Australia

Australian shares are set to rise as Wall Street eked out moderate gains in a topsy-turvy session on the eve of a widely anticipated rate hike from the US Federal Reserve.

ASX futures were up 43 points or 0.6% at 7328 as of 8.00am on Wednesday, suggesting a positive start to trading.

US stocks moved between small gains and losses during the session, closing in the green for a second straight day after a brutal selloff capped off April. The S&P 500 rose 0.5%. The technology-focused Nasdaq Composite added 0.2%. The Dow Jones Industrial Average edged up 0.2%.

Investors expect the US Federal Reserve to raise rates by 0.5% and signal an aggressive schedule of further hikes at the end of its meeting on Wednesday (Thursday AEST). Fed officials meet as new data showed US job openings hit a fresh high in a further sign of the inflationary pressures rippling through the world’s largest economy.

But with higher interest rates already baked into expectations this week, equities investors had few broad moves to make as they waited for the Fed's meeting to conclude, said Ron Temple, co-head of US equities at Lazard Asset Management.

"People are largely positioned already, because the Fed has telegraphed quite well" how it plans to raise rates, Mr. Temple said.

Locally, the S&P/ASX 200 closed 0.4% lower at 7316.2 after real-estate stocks dropped on the Reserve Bank's larger-than-expected interest-rate increase.

Losses among shares of Australian real-estate investment trusts accelerated in the afternoon when the RBA raised the cash rate by 0.25% to 0.35%. The move will raise the cost of borrowing and, according to observers including S&P Global Ratings, probably lead to more mortgage arrears.

Twenty-two of the ASX 200's 23 Australian REIT stocks lost ground. The heavyweight financial sector slipped 0.3%, while consumer stocks also lost ground.

AGL fell 3.1% after billionaire tech investor Mike Cannon-Brookes announced he had bought enough shares to become the company’s largest shareholder and would vote against the power generator's demerger plans.

The heavyweight mining sector dropped 1%, with BHP down 0.7%, Rio Tinto falling 1.5% and Fortescue dropping 4.8%.

Woolworths was up 0.4% after the supermarket giant said third quarter group sales rose 9.7% to $15.1 billion compared with a year ago, despite ongoing supply chain disruptions.

In commodity markets, gold futures added 0.4% to $US1870.60 an ounce; Brent crude oil lost 1.5% to $US105.96 a barrel; iron ore markets were closed for the Chinese Labor Day holidays.

Australian bonds sold off sharply following the cash rate rise and the yield on the Australian 2 Year government bond hit 2.72% while the 10 Year leapt to 3.39%. Overseas, yields on US Treasury 2 Years advanced to 2.78%, while the 10 Year eased to 2.97% as the Federal Reserve commenced its two-day meeting.

The Australian dollar fell, buying 70.97 US cents as of 8.00am AEST, up from the previous close of 70.94. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, slipped to 95.69.

Asia

Mainland Chinese share markets were closed for the Labor Day holidays.

Hong Kong stocks ended slightly higher, sustaining an afternoon recovery from losses early in the session. The benchmark Hang Seng Index edged up 0.1% to settle at 21101.89. Chinese property developers led the gains after one of the country's biggest real-estate names, Country Garden, said it has bought back a further $10 million worth of senior notes in a positive sign of its financial stability. Country Garden added 1.3%, while China Overseas Land & Investment rose 4.1%. Tech stocks went in the opposite direction, with JD.com plunging 5.9% and Xiaomi shedding 4.4%.

Japanese share markets were closed for a public holiday.

Europe

European stocks traded higher as investors picked up bargains after recent declines. The pan-European Stoxx Europe 600 rose 0.5%, the German DAX gained 0.7% and the French CAC 40 added 0.8%.

"Bull traders are buying the recent dips on stocks this morning after most markets fell back to their weekly low, with many betting on the anticipation of tightening monetary conditions to mitigate rising prices," ActivTrades analyst Pierre Veyret says in a note.

Most investors have likely already priced in the Federal Reserve's policy meeting Wednesday when a 50 basis-point interest-rate rise is widely expected, he says.

London’s FTSE 100 advanced 0.2% in what has been a mixed trading session, as the index opened lower on the back of an expected rise to interest rates by the Bank of England.

"The FTSE 100 certainly remained half-asleep on Tuesday when UK stock trading reopened after the bank holiday," AJ Bell's investment director Russ Mould said in a research note.

