ASX set for flat start, Wall Street wobbles as Fed stays on hold, rate rise possible this year
Stan Choe
US stocks are surging after some officials at the Federal Reserve indicated they may raise interest rates before the end of the year.
The S&P 500 index fell 0.6 percent, erasing an earlier modest gain after the Federal Reserve released forecasts predicting that policymakers will end federal funds rates this year and the next two years at higher levels than they predicted a few months ago. Higher interest rates can limit inflation, but they also slow the economy and hurt investment prices.
The Dow Jones Industrial Average fell 86 points, or 0.2 percent, from a 281-point gain before the Fed’s announcement. The Nasdaq composite fell 0.6 percent. The Australian share market is poised for a flat start, with futures pointing to a 3-point decline at the open. The ASX gained 0.5 per cent on Wednesday.
In the bond market, Treasury yields rose after nine of 18 policymakers at the Fed said they foresee at least one increase in the federal funds rate by the end of this year. Not one policymaker offered a forecast following the Fed’s first meeting since Kevin Warsh took office.
The yield on the 10-year Treasury note, which affects the rate of mortgages and other loans to U.S. households and businesses, rose to 4.45 percent from 4.43 percent late Tuesday. The two-year Treasury yield, which more closely tracks expectations for Fed action, rose further. It increased from 4.05 percent to 4.14 percent.
The high yields created by inflation concerns in bond markets around the world threaten to slow economies and drive down the prices of all kinds of investments.
On the stock market, SpaceX erased its early gain and fell 2.4 percent. It is potentially heading for its first loss since its euphoric debut on the US stock market last week.
That dwarfed the 19.1 percent jump for La-Z-Boy, which reported stronger profits and revenue in its latest quarter than analysts expected. It has benefited from revenue from newly opened stores, but Chief Financial Officer Taylor Luebke said the company continues to take a “measured view” of the broader sales environment.
Retailers across the country saw their revenues rise faster in May than economists expected, a report released Wednesday said, offering hope that robust spending by consumers could support the economy. But high inflation has also left U.S. consumers discouraged about their finances.
Iran is preparing to take immediate steps to reopen the Strait of Hormuz once the agreement is signed, which will allow oil tankers to once again exit the Persian Gulf and deliver crude oil to customers around the world. It is hoped that this will ease the pressure on inflation.
Oil prices were more stable on Wednesday after falling sharply earlier in the week due to optimism about an interim US-Iran agreement to restart global oil flows. The barrel price of Brent crude oil increased by 0.5 percent to $79.35. It is still above its pre-war price of about $70, but well below its price of over $100 a few weeks ago.
Iran is preparing to take immediate steps to reopen the Strait of Hormuz once the agreement is signed, which will allow oil tankers to once again exit the Persian Gulf and deliver crude oil to customers around the world. It is hoped that this will ease the pressure on inflation.
In foreign stock markets, indices across Europe and Asia were mixed.
In London, the FTSE 100 Index rose 0.1 percent after a report showed that inflation in the UK remained at 2.8 percent in May.
While South Korea’s Kospi index rose 1.6 percent, Hong Kong’s Hang Seng index fell 0.7 percent due to the world’s two biggest moves.
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