Investors evaluated robust inflation data in light of reduced expectations for interest rate cuts, which helped the S&P 500 and the Nasdaq establish new closing highs for the third day in a row on Wednesday. Meanwhile, U.S. Treasury yields rebounded from earlier dips.
After the two-day policy meeting of the US Federal Reserve came to an end, the dollar lost some of its weakness. Interest rates will remain steady as per the Federal Reserve’s decision. The policy statement and Summary of Economic Projections (SEP) are also available.
Even while the Dow had a slight decline toward the session’s end, the Nasdaq and S&P 500 both ended with substantial gains.
Not Everyone Likes the Fed’s Hawkish Stance
The SEP, which was more hawkish than anticipated, appeared to contradict the Labor Department’s highly anticipated CPI report that was published earlier in the day. The report indicated that core prices had experienced their slowest annual growth in over three years.
“It’s somewhat disheartening to witness this ongoing aggressive stance, particularly on the very day when we receive one of the most subdued inflation reports in quite some time,” expressed Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky. “The market may face some challenges due to the Federal Reserve’s hawkish stance, considering both the recent data from this morning and last week.”
During his press conference after the decision, Fed Chair Jerome Powell recognized that inflation has significantly decreased but is still too high. He also mentioned that expectations for rate cuts have been delayed because progress in reducing price growth to the central bank’s 2% target has been slower than anticipated.
“The key point to note is that the market likely anticipated the Federal Reserve to modify the dot plot by reducing the number of projected interest rate cuts from three to two,” Mayfield commented. “Instead, it was changed from three cuts to a single cut, which, in terms of impact, is a surprisingly hawkish move.”
However, the current assessment of financial markets suggests a higher probability of a 25-basis-point rate reduction in September. As indicated by CME’s FedWatch tool, the likelihood has increased from 46.8% on Tuesday to 61.5%.
Ambiguous Situation With Major Indices
The Dow Jones Industrial Average dropped by 35.21 points, representing a decrease of 0.09%, closing at 38,712.21. Meanwhile, the S&P 500 experienced a positive movement, gaining 45.71 points, or 0.85%, reaching 5,421.03. The Nasdaq Composite also saw an increase, adding 264.89 points, equivalent to a rise of 1.53%, and closing at 17,608.44.
European stocks ended the day with significant gains following the release of the CPI report and ahead of the Federal Reserve’s interest rate announcement.
The STOXX 600 index in Europe increased 1.08%, while MSCI’s global stocks gauge gained 0.86%.
Stocks in emerging markets increased modestly by 0.39%. Asia-Pacific shares outside Japan, as measured by MSCI’s broadest index, concluded the day with a 0.5% increase. However, Japan’s Nikkei declined by 0.66%.
U.S. Treasury yields declined following the data but partially rebounded after the SEP release.
The price of U.S. benchmark 10-year Treasury notes increased by 19/32, resulting in a yield of 4.3277%, down from 4.402% at the end of Tuesday.
The 30-year bond’s price slightly increased, resulting in a yield of 4.4846%, compared to 4.535% at the end of Tuesday.
The dollar rebounded from its earlier decline against a range of global currencies following the central bank’s revision of its rate-cut projections for 2024.
The dollar index declined 0.46%, while the euro increased 0.61% to reach $1.0804.
The Japanese yen increased 0.14% in value against the US dollar, reaching 156.88 yen per dollar. Meanwhile, the British pound traded at $1.2793, showing a 0.42% gain for the day.
Persistent Middle Eastern tensions and expectations of a drop in global stocks in the second half of the year contributed to higher oil prices, which closed at a higher level.
As the day came to a close, U.S. crude rose 0.77 percent to $78.50 a barrel, and Brent rose 0.83 percent to $82.60.
The Federal Reserve’s revised economic expectations caused gold to lose some of its sparkle, but it still made headway.
The price of spot gold reached $2,320.76/oz, a gain of 0.2%.
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