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US stocks ended flat after a choppy trading session on Wednesday, unmoved by the Federal Reserve’s latest action to raise benchmark interest rates.
The US central bank lifted the federal funds rate to a target range of between 5.25 per cent and 5.5 per cent, its highest level in 22 years.
The S&P 500 swung between losses and gains while Fed chair Jay Powell spoke to journalists. The stock index ended the day practically unchanged. Before the Fed’s announcement, it had been 0.3 per cent lower. The Nasdaq Composite slipped 0.1 per cent.
The rate rise — which resumed a series of increases after a pause last month — was widely expected. But there is much less consensus on whether the Fed will make additional increases.
Michael de Pass, head of rates trading at Citadel Securities, said investors were relieved “that [Powell] wasn’t overtly hawkish”, but said the Fed chair had left his options open for future meetings.
“The bias in the market is that the Fed is done, but I don’t think the Fed has any issue hiking again if it is warranted. Powell made every effort to keep things very close to his chest, as he should,” de Pass said.
Powell told reporters it was “certainly possible” the central bank could raise rates again as soon as September, but stressed that “we’re going to be making careful assessments” in response to incoming economic data.
Michael Pond, Barclays’ head of global inflation-linked research, said the Fed was taking “a wait-and-see-approach”.
“The Fed is probably happy with the disinflationary theme that has been playing out, but they’re also looking at the labour market data which has been quite strong. Clearly they haven’t seen enough . . . to persuade [themselves] they’ve done enough.”
Treasury prices picked up. The yield on the two-year note, which is particularly sensitive to interest rate expectations, fell 0.05 percentage points to 4.84 per cent, while the benchmark 10-year yield dipped 0.05 percentage points to 3.86 per cent. Yields fall when prices rise.
The Fed policy meeting ended hours after the US commerce department reported that new home sales were lower than expected in June, having fallen for the first time in five months as rising borrowing costs weighed on households.
A series of disappointing earnings updates had weighed on US and European markets earlier in the day.
Shares in Microsoft, the second most-valuable company in the US, dropped 3.8 per cent after it cautioned that revenue from artificial intelligence products would not show until after the end of the year. Rival Alphabet, however, added 5.8 per cent after it beat analyst forecasts.
The Europe-wide Stoxx 600 fell 0.6 per cent, with consumer cyclicals leading declines after Louis Vuitton and Tiffany owner LVMH reported a decline in second-quarter revenues.
LVMH cited a general slowdown in the luxury market amid economic uncertainty, and its statement triggered declines across the sector, with Hermès International down 2 per cent and Swiss jewellery maker Richemont falling 1.7 per cent. The Stoxx Europe Luxury 10 index lost 2.4 per cent.
London’s FTSE 100 index dropped 0.2 per cent, with Lloyds Banking Group among the biggest fallers after the lender reported that its earnings had fallen below expectations in the second quarter, in part because of higher charges for bad loans. Shares in NatWest Group lost 3.7 per cent after chief executive Dame Alison Rose resigned after admitting to leaking confidential information.
The European Central Bank and the Bank of Japan are due to announce their own policy moves on Thursday and Friday, respectively.
In Asia, Hong Kong’s Hang Seng index lost 0.4 per cent and China’s benchmark CSI 300 declined 0.2 per cent after Beijing vowed to stimulate the country’s slowing economy earlier in the week, but failed to convince investors.
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