US stocks edged higher on Tuesday with central banks on either side of the Atlantic poised to raise borrowing levels to their highest level in 15 years.
Wall Street’s benchmark S&P 500 rose 1 percent in afternoon trade and the tech-heavy Nasdaq Composite gained 1.3 percent.
The move comes as US Federal Reserve officials gather for their first policy meeting of the year, a two-day event that ends on Wednesday. Investors expect the central bank to raise interest rates by a quarter percentage point, which would leave the policy rate in the range of 4.5-4.75 percent.
The hike would mark a return to a more normal pace of rate hikes after the Fed last year delivered four consecutive 0.75 percentage point hikes before decelerating to a 0.5 percentage point hike in December. Although inflation remains far from the Fed’s 2 percent target, the December rate was the lowest since October 2021, at 6.5 percent.
The European Central Bank and the Bank of England will also meet this week, and both are expected to raise interest rates by 0.5 percentage points.
Trading in U.S. equities is likely to be slightly lower during the Fed announcement. Tuesday “may be interesting but ultimately irrelevant”, said Mike Zigmont, head of trading and research at Harvest Volatility Management. “Whatever the market does will be reversed or reinforced by what the Fed said Wednesday.”
Among the biggest losers of the day was Caterpillar, down 3.6 percent, after missing profit estimates in fourth-quarter earnings and warned of soft demand from China. McDonald’s fell 1.6 percent as it missed expectations for a fourth-quarter operating margin bigger than expected earnings and sales.
A measure of the dollar’s strength against a basket of six other currencies fell 0.2 percent, erasing earlier gains, while U.S. government bonds rose. The two-year Treasury yield, which is particularly sensitive to interest rate expectations, fell 0.06 percentage points to 4.21 percent. Bond yields move inversely to prices.
The region-wide Stoxx Europe 600 traded 0.3 percent lower even as data showed the euro zone economy picked up in the final quarter of 2022, raising hopes that the region will avoid a deep recession. London’s FTSE 100 closed 0.2 percent lower.
In Asia, Hong Kong’s Hang Seng index, China’s CSI 300 and South Korea’s Kospi fell 1 percent. Japan’s Nikkei fell 0.4 percent.