by 9:30 pm Europe Economy

Wall Street stocks gain as investors take heart from Fed minutes

Wall Street stocks closed higher on Wednesday after minutes from the Federal Reserve’s latest policy meeting suggested the US central bank could ease up on its push to lift interest rates.

The S&P 500 index ended the session up 0.6 per cent, while the technology-heavy Nasdaq Composite gained 1 per cent after finishing the previous day 1.4 per cent higher.

Those moves came as minutes of the US central bank’s early November meeting showed a “substantial majority” of officials supported slowing down the pace of interest rate rises soon — even as some warned that monetary policy would need to be tightened more than expected next year.

In government bond markets, the yield on the 10-year US Treasury note — seen as a proxy for global borrowing costs — slipped 0.06 percentage points to 3.7 per cent. The policy-sensitive two-year yield fell 0.03 percentage points to 4.48 per cent. Both yields, which move inversely to the debt instruments’ prices, had been broadly flat in the lead-up to the publication of the minutes.

The dollar fell further after the release of the minutes, with an index tracking the US currency against six peers sliding 0.9 per cent.

Equities and bonds have come under pressure this year as the Fed and its international peers turn the screws on monetary policy in a bid to curb rapid price growth. Even after a softer-than-expected US inflation reading for October, markets are pricing in expectations of interest rates in the world’s largest economy peaking at about 5 per cent in June.

After four consecutive increases of 0.75 percentage points, the Fed’s “target range” for benchmark interest rates stands at 3.75 per cent to 4 per cent.

Elsewhere on Wednesday, oil prices were lower, with international benchmark Brent crude down 4.1 per cent at just under $85 a barrel.

The fresh falls for oil came as concerns about global demand were highlighted by a disappointing US purchasing managers’ report. The S&P Global US composite PMI for November, which takes into account the services and factory sectors, reached a three-month low of 46.3, suggesting the pace at which business conditions are deteriorating is worsening.

“Business conditions across the US worsened in November . . . with output and demand falling at increased rates, consistent with the economy contracting at an annualised rate of 1 per cent,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

PMI reports for the euro area also pointed to a continued slowdown in business activity. “The [eurozone] data suggests the outlook has marginally improved and some tail risks are less likely, but is still consistent with a meaningful recession,” Barclays said in a note to clients.

Line chart of S&P Global Composite US PMI showing US business activity hits reverse gear

The reports come as analysts remain concerned about China, which is launching large-scale lockdowns as it battles outbreaks of Covid-19.

Europe’s Stoxx 600 share index closed up 0.6 per cent. In Asia, Hong Kong’s Hang Seng index edged up 0.6 per cent, while China’s CSI 300 added 0.1 per cent. Elsewhere, South Korea’s Kospi gained 0.5 per cent.

Willem Sels, global chief investment officer at HSBC’s private bank, said he was bearish on equities in general but recently “dipped into” Chinese retail, hospitality and airline stocks on the expectation of further support for the country’s battered real estate sector and a gradual relaxing of zero-Covid policies in the second quarter of 2023.

If implemented, the measures would lower the chances of a full-blown property crisis and stimulate economic growth, Sels added. “Couple that with very attractive valuations, and other investors being underweight, and [China] is a good risk-reward.”

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