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GLOBAL MARKETS-Stocks rally, bond yields and dollar tumble after Fed news

GLOBAL MARKETS-Stocks rally, bond yields and dollar tumble after Fed news

Reuters · 07/27/2022 15:56
GLOBAL MARKETS-Stocks rally, bond yields and dollar tumble after Fed

Wall St stocks rally as Powell speaks, dollar loses ground

Fed raises rates 75 basis points

U.S. 10-yr Treasuries yield falls

Energy in focus with Europe/Russia gas crisis

Updates prices to late afternoon adds commentary

By Sinéad Carew and Sujata Rao

- U.S. equities added sharply to gains while the dollar lost ground as investors bet that the Federal Reserve would slow interest rate hikes soon after it announced an increase in rates in line with expectations on Wednesday.

Oil futures settled higher after a report of lower inventories in the United States while cuts in Russian gas flows to Europe offset concerns about weaker demand and higher U.S. interest rates.

Ten-year U.S. Treasury bond yields - the reference rate for the global cost of capital - declined sharply as Fed Chair Jerome Powell spoke to reporters after the central bank announced it was raising its benchmark overnight interest rate by three-quarters of a percentage point.

The Fed is pushing up rates to cool the sharpest inflation since the 1980s and signaled "ongoing increases" in borrowing costs still ahead despite evidence of a slowing economy.

Powell told reporters it will likely be appropriate to slow the pace of increases as rates get more restrictive and that the Fed wants to get to moderately restrictive levels by year-end.

He also that the lack of clear visibility into the economy's future trajectory means the Fed can only provide reliable guidance on a "meeting by meeting" basis.

"The Fed’s comments suggest the pace of rate hikes will slow considerably in the coming months," said George Bory, chief investment strategist for fixed income with Allspring Global Investments.

While most asset classes chopped around after the Fed Statement came out at 2 p.m. ET (1800 GMT), stocks sharply gained ground as Powell spoke and Treasury yields took a dive as did the U.S. dollar index.

The Dow Jones Industrial Average .DJI rose 532.77 points, or 1.68%, to 32,294.31, the S&P 500 .SPX gained 113.23 points, or 2.89%, to 4,034.28 and the Nasdaq Composite .IXIC added 500.31 points, or 4.33%, to 12,062.89.

MSCI's gauge of stocks across the globe .MIWD00000PUS gained 2.11%.

Wednesday's Fed action "was widely expected and encouraging that it was a unanimous decision," said Jack Ablin, chief investment officer and founding partner at Cresset Capital in Chicago, that it represented "the most aggressive series of Fed moves since the 1980s when Paul Volcker was the Fed chair.

Anything other than the 75 basis point increase would have been a surprise, said Ablin.

"Too little would've undermined confidence in the Fed and too much would have undermined confidence in the economy. It was well telegraphed and properly balanced against expectations," he said.

The dollar index =USD fell 0.728%, with the euro EUR= up 0.92% to $1.0207.

The Japanese yen strengthened 0.29% versus the greenback at 136.53 per dollar, while Sterling GBP= was last trading at $1.2169, up 1.20% on the day. FRX/

Benchmark 10-year US10YT=RR last rose 2/32 in price to yield 2.7812%, from 2.787% late on Tuesday. The 30-year bond US30YT=RR last fell 23/32 in price to yield 3.0456%, from 3.008%. The 2-year US2YT=RR last rose 4/32 in price to yield 2.9736%, from 3.043%. US/

Weighing on investors mood Wednesday was Europe's fragile energy situation with gas flows from Russia's Nord Stream 1 pipeline expected to halve from already reduced levels.

A complete cut-off of Russian gas to Europe by year-end and a further 30% drop in oil exports may lead to virtually zero European and U.S. growth year, the IMF warned.

In energy markets U.S. crude CLc1 settled up 2.4% at $97.26 per barrel and Brent LCOc1 settled at $106.62, up 2.13% on the day.

Spot gold XAU= added 1.1% to $1,735.30 an ounce.


(Reporting by Sinéad Carew, Sujata Rao, Tom Westbrook, Ashitha Shivaprasad, Dhara Ranasinghe
Editing by David Holmes, Jane Merriman and Lisa Shumaker)

((sinead.carew@thomsonreuters.com))

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