Updated at 4:15 pm EST
Stocks finished higher Tuesday, while the dollar held onto gains against its global peers and Treasury yields retreated from multi-year peaks, ahead of the Federal Reserve's policy decision later on Wednesday.
The Dow Jones Industrial Average ended up 65 points, or 0.2%, to 33,127, while the S&P 500 added 0.48% and the tech-focused Nasdaq gained 0.22%.
Benchmark 10-year note yields traded north of 3% for the first time since December 2018 late Monday, and scaled that peak again in the overnight session -- pulling 10-year German bunds past 1% for the first time since 2015 -- as markets around the world recalibrate asset prices in face of hawkish central bank signaling and the fastest inflation readings since the 1980s.
The CME Group's FedWatch is pricing in a 99.8% chance of a 50 basis point hike on Wednesday, as well as a 95.6% chance of a 75 basis point move at the Fed's following meeting in June, although 10-year note yields eased to 2.916% in early New York trading.
"The window for the Fed to engineer a soft landing has likely closed, since the economy is already starting to deteriorate before the bulk of the Fed's inflation-fighting tightening actions have taken place," said Danielle DiMartino Booth, CEO and chief strategist of Dallas-based Quill Intelligence. "The last economic pillar standing is the job market, but we’re already seeing a weakening in new job postings and the beginnings of layoff announcements as companies struggle with the profit margin squeeze brought on by stagflation."
The Reserve Bank of Australia, in fact, went from signal to action with its first rate hike in more than a decade overnight, lifting its benchmark 'cash rate' by 25 basis points, to 0.35%, in a surprise move that unsettled regional markets.
In Europe, solid earnings and a softer currency, which helps make exports more attractive, helped the Stoxx 600 to modest 0.1% gain but mid-day trading in Frankfurt, while the dollar index traded at a near 20-year high of 103.21 against a basket of its global peers.
Slowing factory activity readings from major economies around the world, as well as China's inability to curb its 2022 surge in Covid infections, continued to push oil prices lower, even amid accelerated talk of a ban on Russian exports by European lawmakers.
WTI crude futures for June delivery were marked $2.38 lower in overnight trading to change hands at $102.80 per barrel, while Brent contracts for July fell $2.31 to trade at $105.30 per barrel.
Pfizer (PFE) - rose 2% after posting stronger-than-expected first quarter earnings Tuesday, thanks to surging vaccine sales and a robust near-term outlook, but cut its full-year profit forecast amid changes in the way drugmakers account for milestone payments and acquisitions.
Tesla (TSLA) - edged higher while Twitter (TWTR) - slipped after a report suggested Elon Musk is looking for a broader collection of financing to support his $44 billion takeover of the social media group in a move that could put less pressure on existing Tesla investors.
BP plc's (BP) - U.S.-listed shares jumped 8% after the oil major posted its strongest underly quarterly earnings since 2008, while boosting its buyback plans, despite a $24 billion writedown linked to its exit from Russia earlier this year.