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 fell after a report said inflation was poised to worsen even before the war with Iran caused oil prices to rise. That and the Federal Reserve chairman’s comments have led Wall Street to see less chance of achieving the low interest rates it loves.
The S&P 500 fell 1.4 percent and ended the week with a loss so far. The Dow Jones fell 768 points (1.6 percent) and the Nasdaq composite fell 1.5 percent.
The Australian share market is poised for a decline, with futures at 5.57am AEDT pointing to a loss of 149 points, or 1.7 per cent, at the open. Australia’s latest unemployment figures will be released this morning. The ASX rose on Wednesday. The Australian dollar was trading at 70.54¢ at 6.08am AEDT.
Losses deepened after the Fed decided to keep its key interest rate steady rather than continue cuts to stimulate the job market and economy. Fed officials are still planning another rate cut by the end of 2026, but chairman Jerome Powell suggested those forecasts may be less valuable than usual due to increased uncertainty about inflation and the economy.
“We don’t know” what will happen to oil prices and how long it will take for President Donald Trump’s tariffs to fully work through the system, Powell said.
In terms of oil, the price of a barrel of Brent crude rose from about $70 before the war to $107.38 on Wednesday, up 3.8 percent from the previous day. The barrel price of benchmark US crude oil settled at $96.32 after reaching nearly $99.
Oil prices rose as the war disrupted 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 a long time, they could create a debilitating wave of inflation for the global economy.
A report published on Wednesday morning showed that inflationary pressures were already increasing before the war began. The report stated that inflation at the US wholesale level unexpectedly rose to 3.4 percent last month.
Those numbers were likely factors that kept the Fed on hold on Wednesday. A cut in interest rates would boost the economy and investment prices, and Trump is angrily calling for it. But low interest rates will also worsen inflation.
This time, only one Fed voter wanted to cut rates, and the odds were 11-1 to keep rates steady.
Powell said the Fed’s rule of thumb is that it considers increases in oil prices, which may only be temporary, but that will only work if expectations for future inflation do not suddenly rise. He also noted that many Fed officials have lowered their rate cut forecasts this year from two to one, although the average Fed official is still calling for one.
This caused investors to lower their expectations for the Fed’s single interest rate cut this year. According to data from CME Group, they are now betting that the chance is lower than the 49 percent when a coin is tossed; This is lower than the 95 percent probability they saw a month ago.
This caused Treasury yields to rise in the bond market and a higher-than-expected update in wholesale inflation. The yield on the 10-year Treasury note rose to 4.26 percent, from 4.20 percent at the end of Tuesday and from 3.97 percent before the war with Iran began.
Higher Treasury yields negatively impact the prices of all kinds of investments, from stocks to crypto to gold.
Gold fell below $5,000 per ounce after falling 2.2 percent to settle at $4,896.20. It is lower than at the beginning of the war, although it is known as a safe haven in uncertain times. Because gold yields nothing to its owners, it becomes less attractive to investors as interest payments on Treasury bonds increase.
On Wall Street, Macy’s rose 4.7 percent in the latest quarter after a stronger-than-expected profit and revenue report. The retailer behind Bloomingdale’s and Bluemercury is in the midst of a turnaround plan that will accelerate growth under CEO Tony Spring.
But General Mills fell 3 percent after the company behind the 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.
Overall, the S&P 500 fell 91.39 points to 6,624.70 points. The Dow Jones Industrial Average fell 768.11 to 46,225.15, and the Nasdaq composite index fell 327.11 to 22,152.42.
Indices in foreign stock markets fell in Europe after the strong closing in Asia.
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.
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