US, European stocks edge higher in anticipation of Fed's 'hawkish cut'

By Stephen Culp

NEW YORK (Reuters) - U.S. and European shares moved higher in early trading on Wednesday, as investors looked ahead to the Federal Reserve's policy rate decision due later in the session.

Crude prices rebounded and the dollar gained strength in advance of the U.S. central bank taking stage later in the day.

"We could be due for a bit of a relief, you know, after Chair Powell's press conference as the market digests a new set of projections and outlook for policy," said Zachary Hill, head of portfolio management at Horizon Investments in Charlotte, North Carolina.

"The market is setting itself up for a hawkish outcome and generally speaking, those are scarier in advance than when they actually happen," Hill added.

The Federal Open Market Committee (FOMC) is widely expected to conclude its final policy meeting of 2024 with a 25 basis point interest rate cut, while sounding a note of caution regarding the near-term rate cut trajectory.

The accompanying Summary of Economic Projections (SEP) and Fed Chair Jerome Powell's subsequent press conference will be parsed for clues regarding the central bank's path forward in the coming year.

"There are two things the market should focus on. One would be the number of cuts projected in 2025," Hill said. "The second thing is looking at projections for the long term neutral rate."

The Dow Jones Industrial Average rose 222.43 points, or 0.50%, to 43,668.27, the S&P 500 rose 18.84 points, or 0.31%, to 6,069.45 and the Nasdaq Composite rose 63.25 points, or 0.31%, to 20,172.31.

European shares inched higher, buoyed by Renault (EPA:RENA ) on talks of a potential merger between Japan's Honda (NYSE:HMC ) and Nissan (OTC:NSANY ), but gains were held in check ahead of the Fed decision.

MSCI's gauge of stocks across the globe rose 1.53 points, or 0.18%, to 865.55. The STOXX 600 index rose 0.29%, while Europe's broad FTSEurofirst 300 index rose 5.84 points, or 0.29%.

Emerging market stocks rose 3.31 points, or 0.30%, to 1,096.51. MSCI's broadest index of Asia-Pacific shares outside Japan closed higher by 0.27%, to 581.24, while Japan's Nikkei fell 282.97 points, or 0.72%, to 39,081.71.

Yields for 10-year U.S. Treasuries hovered around three-week highs.

The yield on benchmark U.S. 10-year notes rose 1.4 basis points to 4.401%, from 4.385% late on Tuesday.

The 30-year bond yield rose 2.6 basis points to 4.6052% from 4.579% late on Tuesday.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 1.5 basis points to 4.224%, from 4.241% late on Tuesday.

The dollar was flat-to-slightly higher against a basket of world currencies as investors prepare for a more gradual approach to policy easing from the Fed in the coming year.

The dollar index , which measures the greenback against a basket of currencies including the yen and the euro,

rose 0.19% to 107.13, with the euro down 0.14% at $1.0474.

Against the Japanese yen, the dollar strengthened 0.35% to 154.01.

Bitcoin fell back from record highs, having churned upward in the aftermath of U.S. President-elect Donald Trump remarks about setting up a strategic bitcoin reserve.

In cryptocurrencies, bitcoin fell 1.78% to $104,531.00. Ethereum declined 1.58% to $3,870.20.

Oil prices gained ground ahead of the Fed's revised economic projections.

U.S. crude rose 1.5% to $71.13 a barrel and Brent rose to $73.98 per barrel, up 1.08% on the day.



Gold softened in opposition to the dollar's strength in anticipation of the Fed's revised outlook.

Spot gold fell 0.34% to $2,636.61 an ounce. U.S. gold futures fell 0.3% to $2,636.40 an ounce.

Source: Investing.com