Global stocks slip ahead of Fed interest rate decision
Global stocks were mostly down on Wednesday as investors awaited a Federal Reserve decision on interest rates.
Central banks in many countries are raising rates as inflation weighs on businesses and consumers. To counter this, regulators are gradually increasing borrowing costs that had reached record highs during the pandemic.
Fed policymakers are expected to raise the U.S. central bank’s benchmark rate by twice the usual amount this week, stepping up their fight against inflation which is at its highest level in four decades. The Fed has already raised its overnight rate once, the first such increase since 2018, and Wall Street expects several big increases in the coming months.
“All eyes are on the FOMC meeting and a rate hike is a given,” Clifford Bennett, chief economist at ACY Securities, said in a commentary.
The German DAX edged down 0.1% to 14,028.26 while the CAC 40 in Paris lost 0.2% to 6,465.03. Britain’s FTSE 100 fell 0.3% to 7,536.42. S&P 500 and Dow Jones futures were both 0.2% higher.
In Asian trading, Hong Kong’s Hang Seng fell 1.1% to 20,861.27 while Seoul’s Kospi lost 0.1% to 2,677.57. Australia’s S&P/ASX 200 fell 0.2% to 7,304.70.
The Indian Sensex fell 1% to 56,425.88. Taiwan’s benchmark rose and most other regional markets were closed, including those in Japan and mainland China.
Higher lending rates could dampen economic growth as they come at a time when soaring prices are squeezing consumers’ ability to spend.
Market participants could do good business assuming the rate increase has already been priced in, Bennett said. But he added that “this excludes the ongoing shock to consumers and in particular mortgage holders which will reverberate in an accelerated manner throughout the economy. This process of ‘pain’ will likely continue for one to three years in the real world.”
Added to this are the uncertainties brought about by Russia’s invasion of Ukraine.
Russian forces unleashed artillery fire on towns in eastern Ukraine, killing and wounding dozens of civilians, and stormed a bombed-out steelworks containing the last pocket of resistance in the beleaguered port city of Mariupol as more than 100 civilians were evacuated from the bombardment – our plant has achieved relative safety on Ukrainian territory.
Oil prices rose as the European Union said it was preparing new sanctions on Russian energy over the war in Ukraine, although Slovakia and Hungary said they would oppose such measures.
Newly proposed sanctions drafted by the EU’s executive arm, the European Commission, could include a phased embargo on Russian oil. This could weigh on supplies and push prices even higher.
Benchmark U.S. crude rose $2.81 to $105.22 a barrel in electronic trading on the New York Mercantile Exchange. It fell $2.76 on Tuesday.
Brent crude, the pricing basis for international oils, gained $2.70 to $107.67 a barrel.
Wall Street advanced Tuesday on hopes the Fed won’t shock markets with more aggressive monetary tightening plans than expected. Investors will watch how Fed Chairman Jerome Powell frames the outlook for the future, analysts said.
The S&P 500 ended up 0.5% and the Dow Jones Industrial Average rose 0.5%. The Nasdaq edged up 0.2%, while the Russell 2000 added 0.9%.
Investors took a close look at the latest round of corporate earnings for more details on the impact of inflation on business and consumer activity.
They also receive updates on the labor market, which was slow to recover from the pandemic initially, but has strengthened. The Bureau of Labor Statistics reported Tuesday that employers posted a record 11.5 million job openings in March, meaning the United States now has an all-time high of two job openings for each unemployed person.
On Friday, the Labor Department is expected to report that the economy generated an additional 396,000 new jobs in April, according to FactSet. It would mark an unprecedented 12th consecutive month where hiring reached around 400,000 or more.
The US dollar fell to 130.05 Japanese yen from 130.11 yen on Tuesday night. The euro remained unchanged at $1.0522.