US stock markets lose steam on Fed caution and mixed earnings
US Federal Reserve Chair Jerome Powell declined to provide guidance on Tuesday regarding the timing and extent of expected interest rate cuts, but said policy needs to be restrictive for longer
US stocks on Wednesday reversed earlier gains as crude prices dropped and investors weighed cautious US. Federal Reserve commentary and ongoing geopolitical strife against mixed quarterly earnings.
Benchmark US Treasury yields paused near multi-month highs.
All three major US stock indexes lost momentum in morning trading and last traded broadly flat, while tech shares pulled the Nasdaq slightly lower.
US Federal Reserve Chair Jerome Powell declined to provide guidance on Tuesday regarding the timing and extent of expected interest rate cuts, but said policy needs to be restrictive for longer, dimming hopes for rate cuts this year.
“Investors tend to get into a momentum mode. They got way too optimistic about the speed of rate cuts. Now they’re overly pessimistic,” Jay Hafield, CEO and porfolio manager at Infracap in New York. “We believe the Fed is data dependent and by June, they’ll be ready for a cut.”
Hafield expects a mid-year rally. “Until then, we expect range-bound trading as we’re seeing today where there’s a push-pull between interest rates versus a strong economy and strong earnings,” he said.
The first-quarter reporting season gathers steam, with Travelers Companies missing profit estimates and US Bancorp providing a disappointing interest income forecast.
The Dow Jones Industrial Average rose 2.53 points, or 0.01%, to 37,801.5, the S&P 500 gained 1.61 points, or 0.03%, to 5,053.02 and the Nasdaq Composite dropped 16.19 points, or 0.1%, to 15,849.06.
European shares were lited by solid earnings from consumer products companies, but investors monitored developments in the Middle East.
The pan-european STOXX 600 index rose 0.23% and MSCI’S gauge of stocks across the globe gained 0.03%.
Emerging market stocks rose 0.32%. MSCI’S broadest index of Asia-pacific shares outside Japan closed 0.27% higher, while Japan’s Nikkei lost 1.32%.
U.S. Treasury yields dipped, slowing a sell-off over the last week that pushed benchmark yields to their highest since November as the Fed reassessed the need for interest rate cuts.
Benchmark 10-year notes last rose 9/32 in price to yield 4.6222%, from 4.657% late on Tuesday.
The 30-year bond last rose 12/32 in price to yield 4.7334%, from 4.757% late on Tuesday.
The dollar hovered around 5-1/2 month highs against a basket of world currencies as investors processed the notion the Fed’s expected rate cuting cycle is on hold.
The yen hovered near 34-year lows, keeping intervention watchers on high alert.
The dollar index rose 0.02%, with the euro up 0.21% to $1.0639.
The Japanese yen strengthened 0.06% versus the U.S. dollar at 154.64, while Sterling was last trading at $1.2454, up 0.24% on the day.
Oil prices dipped as high U.S. commercial inventories and expectations of a possible fall in demand as a result of weaker economic data from China, offset concerns ongoing geopolitical turmoil could disrupt supplies.
U.S. crude fell 0.71% to $84.75 per barrel and Brent was last at $89.19, down 0.92% on the day.
Gold rose in opposition to the dollar, nudging closer to record-high levels as risks that the Middle East crisis could spread atracted investors to the safe-haven metal.
The UK’S benchmark index FTSE 100 climbed on Wednesday, underpinned by industrial metal miners, while the pound strengthened on growing doubts over the prospect of early rate cuts by the Bank of England.
The resources-heavy FTSE 100 advanced 0.4% and the mid-cap FTSE 250 traded flat at the close ater posting steep losses on Tuesday.
Industrial metal miners gained 2.2%, with shares of Rio Tinto rising 2.6%, ater the miner published a steady operations update.
The automobile and parts sector was the biggest loser, dropping 1.2%.
The pound slipped against the dollar and traded last at $1.2445 ater Britain’s inflation slowed to 3.2% in March, compared with 3.4% a month ago, but was slightly higher than economists’ expectations of 3.1%, according to a Reuters poll.
“This March report helps keep the door open to mid-year interest rate cuts from the BOE, which would be a relief to UK homeowners and consumers, with Governor Bailey saying he sees ‘strong evidence’ of retreating price pressures,” said Ben Laidler, analyst at investment plaform etoro.
“This first cut would likely be ater the ECB but now before the US Federal Reserve.”
Traders expect the Bank of England to cut rates by 40 basis points in 2024, with the possibility of a first rate cut only in September.
BOE policymaker Megan Greene on Wednesday said that the tensions in the Middle East could pose a risk to the inflation outlook, including by heightening inflation expectations.
Meanwhile, Fed Chair Jerome Powell said on Tuesday that monetary policy needs to be restrictive for longer, further dashing investors’ hopes for meaningful reductions in borrowing costs this year. Among individual stocks, ASOS advanced 4.9% ater the online fashion retailer appointed a new CFO and reiterated its full-year forecast for adjusted core profit despite stiff competition and excess inventory. Entain rose about 1.0% ater the owner of Ladbrokes posted beter-than expected first-quarter online gaming revenue due to a rise in its customer base.