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Markets: Rate expectations set mood, while stocks bounce back

European tech stocks are recovering, helping equities indices rise, while rate expectations at central banks also make their prescence felt on Tuesday’s markets.

What you need to know
● Investors eye monetary policy meetings
● Tech stocks recover in Europe, helping bourses higher
● Oil prices continue to rally toward $50
● Pound makes gains, but stays under the $1.27 mark

Equities

Tech stocks are recovering in Europe, with the Euro Stoxx technology index up 0.4 per cent.

The sector is turning away from a 0.5 per cent fall overnight for the Nasdaq Composite, which lost 0.5 per cent overnight, adding to its 1.6 per cent slide on Friday.

Overall, the Euro Stoxx 600 is up 0.3 per cent, with the FTSE 100 up 0.2 per cent in London and the Xetra Dax up 0.3 per cent in Frankfurt.

Forex

The UK pound remains below $1.27, although it is up 0.2 per cent at $1.2672. The Bank of England is due to make its announcement on interest rates on Thursday, but is unlikely to make any changes to policy.

The euro is 0.1 per cent weaker at $1.1188 and the yen is also 0.1 per cent softer at ¥110.03 per dollar.

Hot topic

The outlook for monetary policy is front and centre, with the Federal Reserve starting a two-day rate-setting meeting later in the session.

The US central bank is expected to announce a quarter point rate rise on Wednesday, which would only be the fourth such increase since the financial crisis. The dollar index is up 0.1 per cent at 97.245, with moves limited by expectations that the Fed will remain dovish on its outlook for the pace of the policy tightening cycle.

There has been more action for Canadian assets, on talk that its central bank could move to raise its key interest rates for the first time in almost seven years. The Canadian dollar is up 0.3 per cent on its US counterpart at C$1.3291. Overnight, the currency rose as much as 1.1 per cent following unexpectedly hawkish comments by a senior Bank of Canada official.

Koon Chow, strategist at UBP, summarises sentiment as follows:

I think we have a ‘stealthy rotation’ with investors having cooled their heels on expectations of policy-driven moves.

Investments which have good value, rather than ones dependent on a policy theme, are in vogue as we move into central bank meetings. A good example of this rotation is away from tech stocks, which has seen the Dow outperform the Nasdaq in the last couple days.