Stocks muted, Sweden launches salvo of central bank hikes

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  • The Swedish central bank raises 1 percentage point
  • Dollar steady near two-decade highs
  • The Fed, BoE and Swiss central banks are watching
  • Eurozone rates rise

LONDON, Sept 20 (Reuters) – Stocks were little changed on Tuesday as investors braced for bigger central bank interest rate hikes to curb inflation, with Sweden setting the pace ahead of its U.S., Swiss and and British later in the week.

The dollar was flat near a two-decade high against major peers, crude oil prices were little changed and eurozone bond yields hit new multi-year highs on concerns over high prices Energy.

Asian and European stocks took advantage of Monday’s advance on Wall Street to post modest gains, with the STOXX Index (.STOXX) of 600 European companies flat.

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The benchmark is down about 16% for the year as the fallout from the war in Ukraine and rising borrowing costs fuel recession fears.

The MSCI All Country Stock Index (.MIWD00000PUS) was ahead 0.2%, leaving it down about 20% from its January high. US equity futures, the S&P 500 e-minis, advanced 0.22%.

Sweden’s central bank raised rates a full percentage point more than expected on Tuesday and warned of more to come. The Fed is also expected to raise rates at the end of a two-day meeting on Wednesday, with the Bank of England expected to rise on Thursday. Read more

“Tighter monetary policy around the world will increase headwinds for risky assets – after all, central bankers are deliberately trying to slow aggregate demand,” ING Bank said.

Markets expect rates to climb to 4.5% by early 2023, compared to the current Fed policy rate range of 2.25% to 2.5%. Read more

Luca Paolini, chief strategist at Pictet Asset Management, said the US central bank would likely ease the pace of increases over the next year.

“The market, in a way, is probably expecting rates to spike,” Paolini said, adding that market attention would then turn to how rising rates were affecting savings and corporate earnings. companies.

“We haven’t fully seen it yet, I believe, as a significant decline in earnings which I think will come. The decline in bonds is limited,” Paolini said.

Inverted yield curves or long-term interest rates lower than short-term rates have also historically been a red flag for stock buying, he added.

The projection of terminal rates also jumps

THE CONTRARY CHINA

The Chinese central bank kept its key rates unchanged at a monthly fixing on Tuesday, as expected. Read more

The other exception is the Bank of Japan, which is also due to meet this week and has shown no sign of abandoning its ultra-loose yield curve policy despite a drastic drop in the yen and inflation at its pace. fastest in eight years. Read more

“Just because no one expects anything to come out of Japan, the central bank could be the most interesting this week as any hint that it will change anything could have massive implications for the yen. “, said Paolini.

Stock trading resumed in Japan on Tuesday after a public holiday. The Nikkei (.N225) advanced 0.4% as tech stocks largely contributed to the gain.

China’s blue-chip CSI300 index (.CSI300) rose 0.12% while Hong Kong’s Hang Seng index rose 1.2%.

Sentiment in Hong Kong was also boosted after the government signaled that the change to its COVID-19 hotel quarantine policy for all arrivals was coming soon, saying it wanted an “orderly opening”. Read more

On Monday, the S&P 500 gained 0.69%, the Nasdaq gained 0.76% while the Dow Jones Industrial Average (.DJI) rose 0.64%.

Rising interest rates prompted a sell-off in government bonds. The yield on the benchmark 10-year Treasury bill was 3.5082% after hitting 3.518% on Monday, its highest level since April 2011.

The US two-year yield, a barometer of future inflation expectations, touched 3.9664% after hitting a new near 15-year high of 3.970%.

Rising US Treasury yields helped strengthen the dollar and made gold less attractive.

The dollar index, which measures the currency against six peers, was 0.128% stronger at 109.680.

Spot gold traded at $1,670 an ounce, down 0.3%

U.S. crude rose 0.3% to $86.01 a barrel. Brent crude rose 0.4% to $92.48 a barrel.

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Reporting by Huw Jones, additional reporting by Julie Zhu; Editing by Edwina Gibbs and Alison Williams

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