Stocks Rise as Fed Aligns With Street Expectations: Markets Wrap

(Bloomberg) — European stocks and US equity-index futures rose as investors grew confident the Federal Reserve’s peak interest rate would be within levels already priced in by markets.

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Contracts on the S&P 500 and Nasdaq 100 climbed at least 0.6% each after the underlying indexes avoided a selloff following the Fed’s minutes and remarks by officials. The dollar fell for the first time in three days. Oil futures steadied. Europe’s equity benchmark rebounded from a two-day loss as Nvidia Corp.’s bullish outlook sparked gains in global technology shares. Japan was closed for a holiday.

After months of divergence over the perceived path of monetary tightening, the Fed and markets are increasingly getting aligned in their expectations, reducing the scope for hawkish shocks. While the minutes and comments by Fed officials including James Bullard reiterated a continuing preference for rate hikes, they didn’t say anything that wasn’t factored in by the market’s aggressive repricing of Fed bets in recent weeks.

“One of our big concerns coming into this year was the market was anticipating an event that wasn’t likely to occur, that being a dovish Fed pivot,” Danielle Poli, co-portfolio manager of the diversified income fund for Oaktree Capital Management, said in an interview with Bloomberg Television. “The market has woken back up a little bit in these last two weeks.”

The dollar weakened against nine of its Group-of-10 peers. The Australian dollar showed the biggest gains on stronger-than-expected business investment data and dip-buying by exporters.

Traders are now pricing in a Fed peak rate of 5.55% by July, compared with 4.90% they were betting on at the start of year. However, Fed officials haven’t grown more aggressive during this time: Fed Bank of St. Louis President Bullard reiterated his earlier stance, saying “I’m still at 5.375%.” Markets fully price in a 25 basis-point hike in March, but assign a 24% probability for a 50-point hike.

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