Fed stays on hold, Oil jumps on Middle East conflict, Wall Street mixed, ASX set to rise
Stan Choe
While oil prices are on the rise again as tensions in the Middle East increase, the Central Bank does not change interest rates, while three of the central bank’s interest-setting committee oppose this.
The S&P 500 rose 0.2 percent, the Dow Jones fell 1.3 percent and the Nasdaq composite rose 0.2 percent.
The Australian share market is poised for a rally, with futures pointing to a gain of 37 points, or 0.4 per cent, at the open. The ASX rose 1 per cent on Wednesday after the latest figures from the Australian Bureau of Statistics showed inflation is easing. The Australian dollar was trading at 69.79¢.
The Federal Reserve has kept its key interest rate unchanged despite persistently high inflation and the rise in energy prices caused by the Iran war.
The Fed’s rate-setting committee reached a 9-3 decision after two days of deliberations; This was the fifth consecutive meeting in which the benchmark interest rate was kept around 3.6 percent. Three opponents were in favor of a quarter-point increase. Reacting to the naysayers, Federal Reserve chairman Kevin Warsh told reporters at a press conference following the Fed’s announcement: “I wanted a good family fight, and I got that.”
Movement was strong in the oil market, where the price of Brent crude oil increased by 7.5 percent to $90.38 per barrel for September delivery, following the resumption of war with Iran and increased concerns about global oil flows. While Iran launched a barrage of missiles against American forces in the Middle East, the US military partnered with Saudi Arabia to strike Tehran-backed militias in Iraq.
The price of Brent oil fell to $72 at the beginning of this month and rose to $102 last week due to uncertainty about whether the United States and Iran could reach an agreement that would allow oil tankers to move freely from the Middle East to customers around the world again.
The oscillations have raised concerns that inflation will accelerate again, just as it is starting to slow more than economists expected. Traders began the day betting on a roughly 34 percent chance that the Fed would raise its key interest rate in the afternoon, according to data from CME Group; This would be the first increase in three years.
Higher rates could limit inflation, but they could also slow the economy and lower the prices of stocks and other investments.
Fed officials instead voted to keep the federal funds rate steady, but three members of the policy-making committee wanted to raise rates.
High rates are particularly damaging to stocks seen as the most expensive, and scrutiny is already increasing on computer chip makers and other winners of the artificial intelligence technology craze.
Unlike the dot-com bubble at the turn of the millennium, recent booms in computer processor and memory vendors are backed by real revenues and profits. However, this extraordinary growth will not be sustainable if artificial intelligence does not produce as much profit and productivity as hoped.
Skepticism has particularly affected the South Korean stock market because it is dominated by two tech giants, Samsung Electronics and SK Hynix. Seoul’s Kospi index fell 6 percent on Wednesday, a day after falling 10.8 percent, trimming its gain for the year to 34.4 percent.
Shares of SK Hynix in Seoul fell 9.6 percent. It reported record revenue and profits in the quarter, thanks to strong demand from AI. However, the 257 percent increase in revenue was still not enough to meet analysts’ expectations.
Nvidia took the heaviest weight in the S&P 500 after the chip company lost 2.1 percent in value on Wall Street. Rival Advanced Micro Devices fell 3.3 percent and Micron Technology fell 6.8 percent.
KLA Corp., whose products and services help semiconductor manufacturing, fell 8.4 percent in the latest quarter despite reporting stronger-than-expected profits and revenue. Expectations were high after the stock rose nearly 150 percent in the first six months of this year.
Helping to limit losses in the US stock market was Apple, with a 0.9 percent increase. Analysts say this has almost become an “anti-AI” bet among Big Tech stocks due to more limited spending on technology compared to rivals. Apple’s total market value has increased by more than 26 percent this year, exceeding $5 trillion.
Gains in non-AI stocks on Tuesday helped offset weakness in Micron and other tech companies. Analysts say such a rotation in the market away from artificial intelligence into less popular areas could be healthy, but the majority of U.S. stocks fell along with technology on Wednesday.
Hims & Hers Health, for example, lost 12.3 percent in value after the Federal Trade Commission, Utah and California sued the company. Even though their services claimed to protect consumers’ privacy, they alleged that consumers were sharing sensitive health information about medical conditions with third-party advertising platforms. Hims & Hers said governments distorted the law to produce claims it described as baseless.
Indices on stock markets elsewhere around the world were mixed. Hong Kong’s Hang Seng index rose 2 percent and Japan’s Nikkei 225 index fell 1.5 percent due to two big moves.
In the bond market, Treasury yields rose slightly. The yield on the 10-year Treasury note rose to 4.64 percent from 4.61 percent at the end of Tuesday. High yields have caused long-term mortgage rates in the United States to rise to the highest level in almost a year.
