Wall Street shares waver as central bankers warn of more rate rises

Receive free Markets updates

Wall Street stocks were muted on Wednesday, as the chair of the Federal Reserve and other central bank chiefs warned that interest rates may need to rise further to curb inflation.

The benchmark S&P 500 index was 0.1 per cent lower in mid-afternoon trading, while the technology-heavy Nasdaq Composite was up 0.3 per cent, reversing losses earlier in the session.

The moves in equity markets came as Fed chair Jay Powell and the heads of the European Central Bank and the Bank of England said more action might be needed to ease rapid price growth, despite fears of monetary policy tightening inducing an economic slowdown.

At a closely watched conference in Sintra, Portugal, Powell said “although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough”.

The US central bank had previously indicated it would probably lift the benchmark federal funds rate twice more before the end of 2023, above its current target range of between 5 per cent and 5.25 per cent.

The central bank’s decision will be informed by the eurozone inflation report on Friday, which is expected to show that price growth slowed to 5.6 per cent in the year to June, down from 6.1 per cent a month earlier, according to economists polled by Reuters.

Elsewhere in US equities, chipmaker Nvidia slipped about 1 per cent following reports the US was considering imposing new curbs on exports to China of chips that could be used in artificial intelligence.

In government bond markets, the 10-year US Treasury yield slipped 0.05 percentage points to 3.71 per cent as the price of the benchmark debt instrument rose.

The policy-sensitive two-year yield lost 0.04 percentage points to trade at 4.72 per cent, helping to continue the “inverted yield curve” phenomenon, stemming from the gap between short- and long-term yields, which has persisted for months and is traditionally seen as a harbinger of recession.

The dollar gained 0.4 per cent against a basket of six other currencies, while the pound fell 0.8 per cent against the greenback — its largest daily drop in a month — to trade at $1.2648, as traders continued to grapple with the growth-sapping implications of the Bank of England’s larger than expected rate increase to 5 per cent.

Themos Fiotakis, head of FX research at Barclays, said sterling had rallied “too much” ahead of the last central bank meeting and was “susceptible to a bit of a sell-off”.

Europe’s pan-European Stoxx 600 ended the day 0.7 per cent higher, while France’s Cac 40 added 1 per cent and Germany’s Dax gained 0.6 per cent.

Earlier in the day, Australia’s S&P/ASX 200 stock index rose 1.1 per cent after official data showed that inflation cooled at a faster rate than expected in May, raising the prospect of a pause in interest rate rises by the Reserve Bank of Australia.

Trading was mixed in Asia, with China’s CSI 300 falling 0.1 per cent while Hong Kong’s Hang Seng added 0.1 per cent. Japan’s Topix was up 2 per cent, lifted by strong gains in the technology sector.

Leave a Comment