ASX set to slump as Wall Street falls; Fed chief warns of war uncertainty as rates stay on hold
Stan Choe
Updated ,first published
US stocks fall after another rise in oil prices raises concerns about inflation; Fed Chairman Jerome Powell warned of uncertain effects of the conflict in the Middle East as the central bank keeps interest rates steady.
The S&P 500 fell 0.9 percent and was heading for its first loss this week. The Dow Jones fell 660 points, or 1.4 percent, and the Nasdaq composite fell 1.2 percent. As expected, the Fed kept interest rates steady and predicted higher inflation, stable unemployment and only a single rate cut for the year as officials assessed economic risks from the U.S. and Israel’s war with Iran.
The Australian share market is poised for a decline, with futures pointing to a loss of 125 points, or 1.4 per cent, at the open. The ASX rose on Wednesday. The Australian dollar was trading at 70.54¢ at 6.08am AEDT.
Stocks remained under pressure from a 4.7 percent increase in the price of a barrel of Brent crude oil, the international standard, to $108.27. Benchmark US oil rose 1.5 percent to $97.61 per barrel.
Oil and natural gas prices have been rising rapidly since the start of the war due to disruptions in the Persian Gulf’s energy industry. The Islamic Republic will attack oil and gas infrastructures in Qatar, Saudi Arabia and the United Arab Emirates, following an attack on facilities related to the offshore South Pars natural gas field, Iranian state television said on Wednesday.
If the cuts keep oil and gas prices high for long periods of time, they could lead to a debilitating wave of inflation that collapses the global economy.
A report published on Wednesday morning showed that inflation pressures were already worsening before the war began. He said inflation at the U.S. wholesale level rose unexpectedly to 3.4 percent last month, and those cost increases could hit U.S. households if manufacturers ignore them.
Cuts in interest rates would support the job market and investment prices, and President Donald Trump has been angrily calling for it. But low interest rates will also worsen inflation.
The Iran war has made it difficult for anyone to make economic forecasts. Oil prices are rising rapidly and will push up inflation for at least the next month or two. The average price of a gallon of gasoline rose again overnight, reaching $3.84. It was well below $3 last month.
Global oil flows remain largely constrained, ING Bank analysts Warren Patterson and Ewa Manthey wrote in a research note on Wednesday; Still, hopes are rising that Iran may allow more ships through the Strait of Hormuz, a key waterway for global oil and gas transportation.
About one-fifth of the world’s crude oil passes through the strait, which has been largely closed by Iran blocking ships linked to the United States, Israel and their allies.
On Wall Street, mixed earnings reports helped keep the market in check.
Macy’s rose 5.2 percent in the latest quarter after a stronger profit and revenue report than analysts expected. The retailer behind Bloomingdale’s and Bluemercury is in the midst of a turnaround plan that will accelerate growth under CEO Tony Spring.
But it lost 1 percent of its value after the company behind the General Mills, Pillsbury, Progresso and Wheaties brands reported weaker profit than analysts expected in its latest quarter. CEO Jeff Harmening is investing in its brands in hopes of driving growth and sticking to profit forecasts for the full fiscal year.
Treasury bond yields started to rise following the higher-than-expected wholesale inflation update in the bond market. The yield on the 10-year Treasury note rose to 4.22 percent at the end of Tuesday, from 4.20 percent and 3.97 percent before the war with Iran began.
Indices in foreign stock markets mostly fell in Europe after the strong close in Asia. They reacted to the rise in the price of crude oil, which accelerated as worldwide trade moved westward.
The Tokyo Nikkei 225 index rose 2.9 percent after the government reported that exports in February were higher than expected. South Korea’s Kospi index jumped 5 percent.
