GLOBAL MARKETS-Stocks rally, bond yields and dollar tumble after Fed news

U.S. equities added sharply to gains while the dollar lost ground as investors bet that the Federal Reserve would slow interest rate hikes soon after it announced an increase in rates in line with expectations on Wednesday.

Oil futures settled higher after a report of lower inventories in the United States while cuts in Russian gas flows to Europe offset concerns about weaker demand and higher U.S. interest rates. Ten-year U.S. Treasury bond yields – the reference rate for the global cost of capital – declined sharply as Fed Chair Jerome Powell spoke to reporters after the central bank announced it was raising its benchmark overnight interest rate by three-quarters of a percentage point.

The Fed is pushing up rates to cool the sharpest inflation since the 1980s and signaled “ongoing increases” in borrowing costs still ahead despite evidence of a slowing economy. Powell told reporters it will likely be appropriate to slow the pace of increases as rates get more restrictive and that the Fed wants to get to moderately restrictive levels by year-end.

He also noted that the lack of clear visibility into the economy’s future trajectory means the Fed can only provide reliable guidance on a “meeting by meeting” basis. “The Fed’s comments suggest the pace of rate hikes will slow considerably in the coming months,” said George Bory, chief investment strategist for fixed income with Allspring Global Investments.

While most asset classes chopped around after the Fed Statement came out at 2 p.m. ET (1800 GMT), stocks sharply gained ground as Powell spoke and Treasury yields took a dive as did the U.S. dollar index. The Dow Jones Industrial Average rose 532.77 points, or 1.68%, to 32,294.31, the S&P 500 gained 113.23 points, or 2.89%, to 4,034.28 and the Nasdaq Composite added 500.31 points, or 4.33%, to 12,062.89.

MSCI’s gauge of stocks across the globe gained 2.11%. Wednesday’s Fed action “was widely expected and encouraging that it was a unanimous decision,” said Jack Ablin, chief investment officer and founding partner at Cresset Capital in Chicago, noting that it represented “the most aggressive series of Fed moves since the 1980s when Paul Volcker was the Fed chair.

Anything other than the 75 basis point increase would have been a negative surprise, said Ablin. “Too little would’ve undermined confidence in the Fed and too much would have undermined confidence in the economy. It was well telegraphed and properly balanced against expectations,” he said.

The dollar index fell 0.728%, with the euro up 0.92% to $1.0207. The Japanese yen strengthened 0.29% versus the greenback at 136.53 per dollar, while Sterling was last trading at $1.2169, up 1.20% on the day.

Benchmark 10-year notes last rose 2/32 in price to yield 2.7812%, from 2.787% late on Tuesday. The 30-year bond last fell 23/32 in price to yield 3.0456%, from 3.008%. The 2-year note last rose 4/32 in price to yield 2.9736%, from 3.043%. Weighing on investors mood Wednesday was Europe’s fragile energy situation with gas flows from Russia’s Nord Stream 1 pipeline expected to halve from already reduced levels.

A complete cut-off of Russian gas to Europe by year-end and a further 30% drop in oil exports may lead to virtually zero European and U.S. growth next year, the IMF warned. In energy markets U.S. crude settled up 2.4% at $97.26 per barrel and Brent settled at $106.62, up 2.13% on the day.

Spot gold added 1.1% to $1,735.30 an ounce.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)