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US stocks hold steady as investors await Fed meeting clues

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US stocks were steady on Wednesday with the Federal Reserve poised to lift borrowing costs by a quarter percentage point in what would be the smallest increase in rates since last March.

Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq Composite both traded between gains and losses shortly after the opening bell, after both indices registered strong gains in the previous session. Facebook parent Meta is due to report fourth-quarter earnings later in the day.

Fed officials are later expected to increase rates by 0.25 percentage points to a range of 4.5-4.75 per cent, the highest level since September 2007 at the start of the global financial crisis.

Having lifted rates in 0.5 percentage-point and 0.75 percentage-point increments since May, such a move would mark a shift to a more traditional pace of monetary tightening and reflects growing confidence that inflation is on a downward trajectory.

With a quarter percentage-point move all but nailed on, markets are likely to swing higher or lower on the language deployed by Fed chair Jay Powell in his press conference shortly after the rate increase is announced.

“We expect Powell’s comments will be quite hawkish in order to underscore that slowing is not stopping, and to discourage markets from expecting rate cuts in 2023,” said analysts at JPMorgan.

Wage and price inflation have slowed, initial jobless claims have declined and the unemployment rate and consumer spending are “rangebound”, the analysts continued. Yet despite a more “encouraging” economic outlook, Powell is expected to point yet again to the “historical costs of easing too soon”.

US government bonds rallied, with the 10-year Treasury yield falling 0.03 percentage points to 3.50 per cent, down from a late-October peak of 4.24 per cent, according to Refinitiv. Bond yields move inversely to prices. A measure of the dollar’s strength against a basket of six peers slipped 0.4 per cent.

Indeed, Spain’s inflation rate rose 5.8 per cent in the year to January, up from 5.5 per cent in December, according to preliminary figures published by its national statistics office on Monday, and “served as another reminder that the assumptions of having already achieved this ‘immaculate disinflation’ glide-path will not be a one-way easy sailing trajectory in reality”, said Charlie McElligott, analyst at Nomura.

The Bank of England and European Central Bank are due to implement their own interest rate increases on Thursday, with both expected to opt for half percentage-point adjustments upwards.

The regional Stoxx Europe 600 traded 0.1 per cent higher after eurozone inflation fell more than expected to 8.5 per cent in January, down from 9.2 per cent in December. Economists polled by Reuters had forecast a decline to 9 per cent. Core inflation, which omits relatively volatile food and energy prices, remained at 5.2 per cent, with investors having expected a decline to 5.1 per cent. London’s FTSE 100 edged 0.1 per cent higher.

In Asia, Hong Kong’s Hang Seng index added 1 per cent, China’s CSI 300 rose 0.9 per cent and South Korea’s Kospi gained 1.2 per cent. Japan’s Nikkei was steady.

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