European stocks and U.S. futures rose on Thursday after the Federal Reserve kicked off a series of central bank policy meetings this week by delivering its smallest rate hike since March.
The region-wide Stoxx Europe 600 added 0.9 percent and London’s FTSE gained 0.3 percent ahead of policy announcements from the European Central Bank and the Bank of England later. Both are expected to raise rates by half a percentage point to the highest level since fall 2008.
Contracts tracking Wall Street’s benchmark S&P 500 rose 0.3 percent and those tracking the tech-heavy Nasdaq 100 added 0.9 percent ahead of the New York open. Meta rose 20 percent in pre-market trading on a stronger-than-expected fourth quarter and chief executive Mark Zuckerberg’s promise that 2023 would be a “year of efficiency.”
The S&P 500 rose to its highest level since August on Wednesday after the Fed voted to raise rates by a quarter percentage point, ending a move of half and three-quarter points and taking the federal funds rate between 4.5 and 4.75 percent. .
Traders spooked government bonds, which have rallied so far this year, taking the yield on the benchmark 10-year Treasury down to 3.40 percent on Thursday morning. Bond yields fall when prices rise.
The dollar index, which tracks the U.S. currency against a basket of six currencies, fell more than 0.2 percent, having fallen more than a tenth in the past three months as interest rates eased.
Markets expect the Fed to replicate Wednesday’s move when officials meet in March and Fed chairman Jay Powell gave investors little reason to think otherwise during a question-and-answer session with reporters at noon, maintaining that “continuing increases in some targets would be appropriate”.
Powell admitted that “the process of disinflation has already started” in consumer goods, which the market interpreted as dovish, but he added that disinflation has not yet set in among the core services ex-home part of the price index. Despite the slowdown in economic growth, the labor market remains “very tight”, Powell said.
Unlike the Fed, however, the market expects the March rate hike to be the central bank’s last and price in the possibility of a rate cut at the end of 2023. “We just have to see,” Powell said.
“Reading between the lines, we’re seeing the first baby steps toward a pause in rate hikes after the March rate hike, and ultimately a pivot to rate cuts later this year,” said analysts at Bank of America.
Barclays analysts said Powell’s press conference “sent a mixed message, reiterating that the committee’s work is not done, but showing reluctance to lead to easing the financial situation”.
In Asia, Hong Kong’s Hang Seng index fell 0.5 percent, China’s CSI 300 fell 0.3 percent and Japan’s Nikkei rose 0.2 percent.