US Markets React to Fed's Stronger Economic Outlook
Investors grew frustrated that the Fed’s aggressive monetary policy has failed to tame an imperviously strong economy.
ASX futures were down 62 points or 0.9% as of 8:00am Wednesday, indicating a dip at the open.
US markets suffered Tuesday after Fed Chair Jerome Powell told the Senate that the central bank would likely lift interest rates more than previously expected to fight inflation and cool down the economy.
The Dow Jones Industrial Average fell 1.7%, the S&P 500 declined 1.5%, and the Nasdaq Composite dropped 1.3%. All 11 sectors of the S&P 500 lost, as did 29 of the 30 stocks in the Dow.
Bank shares, which are particularly sensitive to rising rates, were among the day's biggest losers. Shares of Wells Fargo dropped 4.6% and M&T Bank slipped 4.8%. The S&P 500's financial sector dropped 2.4% and was on pace for its worst day since September, according to Dow Jones Market Data.
In the first of two hearings on Capitol Hill this week, Mr. Powell told the Senate Banking Committee that robust economic activity has partly reversed softening inflation trends from late last year. That could prompt officials at the central bank's meeting this month to consider more aggressive rate increases.
Commodity Markets
In commodity markets, Brent crude oil slipped 3.5% to $US83.19 a barrel while gold dropped 1.7% to US$1,815.56.
Australian government bonds fell, with the 2 Year yield down at 3.37% and the 10 Year dipping to 3.68%. US Treasury notes continued to climb, however, with the 2 Year yield surpassing 5.0% and the 10 Year rising to 3.97%.
The Australian dollar dropped to 65.89 US cents from its previous close of 67.28. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged up to 98.62.
Asia
Chinese shares ended the day lower as the market took a breather from recent gains. Concerns over China-US geopolitical tensions also weighed on sentiment after China's new foreign minister criticized the US in his first briefing.
The benchmark Shanghai Composite Index fell 1.1% to 3285.10, while the Shenzhen Composite Index and the ChiNext Price Index both dropped 2.0%. Telecom and tech hardware companies declined. China Mobile shed 3.6% and Hangzhou HIK Vision Digital Technology dropped 2.5%. Energy stocks were the only bright spot in the market. China Petroleum & Chemical Corp. rose 3.1%.
Hong Kong stocks ended the session lower, as a variety of sectors continued to pull back from the market's strong rally last week. The benchmark Hang Seng Index edged down 0.3% to settle at 20534.48. Jewelry maker Chow Tai Fook led the downturn with a 6.0% slump, after its China managing director's resignation surprised the market and led to concerns over management uncertainties at the company.
Japanese Stocks
Japanese stocks ended higher, led by gains in financial and steel shares, despite continued uncertainty over policy tightening by central banks. JFE Holdings gained 2.4% and Mizuho Financial Group added 1.9%. The Nikkei Stock Average rose 0.3% to 28309.16.
Indian Markets
Indian markets were closed Thursday in honor of Holi.
Europe
European stocks fell Tuesday after Federal Reserve Chair Jerome Powell said the ultimate level of interest rates is likely to be higher than previously anticipated. Powell's comments in testimony before lawmakers have prompted markets to price in the prospect of a 50 basis-point rate rise at the March 22 meeting, compared with 25bp at the February meeting, CMC Markets analyst Michael Hewson wrote.
"We of course still have to navigate the US nonfarm payrolls report on Friday and inflation data next week which could reverse this,” Hewson added. The pan-European Stoxx Europe 600 dropped 0.8%, the German DAX slipped 0.6% and the French CAC 40 decreased 0.5%.
UK Stocks
The United Kingdom’s FTSE 100 index closed down 0.1% to 7919, dragged by basic mineral stocks amid caution following Powell’s hawkish comments. Fresnillo led an extensive list of fallers, down 6.8% after reporting a fall on both annual revenue and profit and seeing further pressures next year. Ocado and Glencore also dropped, closing down 4.7% and 4.6% respectively.
UK retailers fell after data showed consumers tightening their belts amid the cost-of-living crisis. UK total retail sales rose 5.2% in February, below the 6.7% increase in February of last year, according to the British Retail Consortium-KPMG Retail Sales Monitor. The outlook will remain tough and consumers are still limiting non-essential spending, KPMG said.
"With overall inflation running around 10% and food inflation sitting nearer 20%, total February sales growth of just 5% will be eating hard into retail margins and masking the true state of the sector's health," KPMG's UK head of retail Paul Martin wrote. With increases in energy and other bills on the horizon, Martin predicts consumers will stay wary. Ocado, Burberry, Sainsbury's and Next were among the biggest fallers.
North America
US markets suffered Tuesday after Federal Reserve Chair Jerome Powell told the Senate that the central bank would likely lift interest rates more than previously expected to fight inflation and cool down the economy.
The Dow Jones Industrial Average fell 1.7%, the S&P 500 declined 1.5%, and the Nasdaq Composite dropped 1.3%. All 11 sectors of the S&P 500 lost, as did 29 of the 30 stocks in the Dow.
Bank shares, which are particularly sensitive to rising rates, were among the day's biggest losers. Shares of Wells Fargo dropped 4.6% and M&T Bank slipped 4.8%. The S&P 500's financial sector dropped 2.4% and was on pace for its worst day since September, according to Dow Jones Market Data.
In the first of two hearings on Capitol Hill this week, Mr. Powell told the Senate Banking Committee that robust economic activity has partly reversed softening inflation trends from late last year. That could prompt officials at the central bank's meeting this month to consider more aggressive rate increases.
"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Mr. Powell said in prepared remarks. "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."
Investors have already come around to the same view after a streak of economic data showed continued strength in US hiring, spending and factory production. Federal unemployment numbers due Friday, as well as updated data on the consumer price index slated for next Tuesday, could add clarity before Fed officials' March 21-22 meeting.
Stock and government bond markets stumbled last month as money managers began to doubt that the central bank could engineer what is known as a soft landing, when inflation recedes without a recession.
"So far, nothing is working for them this year," said John Augustine, chief investment officer for Huntington National Bank. "They haven't slowed down employment, they haven't slowed down the economy and they haven't slowed down inflation to levels they want."
Stocks have stabilized in March, but investors remain cautious given the prospect for a further rise in borrowing costs that could deter investment. The S&P 500 has climbed more than 1% this month, extending its gains for the year to 4.6%.
Among individual stocks, Rivian Automotive fell 14.5% after the electric vehicle manufacturer said it plans to sell $1.3 billion in convertible notes in a private offering.
JetBlue slipped 2.9% after the Justice Department sued to block its planned takeover of Spirit, which rose 4.7%. Delta, United and other airlines also gained.
