The dollar steadied Wednesday and Wall Street shares were mixed as investors went into a holding pattern ahead of key announcements from the US Federal Reserve.
The Fed later Wednesday winds up a two-day regular policy meeting, and while no change in borrowing costs is expected, investors will be closely parsing Fed Chair Jerome Powell’s accompanying statements about his latest thinking on when he will feel comfortable enough with the inflation outlook to cut rates.
“Powell will likely highlight that the Fed will cut less than initially expected and less than the median ‘dot’ indicates given the still high inflation,” said Collin Martin, director of fixed income strategy at the Schwab Center for Financial Research, referring to the “dot plot” of Fed policy makers’ rate expectations released in March.
Tuesday saw a sharp sell-off on Wall Street after fresh US data, this time about wages, dealt another blow to hopes the Fed would reduce borrowing costs this year. Wednesday morning, a report on private sector hiring also came in higher than expected.
They were the latest reports showing that the Fed’s higher rates have yet to cool the economy enough to bring inflation fully under control.
In midday trading in New York, the Dow was slightly higher while the tech-heavy Nasdaq and the wider S&P 500 were down slightly.
Powell’s “main message is going to be that the Fed needs to see more data before it is comfortable with lessening its restrictive policy,” said Patrick O’Hare, an analyst at Briefing.com. “Translation: the Fed will keep rates higher for longer.”
Markets could see deeper losses should the Fed assert “a high probability of no cuts this year, or even the open possibility of another hike”, said Capital.com analyst Kyle Rodda.
With most continental European stock markets shut for May Day, London was the only major European exchange open, and the benchmark FTSE 100 stocks index closed slightly lower, as it gave up early gains to follow Wall Street lower.
Drugmaker GlaxoSmithKline closed up 1.6 percent after it announced progress in final trials of promising new drugs, even as profit fell 23 percent in the first quarter.
The dollar, which has gained in recent days against other currencies on interest rate differentials, was little changed Wednesday as many investors were either away for the May Day holidays or on hold ahead of the Fed’s announcements.
“Any hawkish bias (from the Fed) could see the dollar continue to rally, raising the probability of another test of 160 yen, which once again will test Japan’s resolve to support the yen,” said David Morrison, analyst at Trade Nation.
In commodities, oil prices slid on easing tensions in the Middle East as top US diplomat Antony Blinken on Tuesday urged Hamas to accept the latest truce proposals.
Elsewhere, bitcoin sank about six percent ahead of the Fed rate decision and following a mixed reception in Hong Kong to the launch of new investment products that track the world’s most popular cryptocurrency and its rival ether.
– Key figures around 1330 GMT –
New York – Dow: UP 0.4 percent at 37,957.34
New York – Dow: S&P 500 DOWN 0.2 percent at 5,027.34
New York – Naasdaq Composite: DOWN 0.2 percent at 15,626.09
London – FTSE 100: DOWN 0.3 percent at 8,121.24 (close)
Paris – CAC 40: DOWN 1.0 percent at 7,984.93 (close)
Frankfurt – DAX: DOWN 1.0 percent at 17,932.17 (close)
EURO STOXX 50: DOWN 1.2 percent at 4,921.22 (close)
Tokyo – Nikkei 225: DOWN 0.3 percent at 38,274.05 (close)
Hong Kong – Hang Seng Index: Closed for a holiday
Shanghai – Composite: Closed for a holiday
Dollar/yen: DOWN at 157.62 yen from 157.80 yen on Tuesday
Euro/dollar: UP at $1.0683 from $1.0673
Pound/dollar: DOWN at $1.2491 from $1.2493
Euro/pound: UP at 85.55 pence from 85.41 pence
West Texas Intermediate: DOWN 2.6 percent at $79.79 per barrel
Brent North Sea Crude: DOWN 2.4 percent at $84.23 per barrel
gv/cw
