European equities rose to another record and Wall Street stock futures signalled the S&P 500 was edging towards its 30th all-time high of the year as investors shrugged off jitters about the US central bank reining in its pandemic-era support for financial markets.
The Europe Stoxx 600 rose 0.3 per cent, while the UK’s FTSE 100 added 0.4 per cent.
Futures contracts that bet on the direction of the S&P gained 0.1 per cent, as did those predicting movements of the top 100 stocks on the technology-focused Nasdaq Composite.
The moves came despite some analysts expecting the Fed, which concludes its latest monthly meeting on Wednesday, to bring forward its projections for its first post-pandemic interest rate rise by a year to 2023. The central bank may also hold initial talks about reducing its $120bn of monthly bond purchases.
On Tuesday, the yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, dipped slightly to 1.492 per cent after climbing from about 0.9 per cent at the start of the year.
“Economic data highlight that the US economy is growing at a rapid clip,” said ANZ economist Tom Kenny. But after repeated comments by Fed chair Jay Powell that the central bank wanted to see substantial improvements in the US labour market and that a surge in US inflation would be temporary, “we don’t anticipate any change to the policy guidance language on either rates or asset purchases”, Kenny added.
“We think it will be hard for the Fed to avoid discussion of tapering, but relatively easy to dismiss any expectation of imminent action as very premature,” added Standard Chartered strategist Steve Englander.
In 2013, when former Fed chair Ben Bernanke announced the central bank was about to reduce its post-financial crisis asset purchases, it roiled asset markets in what became known as the “taper tantrum”.
“We anticipate the [Fed committee] giving itself a few more months to assess incoming data on both inflation and growth, recognising the potential embarrassment of another episode of premature hawkishness,” Englander said.
The Fed’s asset purchases, which have been followed by central banks worldwide, have lowered the yields on government bonds and boosted the appeal of riskier assets such as equities.
The S&P 500 had notched up 28 closing highs for 2021 by the end of last week, according to Credit Suisse strategist Jonathan Golub, and hit another record on Monday.
“Importantly, economic activity has improved over this period, the true catalyst of the S&P 500’s advance,” Golub said. Economists expect US GDP to grow at an annualised rate of about 10 per cent in the second quarter of this year as the global economy stages its strongest recovery from a recession in eight decades.
The dollar index, which measures the US currency against those of trading partners, dipped 0.1 per cent on Tuesday as the positive mood on stock and bond markets diminished the haven asset’s appeal. The euro slid 0.1 per cent against the dollar to $1.210. Sterling dropped 0.5 per cent to $1.403.
International oil benchmark Brent crude added 1 per cent to $73.61 a barrel.