Stocks rise as oil falls, bonds steady ahead of Fed decision

Sept 16 : Global stocks advanced on Wednesday as recent rises in government bond yields and oil prices stalled ahead of a key U.S. Federal Reserve interest-rate decision later in the day.

MSCI's global equities index gained 0.2 per cent after falling in the previous two sessions. An index of Asia-Pacific shares outside Japan climbed 0.6 per cent, snapping a four-day losing streak. 

Most bourses in Europe were trading higher. The pan-European STOXX 600 added 0.6 per cent and benchmarks of Germany, France and Spain all saw gains.

Futures tracking the main U.S. stock indexes also pointed towards a higher open after the benchmark S&P 500 index closed lower on Tuesday for a second straight session as the yield on the benchmark 10-year Treasury bond hit its highest level since 2007. 

The yield on the U.S. 10-year Treasury note inched lower to stand at 4.97 per cent after hitting the 5 per cent mark earlier in the session. It rose above that threshold on Tuesday for the first time in three years, to hit its highest level since 2007.

The Federal Reserve will announce its policy decision at 1800 GMT (2 p.m. ET), followed by a press conference by Chair Kevin Warsh.

"It's a question of credibility for him to hike right now. If he doesn't hike this evening, it could be a problem for the Fed's credibility, its independence and for the stock market," said Michaël Nizard, head of multi-asset and overlay at Edmond de Rothschild Asset Management in Paris. 

"It's also a question of guidance and a reaction function from the Fed. Today, it's very difficult to describe exactly what is a reaction function of the Fed."

U.S. President Donald Trump has repeatedly stated a preference for lower interest rates, saying last month the U.S. would stop trading with countries with which it runs a trade deficit if the Fed did not cut rates.

Traders have largely brushed aside those comments and see a rate hike as almost certain. Markets are pricing in a 92.7 per cent probability of a 25-basis-point increase when the Fed announces its decision, according to CME Group's FedWatch tool, up from 61.2 per cent a week ago.

The dollar index, which measures the U.S. currency against a basket of six others, held firm at 99.64, nearing a two-week high.    

The Japanese yen held steady at 155 per dollar after weakening over the previous two sessions ahead of the Bank of Japan's policy decision on Friday, when markets expect rates to rise to their highest level in 31 years.

British stocks rose and the pound inched 0.1 per cent lower after a domestic inflation reading did little to alter expectations ahead of the Bank of England's policy decision on Thursday, with markets largely expecting rates to remain unchanged. A rate increase is still expected by year-end.

"Sterling could strengthen in the coming weeks if the BoE signals hikes to come amid higher inflation and energy prices. The Japanese yen, meanwhile, could weaken if the BoJ's message falls short of hawkish market expectations," UBS Global Wealth Management analysts said in a note. 

Central banks worldwide are weighing tighter monetary policy as fuel-supply disruptions caused by the Middle East conflict stoke concerns about energy-driven inflation.

Oil prices retreated on Wednesday, with Brent crude futures down 1.5 per cent at $107.1 a barrel after rising 2.9 per cent on Tuesday, as reports that Saudi Arabia was offering additional crude cargoes via Oman eased concern about the scale of supply disruptions.

Digital assets continued sliding after a sharp selloff in the previous session, when the U.S. Senate voted against advancing comprehensive cryptocurrency legislation backed by Trump. 

Bitcoin inched up 0.1 per cent to $75,954 after losing 4 per cent on Tuesday, while ether was also flat at around $2,411 following a 6.3 per cent drop in the previous session.