Fed keeps rates on hold, plays for more time

The US Federal Reserve kept its federal funds rate unchanged, saying it wants more information to work out whether it needs to tighten policy with inflation more elevated, while the Bank of Canada hiked in a bid to tamp down the impact of elevated energy prices.

Stocks on Wall Street were modestly positive as the Fed’s decision arrived, with investors waiting for results after the bell from Microsoft and Alphabet for the next big test of the artificial intelligence sector.

Oil prices jumped higher amid reports that the US had warned Gulf nations to be prepared for a short and sharp military campaign after the midterm elections, while Ukrainian President Volodymyr Zelenskyy said he expected peace talks involving Russia to come early next month.

And Australian futures are pointing to a positive start to the trading day for the ASX, while ANZ’s monthly business confidence survey will be watched on this side of the Tasman.

Waiting for info

The federal open market committee kept its federal funds in a range of 3.75%-to-4% as expected, with the Fed saying more information would help the central bank determine the best policy stance to get inflation back to its 2% target.

The Fed upgraded its assessment of growth to strong from solid.

Two committee members – Lisa Cook and Beth Hammack – dissented, preferring a hike.

“Initial market reaction was muted, with little change in the US Treasury yields, which were a little higher leading into the announcement, with the 10-year rate just over 5%, and US equities maintaining their modest gain,” Bank of New Zealand senior markets strategist Jason Wong said in a note.

The kiwi dollar traded at 56.24 US cents at 7am in Auckland from 56.14 cents yesterday, having slumped on Wednesday after the surprise pause by New Zealand’s Reserve Bank.

Meanwhile, the Bank of Canada raised its overnight rate a quarter-point to 2.5%, its first increase in more than three years, as the monetary authority sought to head off inflation in the face of rising energy prices.

Oil prices jumped after the Wall Street Journal reported the US warned Gulf nations to be prepared for an intense military campaign after the midterm elections. The result of Israel’s election remains tight, with both incumbent Benjamin Netanyahu and his main challenger, Gadi Eisenkot, claiming victory. Brent crude oil futures climbed 1.3% to US$115.39 a barrel at 7am.

Meanwhile, Ukrainian President Zelenskyy said negotiators from Ukraine, Russia and the US could meet in Abu Dhabi for peace talks early next month.

More tech to come

Stocks on Wall Street held their modest gains after the Fed’s decision, with upcoming earnings from Microsoft and Alphabet the next test for AI after Anthropic’s decision to press ahead with an initial public offering revived appetite for the sector.

South Korea’s SK Hynix surged yesterday after beating earnings expectations and announcing plans to return capital to shareholders.

The tech-heavy Nasdaq Composite nudged up 0.1% in late trading and the S&P 500 increased 0.2%, while the Dow Jones Industrial Average advanced 0.3%, with Goldman Sachs, American Express and Alphabet at the top of the leaderboard.

The UK’s FTSE 100 inched up 0.1%, with British bank stocks rallying after the UK announced a smaller tax on lenders than expected in a low-key budget from Chancellor of the Exchequer John Healey, sticking to its self-imposed fiscal rules. About 20 million households would receive £100 to go towards power bills, and the UK government would extend cuts to fuel duty and a VAT freeze on electricity.

Germany’s DAX gained 0.4%, with Deutsche Bank reporting strong fixed income trading income in the third quarter, while France’s CAC 40 was fractionally weaker.

Airbus dipped as it maintained its annual forecasts and production plans to deliver about 870 planes this year, while Danone advanced as the food giant’s quarterly sales were ahead of expectations.

Australian futures were pointing to a 0.3% gain for the S&P/ASX 200 index when trading opens across the Tasman.

Local data today include the ANZ business outlook survey, while NZX-listed firms holding annual meetings today include Freightways, Port of Tauranga, Me Today and Move Logistics.

Reporting by Paul McBeth. Image from Giorgio Trovato on Unsplash.