Wall Street rebounds ahead of Fed, oil gains on Russia-Ukraine

US stock index futures rallied on Wednesday ahead of the outcome of a Federal Reserve policy meeting, with rate hikes this year already priced in, while oil rose towards recent seven-year highs on tension between Russia and Ukraine.

The Fed is due to update its policy plan at 2 p.m. EST (1900 GMT) after a two-day meeting. A first rate increase is seen in March, and three more quarter-point increases are expected by year-end.

The Dow Jones Industrial Average rose 1.31 per cent shortly after the market open. The S&P 500 jumped 1.77 per cent and the Nasdaq Composite climbed 2.24 per cent, after dropping over 2 per cent on Tuesday..

The MSCI world index rose 1.22 per cent, European shares climbed 1.98 per cent and Britain’s FTSE 100 gained 1.95 per cent.

“There is a good chance that the anticipation of rates hikes will end up being worse than the increases themselves. We went through a similar scenario back in 2016,” wrote National Securities Chief Market Strategist Art Hogan in a note. “Once the Fed started the tightening, cooler minds took over, and the market had a great run in 2016 and 2017 while rates were moving up.”

US stocks posted their worst week since 2020 last week. The MSCI index is also on course for its biggest monthly drop since the COVID-19 pandemic hit markets in March 2020, though analysts at Goldman Sachs said equities had not reached “danger zone” levels.

Sebastien Galy, senior macro strategist at Nordea Asset Management, said that given the recent volatility, he expected the Fed would be “far more cautious about the timing and pace of the balance sheet reduction and that will be welcomed by the equity market”.

The Fed’s balance sheet roughly doubled in size during the pandemic to nearly $9 trillion, as it snapped up bonds to help keep longer-term interest rates down to support the economy.


OIL HITS SEVEN-YEAR HIGH

Growing tension as Russian troops massed on Ukraine’s border have added to a risk-averse environment for investors, and pushed oil to the highest price since 2014.

US President Joe Biden said on Tuesday he would consider personal sanctions on President Vladimir Putin if Russia invaded Ukraine, as Western leaders stepped up military preparations and made plans to shield Europe from a possible energy supply shock.

Brent crude rose 1.51 per cent to $89.51 per barrel. It reached $89.50 on Jan. 20, the highest since October 2014.

US crude rose 1.18 per cent to $86.61 a barrel.

Kristina Hooper, global market strategist at Invesco, said that if there was an invasion, “the ensuing sanctions against Russia could drive up the price of oil, which in turn could add to inflationary pressures in the short run.”

However, Ukraine and Russia’s government bonds rallied, with political advisers from Russia, Ukraine, France and Germany due to hold talks in Paris. Andriy Yermak, chief of staff to Ukraine’s president, tweeted on his arrival in Paris that it was “a strong signal of readiness for a peaceful settlement.”

The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.12 per cent.

The yield on benchmark 10-year Treasuries was 1.7922 per cent, off a two-year high of 1.9 per cent hit last week.

Gold prices ticked down to $1,833.79 per ounce, after hitting a 10-week high in the previous session.