North America

US stock indexes finished modestly higher on Tuesday as investors geared up for the Federal Reserve's policy decision this week and evaluated a batch of earnings.

Stocks moved between small gains and losses during the session, closing in the green for a second straight day after a brutal selloff capped off April. The S&P 500 rose 0.5%. The technology-focused Nasdaq Composite added 0.2%. The Dow Jones Industrial Average edged up 0.2%.

Trading reflected a tense mood among investors expecting the central bank to accelerate its tightening of monetary policy this week, the latest step in inflation-fighting efforts that have raised borrowing costs throughout the economy this year, scrambling stock and bond markets.

Recent economic data have shown higher costs on everything from groceries to gasoline, with war in Ukraine and anti-Covid-19 measures in China further complicating global trade. US companies are also facing climbing wages as labour markets remain tight. Those factors have put inflation at the top of the Fed's agenda.

But with higher interest rates already baked into expectations this week, equities investors had few broad moves to make as they waited for the Fed's meeting to conclude on Wednesday, said Ron Temple, co-head of US equities at Lazard Asset Management.

"People are largely positioned already, because the Fed has telegraphed quite well" how it plans to raise rates, Mr. Temple said.

Traders in individual stocks reacted to a slew of big companies' latest reports and financial forecasts. Investment firm KKR rose $1.35, or 2.6%, to $54.29 after its after-tax distributable earnings came in above analyst estimates. Estee Lauder lost $15.11, or 5.8%, to $245.52 after the company lowered its revenue and earnings outlook.

Rockwell Automation said quarterly earnings tumbled, sending shares down by $36.30, or 15%, ending at $213.74. Education company Chegg saw its shares plummet by $7.56, or 30%, to $17.42, a day after the company's chief executive said inflation is turning some higher-education students away from enrollment.

Broadly positive corporate reports have failed to steady the market in recent weeks. Earnings growth is in line with historical norms at about 11% annually, according to Deutsche Bank analysts, while margins have remained near record levels despite rising input prices. Still, the S&P has lost about 12% year to date.

"It has been a good earnings season," said Jonathan Golub, chief US equities strategist at Credit Suisse, but investors' concerns about inflation and the Fed's response have left them feeling gloomy.

"The market sees that the Fed is going to have to do an awful lot to get this under control," Mr. Golub said.

In other corporate headlines, activist hedge fund Elliott Investment Management disclosed a roughly 6% stake in Western Digital, pushing shares of the data-storage company up by $7.80, or 14%, to $61.72. Healthcare Realty Trust shares climbed $2.16, or 7.5%, to $30.71 after The Wall Street Journal reported that Welltower remained an interested bidder following an earlier acquisition proposal, despite Healthcare Realty's agreement to merge with Healthcare Trust of America.

Higher Treasury yields, which as they rise offer investors more-competitive low-risk returns relative to stocks, are weighing on markets. The yield on 10-year Treasury note remained near multiyear highs on Tuesday, slipping back to 2.957%, compared with 2.995% Monday. Yields, which move inversely to bond prices, have shot to their highest levels since 2018 in anticipation of higher interest rates.

Rate-setting officials gathered Tuesday for a two-day policy meeting. At its conclusion Wednesday, the Fed is expected to raise interest rates by a half percentage point, the first such increase in 22 years and following on from a quarter-point rise in March.

Investors will seek details from Chairman Jerome Powell on the central bank's plans to reduce its bond holdings. Officials have recently indicated that they will allow $95 billion in securities to mature every month, unwinding another form of stimulus lavished on markets during the pandemic.

"It appears that the war in Ukraine hasn't derailed the Fed in the slightest," said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. Financial conditions have already tightened significantly, Mr. Perdon added, pointing to a strengthening dollar, the increase in Treasury yields and rising mortgage rates.

In commodities, Brent crude futures prices slipped $2.61, or 2.4%, to $104.97 a barrel. Traders are awaiting a meeting of ministers from OPEC members and their allies including Russia on Thursday, and monitoring shutdowns in China that are curbing fuel demand.

Oil prices sustained above $100 a barrel could weigh on the stock market by prompting investor concerns about higher input costs and inflation in general, said Greg Harmon, founder of Dragonfly Capital Management.

"That's going to be a drag on the potential for a turnaround," Mr. Harmon said.