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LONDON – Global equities were little changed on Wednesday as investors kept their powder dry ahead of an expected Federal Reserve rate hike, whose accompanying statement will help determine the next moves in financial markets.
The global stock index MSCI fell 0.1%, while the STOXX index of European companies fell 0.4%.
The US 10-year Treasury yield was just below the closely watched 3% level, while oil prices rose as the European Union proposed further sanctions against Russia in response to its invasion of Ukraine, including an oil embargo that lasted until the end of the year to be introduced gradually.
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Markets expect the Fed to hike rates by half a percentage point at 1800 GMT – the highest rate in a single day since 2000 – to curb inflation and plans to reduce its $8.9 trillion balance sheet presented in detail.
The US Federal Reserve increased interest rates by 25 basis points in March.
“The bigger question is what the Fed’s guidance on rate hikes next month will be. Will we get another 50 basis points in June and what is the timeline for reducing the balance sheet?” said Michael Hewson, Chief Markets Analyst at CMC Markets.
The global monetary tightening cycle has reached a symbolic milestone, with German, UK and US 10-year Treasury yields topping 1%, 2% and 3% respectively, levels not seen in years. This in turn has increased the cost of borrowing for businesses and households.
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The Bank of England is also expected to hike UK interest rates by a quarter of a point on Thursday, which would be its fourth straight hike in a bid to quell rising prices.
“US markets are just starting to hold up and how hawkish the Fed is likely to be is pretty crucial. There is a risk that the Fed could underdeliver and pull yields lower,” Hewson said.
OIL JUMPS
On Tuesday, the Dow Jones Industrial Average closed down 0.2%, the S&P 500 down 0.48% and the Nasdaq Composite down 0.22%.
Many Chinese and Japanese stock markets closed overnight, offering little guidance to European investors.
Crude oil prices rose as the EU announced details of its planned ban on Russian oil imports and other new sanctions targeting Russia’s top lender Sberbank and Russian broadcasters blocked from European airwaves.
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Brent crude futures rose 3.6% to $108.77 a barrel. West Texas Intermediate crude futures were up 3.7% to $106.17.
Australia’s central bank hiked interest rates by more than expected 25 basis points, sending the Aussie dollar up as much as 1.3% and hitting local equities.
The 10-year Treasury note yield was slightly firmer at 2.973% after surpassing the key 3% milestone for the first time since December 2018 on Monday.
The dollar index was somewhat firmer along with the euro. Gold also strengthened, with bitcoin gaining 2.5% to $38,701.
(Reporting by Huw Jones, Editing by Catherine Evans)
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