By Joyce Yu
Philadelphia, PA–U.S. stocks opened marginally higher on Tuesday, ahead of the Federal Reserve’s two-day policy meeting, which would provide investors some clues on the timing of the next U.S. interest rate hike.
While investors do not expect this week’s meeting leading up to rate increase, the central bank will likely announce that it will begin paring its massive portfolio of Treasuries and mortgage-backed securities, with the reductions expected to start this year.
“The impact of monetary policy settings and expectations is now drowning out just about everything else,” says Simon Derrick, chief market strategist at BNY Mellon.
He told the Financial Times, “This week could see the Federal Reserve announce that it plans to start reducing its balance sheet at some point in the near future while the October meeting of the European Central Bank could see it announce a further reduction in its monthly asset purchases. The risk therefore is that either event could be the cause of significant market volatility.”
U.S. stocks have been reaching new heights, with the Dow standing on a closing record for the fifth day in a row on Monday. Led by gains in financial stocks, the S&P ended slightly higher on Monday, closing at a record for the second consecutive session.
Asian markets were mixed overnight while European markets slipped in their morning sessions. British Prime Minister Theresa May prepares to outline her revised Brexit strategy on Friday.
Investors tend to avoid taking any major new positions in the wake of recent equity gains and in the buildup to the Fed decision.
“We are not overly concerned about” the Fed’s quantitative-tightening plans, Merrill Lynch and U.S. Trust head of fixed-income strategy Matthew Diczok told Bloomberg TV. “If you model it out, over about the next three years they’ll take out about $1.3 trillion or so. That’s only a third of what they put into the market. So it’s going to be very slow, very gradual, very deliberate and it shouldn’t lead to any near-term fireworks into the market at all.”
Investors will also focus on Fed Chair Janet Yellen’s views on inflation, a persistent concern for policymakers as it remains below the Fed’s 2-percent target rate.
Today, the U.S. President Donald Trump will speak at the United Nations General Assembly. Economic data in the day includes a Commerce Department report on monthly housing starts.
