U.S. Stocks to Open Higher After Fed Continues to Tighten Policy

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U.S. stocks were poised to open slightly higher Thursday, as investors parsed the outcome of the Federal Reserve’s decision to raise interest rates and awaited budget developments in Italy.

Futures pointed to a 0.1% opening gain for the S&P 500. The index fell on Wednesday for the fourth straight session.

In Europe, the Stoxx Europe 600 pared earlier losses, to trade down 0.2% around noon, dragged down by Italian and Spanish stocks. Asian markets mostly fell.

The Fed on Wednesday said it would raise short-term interest rates by another quarter percentage point, and central-bank officials signaled they expected to lift them again later this year and through 2019.

The central question for investors is how Fed officials can balance the need to raise rates to keep the economy from overheating without hurting growth in the process. The U.S. economy has been growing at a fast pace this year and the unemployment rate has fallen to multiyear lows.

U.S. Stocks to Open Higher After Fed Continues to Tighten Policy

Federal Reserve Board Chairman Jerome Powell testifies during a hearing before the Senate Banking, Housing and Urban Affairs Committee on July 17 on Capitol Hill. Photo: Alex Wong/Getty Images

“The economic fundamentals continue to be strong,” said Guy Miller, chief market strategist at Zurich Insurance Group. But “the pace of U.S. growth will slow with the Fed moves, higher oil prices and waning effect of tax cuts.”

“This has an impact for the rest of the world, too,” he said.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was up 0.1%. The 10-year U.S. Treasury yield fell to 3.048%, compared with 3.059% on Wednesday. Yields move inversely to prices.

International trade frictions continued to be a focus for money managers after U.S. President Donald Trumpaccused China of trying to interfere in the forthcoming midterm elections. The world’s two economies have been embroiled in a trade spat this year—both sides have introduced tariffs—and concern is growing about its impact on the global economy.

“The trade dispute between the U.S. and China does not look like it’s ending soon,” said Paul Donovan, global chief economist at UBS Wealth Management, in a note to clients.

The Trump administration is also stepping up pressure on Canada. Mr. Trump told reporters on Wednesday that he had refused to meet Canadian Prime Minister Justin Trudeau during United Nations sessions meetings in New York this week, because “we’re very unhappy with his negotiations.”

Investors were also watching developments in Italy where the nearly four-month-old government prepares to outline the fiscal and economic projections that underpin its budget which will be discussed in October.

However, reports that a budget meeting scheduled for Thursday might be delayed sent the euro down 0.2% against the greenback. There were also conflicting reports about the projected level of the budget deficit, a thorny issue of contention between the European Union and Rome.

Italian bonds sold off, with yields on country’s 10-year note rising 8 basis points to 2.910%. Italy’s benchmark FTSE MIB index was the worst performer among large European markets, shedding 1.2%.

“Volatility and market nervousness are likely to persist at least until the [budget projections are] announced,” analysts at UniCredit wrote in a note.

In Asia, Japan’s Nikkei Stock Average fell 1% while Hong Kong’s Hang Seng was down 0.4%.

In commodities, Brent crude, the global oil price benchmark, was up 0.7% while gold was up 0.1%.

Write to Georgi Kantchev at [email protected]