Global stocks have inched higher ahead of the conclusion of the US central bank’s two-day policy meeting on Wednesday, which will give investors a glimpse of how officials view the inflation outlook.
The S&P 500 was flat in early dealings, but the tech-focused Nasdaq Composite rose 0.3 per cent. Across the Atlantic, the European Stoxx 600 index was up 0.2 per cent, and the UK’s FTSE 100 climbed by the same amount.
Top movers in the US included several energy companies such as Diamondback Energy, ExxonMobil, Occidental Petroleum and Halliburton, as demand for oil remained high thanks to the lifting of pandemic curbs.
Brent crude, the global benchmark, was up 0.6 per cent to $74.46 a barrel, its highest level since April 2019. The US benchmark, West Texas Intermediate, was up 0.2 per cent at $72.26 a barrel, its strongest since October 2018.
“The general feeling is that it’s probably too good to be true,” said Luca Paolini, chief strategist at Pictet Asset Management, referring to stocks on both sides of the Atlantic holding on to record highs. “But as long as the global economy continues to do well, the market will continue to go higher.”
The “dot plot” released by the Federal Reserve on Wednesday will provide insight into how high US central bankers expect inflation to rise this year and next.
“The key component to watch at Wednesday’s press conference is an acknowledgment by Fed chair [Jay] Powell that the tapering discussion is under way,” said Danielle DiMartino Booth, chief executive of Quill Intelligence, “and that officials are pondering a timeframe as to when they will communicate to the markets that the tapering train is scheduled to depart the station”.
The appointment of noted antitrust advocate Lina Khan as chair of the Federal Trade Commission did not seem to have a serious impact on Big Tech companies, with little movement by Apple, Amazon, Facebook and Alphabet in morning trading.
In the UK, inflation in May rose 2.1 per cent year on year, according to figures released on Wednesday, reflecting higher costs for clothing and eating out and overshooting the Bank of England’s 2 per cent target. The BoE said last month it would slow the pace of its pandemic-era bond-buying programme, although it emphasised this did not represent a shift in its policy.
Pictet’s Paolini said the inflation outlook in the UK would be affected by labour shortages in many sectors, noting that there was already clear upward pressure on wages.
Central banks around the world are grappling with how to respond to rising inflation, though policymakers in Europe and the US have said they view the price rises as transitory effects of economic reopenings.
“This is not a local phenomenon,” said Willem Sels, chief investment officer for private banking and wealth management at HSBC. “Around the world, we are seeing increased inflation due to petrol price base effects [in] comparison to low oil prices last year, some bottlenecks in the supply chain and a pick-up in retail and hospitality demand.”
In the US, investors anticipate that discussion by the Fed about when to start shrinking its monthly asset purchase scheme may begin as soon as Wednesday. The European Central Bank said last week that it would stick to its bond-buying plan.
Bonds were steady on both sides of the Atlantic after last week’s global rally, despite the stronger inflation outlook that usually makes their fixed interest payments less attractive.