US stocks rise ahead of Fed decision and after Putin steps up war footing

What drives the markets?

US stocks traded higher despite traders expressing nervousness over tighter monetary policy and heightened geopolitical tensions in Europe.

“It is proving very difficult for equity markets to move forward this week with large official rate hikes in prospect,” wrote Ian Williams, strategist at Peel Hunt.

The Federal Reserve is expected to raise its key interest rate by 75 basis points to a target rate of 3.0% to 3.25% when it makes its decision at 2 p.m. ET. The central bank quickly raised borrowing costs from near zero earlier in the year as it struggles to tackle inflation which is currently at 8.3%, near multi-decade highs.

“All eyes will be on the Federal Reserve’s latest inflation-fighting measure today, as spiraling prices continue to cause financial hardship for consumers and businesses… There are fears inflation will becomes dangerously entrenched in the economy, threatening financial stability,” wrote Susannah Streeter. , senior investment and market analyst at Hargreaves Lansdown.

The sharp rise in interest rates over the past few months – and the prospect of more to come – triggered a massive bond sell-off and pushed benchmark government yields TMUBMUSD10Y,
3.561%
to 11-year highs, a move that is putting additional pressure on stocks, in part because it makes debt assets relatively more attractive. The S&P 500 index is down 18.6% so far in 2022.

Correlations between Treasury yields, equities, the US dollar and crypto are at a year high, QCP Capital analysts noted. This is “undoubtedly a sign that liquidity (or its withdrawal) is now front and center as the primary driver of all markets,” the analysts said.

The Fed’s expected move comes after Sweden’s central bank announced a more hawkish-than-expected rate hike of 100 basis points on Tuesday and ahead of an expected rate hike from the Bank of England on Thursday.

“Central banks are showing greater resolve to fight inflation and are increasingly willing to sacrifice growth to get there,” said Nathan Sheets, chief global economist at Citi.

News on Wednesday that Russian President Vladimir Putin had called for a partial military mobilization of the country to continue his attack on Ukraine also dampened sentiment. The announcement, which included threats against the West, raised fears of a further escalation in the conflict.

Energy prices fell, with US WTI CL.1 crude futures,
-1.72%
down 1.2% to $83.44 a barrel and ICE Dutch TTF natural gas futures, the continent’s benchmark, down 0.6% to 193 euros per megawatt hour. EURUSD euro,
-0.84%
fell 0.9% to $0.9879, pushing the dollar index back near its 20-year high.

In U.S. economic data, sales of existing homes in the country fell 0.4% in August to 4.8 million, the lowest level since May 2020, the National Association of Realtors said Wednesday.

Companies in the spotlight

• Shares of General Mills Inc.
  GIS,
  +7.16%
  rose 7% on Wednesday after the branded consumer foods company, whose brands include Cheerios, Betty Crocker and Häagen-Dazs, reported first-quarter fiscal profit that beat expectations and raised its outlook for the whole year.

• Shares of Glatfelter Corp.
  GLT,
  -1.82%
  fell 5.4% on Wednesday, after the engineering materials supplier announced the suspension of its quarterly dividend, as part of a “reprioritization” of capital as it focuses its efforts on optimizing financial results.

• Defense company stocks rose after Russian President Vladimir Putin mobilized more troops to Ukraine in what is seen as a major escalation in Ukraine’s war. Lockheed Martin
  LMT,
  +2.28%
  increased by 2.4%, Northrop Grumman increased by 2.8% and Raytheon
  RTX,
  +2.27%
  increased by 2.5%.

• Beyond Meat Inc.
  BYND,
  +4.05%
  Tuesday night it suspended chief operating officer Doug Ramsey, who was arrested over the weekend and charged after he allegedly bit a man’s nose during an altercation in Arkansas. The producer of plant-based meat substitutes saw its market share increase by 7%.