US bonds, equities ease ahead of Fed meeting

U.S. government bond prices softened and Wall Street stocks failed to build on all-time highs reached last week as traders became cautious ahead of a two-day U.S. central bank meeting which begins on Tuesday.

After a rally Last week, as investors relied on the Federal Reserve to beat high U.S. inflation to maintain support for financial markets during a pandemic, the benchmark 10-year Treasury bond yield rose by 0, 02 percentage point at 1.485%.

Wall Street’s S&P 500 stock index fell 0.3% at the start of trading in New York after hitting a new high on Friday. The technology-focused Nasdaq Composite index rose 0.1%. The Stoxx Europe 600 also gained 0.1%, on the way to a new closing high.

The Fed is expected to maintain its $ 120 billion monthly bond purchases that have eased financial conditions for businesses and households since March of last year.

These asset purchases, which were tracked by rate regulators in Europe and the UK, lowered government bond yields, lowering corporate borrowing costs and increasing the attractiveness of larger assets. risky such as stocks.

However, after a rapid recovery in the US economy fueled by coronavirus vaccines and President Joe Biden’s massive stimulus packages, some analysts are seeing Fed policymakers pushing forward their forecasts for the first post interest rate hike. -pandemic.

“We expect the Fed to improve its growth outlook and significantly revise its inflation forecast,” Tiffany Wilding, US economist at bond investment house Pimco, said in a research note. “We believe the majority of Fed officials will also advance their projections for the first rate hike until 2023 [from 2024]. ”

Fed Vice Chairman Richard Clarida last month called for a debate on reducing central bank asset purchases as the United States recovery accelerated.

“We expect more discussion on a future tapering discussion,” said Grace Peters, investment strategist at JPMorgan private banking. “With the real taper that will start early next year. ”

The FTSE All-World index of developed and emerging market stocks has hovered around its all-time high for weeks as investors take a wait-and-see stance on the longer-term trajectory of monetary policy.

Consumer price inflation in the United States is affected 5 percent within 12 months until May. Jay Powell, chairman of the Fed, maintained that the hikes are a temporary effect of the reopening of the US economy after the coronavirus shutdowns. “But others fear that inflation is no longer structural,” said Marco Pirondini, head of US equities at Amundi. “I would say it’s 50-50 on each side.”

Higher prices for used cars and trucks, after a global semiconductor shortage slashed new vehicle production, accounted for about a third of the May CPI increase, according to the Bureau of Labor Statistics.

But US wages could also “increase more steadily,” Pirondini said, after Biden sign an executive decree at the end of April to increase government wages, putting pressure on private industry to increase wages as well.

The dollar index, which measures the US currency against that of trading partners, fell 0.1 percent. The euro rose 0.2% against the dollar, buying up $ 1.212. The British pound rose 0.1% to $ 1.411. The dollar index has gained 0.7% this year, as traders also await a clearer picture of the future direction of US monetary policy.

Brent crude, the international benchmark for oil, gained 1% to $ 73.39 per barrel.

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