World shares have shuffled higher and the dollar has nestled at a seven-week high after the US Federal Reserve’s first interest rate hike in more than three years and a dip in oil prices helped calm a global bond market sell-off that has rumbled for months.
The focus now shifts to the Bank of England (BoE), which is expected to leave UK rates steady on Thursday, but all eyes will be on whether it points to a November hike, given the pressures of energy prices.
The Bank of Japan, by contrast, is all but certain to lift interest rates on Friday.
Europe’s main share markets opened 0.2 per cent-0.5 per cent stronger on Thursday.
A one per cent drop in oil prices meant Brent was still at $US104 a barrel, but the Fed’s overnight move added to the sense that central banks are now getting the jump on inflation.
The US dollar rested at a seven-week high in currency markets, underpinned by a jump in short-term Treasury yields as markets ramped up wagers that the Fed might have to lift rates again.
But it had been notable that benchmark 10-year yields and longer-term 30-year yields had barely budged.
Lisa Wang, the head of EMEA investment strategy at Franklin Templeton Investment Solutions, said Wednesday’s move made for “a more credible Fed and puts a cap on long-term yields, rather than pushing them up”.
With money also set to continue to be poured into AI despite the recent warnings about its risks, “overall, we are still bullish globally on risk”, she added.
Europe’s attention was now on the BoE’s interest rate decision on Thursday.
It looks set to stay at 3.75 per cent but investors are watching for any sign that the latest surge in energy prices could force it to follow the Fed and European Central Bank upwards before too long.
British natural gas and Brent crude futures have leapt by almost 20 per cent this month – bad news for a country heavily reliant on imported energy.
Money markets currently point to an 80 per cent chance of a quarter-point BoE rate increase in November, potentially the first of four over the next year.
Economists are less convinced though it seems – only about one in eight respondents in a recent Reuters poll expected a November move.
S&P 500 and Nasdaq futures pointed to Wall Street gaining about 0.8 per cent when it resumes later.
Sterling was up 0.10 per cent at $US1.3395 ahead of the BoE decision as the dollar just started to ease from the seven-week high it had hit following the Fed’s move, which chair Kevin Warsh had framed as removing “a dose of accommodation”.
Benchmark 10-year UK gilt yields were slightly higher at 5.3 per cent.
German Bunds were nearly 3.53 per cent while 10-year US Treasuries were hovering just below the key 5 per cent threshold.
The Fed’s quarter-point rate rise overnight had been a unanimous decision. The central bank’s dot plot chart also projected one more hike in 2026, but stopped short of signalling any moves next year.
Commodity markets took a hit from the dollar’s overnight rise.
Brent crude futures slipped another one per cent after falling 2.7 per cent overnight on reports Saudi Arabia was offering crude cargoes through Oman.
That had helped ease some of the concerns about Middle East supply disruption, following recent escalation of the seven-month war after attacks by Iran-backed Houthi fighters on Saudi cities.
Gold, however, showed some resilience, rising 0.7 per cent to $US4,293 an ounce, offsetting a similar fall overnight.
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
