US stocks edge higher on hopes of end to Fed interest rate rises

Wall Street stocks opened cautiously higher on Friday as investors drew optimism from signs that the US economy is cooling, boosting hopes that the Federal Reserve will soon halt its interest rate-raising policy.

Wall Street’s benchmark S&P 500 added 0.2 per cent at the opening bell, while the Nasdaq Composite lost 0.1 per cent, as shares in heavyweight tech stocks Apple and Microsoft shed 0.4 per cent and 0.7 per cent respectively.

The duo had hit record highs overnight after economic data indicated the labour market was softening and consumer spending moderating, which investors took as a sign that the Fed might need to make fewer rate increases to tame inflation.

Even so, the Fed this week suggested there would be more interest rate increases to come this year. The central bank kept its federal funds rate steady at a target range of 5 to 5.25 per cent when policymakers met earlier this week.

“Market expectations and Federal Reserve expectations for where the economy is heading are moving in different directions”, said James Knightley, chief international economist at ING. “Futures contracts [are] not even fully discounting one hike, let alone the two that the Fed are currently projecting”, he noted.

Investors have priced in a 72 per cent probability that the Fed will go ahead with another quarter-point increase at the next policy meeting in July, according to data compiled by Refinitiv and based on interest rate derivatives prices.

The yield on two-year US Treasury notes rose 0.1 percentage points to 4.75 per cent on Friday. The yield on the benchmark 10-year added 0.05 percentage points to 3.78 per cent. Bond yields rise as prices fall.

The yen and pound strengthened against the dollar, with the yen rising as high as ¥141, its highest level since November, and sterling touching £1.28, the highest point since April last year.

Meanwhile, Europe’s region-wide Stoxx 600 added 0.5 per cent while France’s Cac 40 gained 1.3 per cent and London’s FTSE 100 was up 0.3 per cent.

On Thursday, the European Central Bank made a more hawkish move than the Fed, lifting its deposit rate by 0.25 percentage points to 3.5 per cent, its highest level since July 2001.

The ECB signalled more monetary tightening to come, forecasting that inflation will not return to its 2 per cent target for another two years.

Japan’s Topix index gained 0.3 per cent after the Bank of Japan kept its overnight interest rate on hold at minus 0.1 per cent as expected, even though inflation was above the central bank’s target of 2 per cent.

The country’s benchmark 10-year government bond yield was flat at 0.4 per cent after the announcement, while the central bank said it would continue to allow it to fluctuate by 0.5 percentage points above or below the target yield of zero.

Elsewhere in Asia, China’s CSI 300 rose 1 per cent and Hong Kong’s Hang Seng index gained 1.1 per cent.