Fed stays on hold through fog of Iran war as oil price spike knocks markets
NZ growth data will show how the economy was faring before the Middle East erupted.
The US Federal Reserve kept its key rate unchanged in chair Jerome Powell’s second-to-last meeting heading the federal open market committee, as the escalating conflict in the Middle East clouded the outlook for the world’s biggest central bank, with elevated oil prices reviving inflationary pressures and pushing down growth at the same time.
Stocks on Wall Street and in Europe declined on a surge in Brent crude prices as Iran threatened retaliation to Israeli strikes on the South Pars gas field, inflaming fears the conflict will drag on for a few more months.
That uncertain tone is set to carry through to the antipodes, with futures pointing to a slide for the resources-heavy S&P/ASX 200 index when trading opens across the Tasman, with softer gold prices weighing on US mining stocks such as Barrick Mining.
Meanwhile, Statistics New Zealand’s December quarter gross domestic product data are expected to show the economy grew 0.5% in the period, putting it in a stronger position before the conflict broke out in the Middle East.
Cloudy vision
The Fed kept the federal funds rate in a range of 3.5% and 3.75%, with 11 of the 12 members of the FOMC in favour of staying put, with the lone dissent coming from Stephen Miran, who wanted a quarter-point reduction.
The meeting was the second-to-last to be chaired by Jerome Powell, with the committee alive to the uncertainty caused by the Iran conflict and how it might affect inflation and the labour market.
The decision was widely expected by analysts, and did little to already nervous markets, with the S&P 500 down 0.8% in late trading on Wall Street as investors fretted over the escalating tensions in the Middle East after Iran vowed retaliation to Israeli strikes on its South Pars gas field, the world’s biggest.
“There was limited immediate impact on markets following the Fed’s rate decision,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note. “Market pricing continues to imply close to 25 basis points of easing this year.”
Brent crude oil futures were up 3.5% at US$107.05 a barrel at 7am in Auckland, as the Fed decision hit traders’ terminals, while gold futures fell 2.3% to US$4,896 an ounce.
The Polymarket predictions market has priced in a 37% chance of a ceasefire by the end of April, and don’t give better-than-even odds of peace until June.
Bubbling crude
The surge in oil prices weighed broadly on equity markets on both sides of the Atlantic, with the tech-heavy Nasdaq Composite down 0.8% in late trading and the Dow Jones Industrial Average falling 1.2%, led lower by consumer foods firm Procter & Gamble, payments giant Visa and manufacturer Sherwin-Williams.
Energy companies including Chevron and Occidental Petroleum were among gainers on the day.
The UK’s FTSE 100 dropped 0.9% and Germany’s DAX fell 1%, while France’s CAC 40 dipped a more modest 0.1%.
The heightened uncertainty weighed on risk-sensitive assets such as Bitcoin, which was down 3.9% at US$71,621, while crypto exchange Kraken put its plans to public on hold in the volatile environment, according to a CoinDesk report.
That’s set to flow through to the antipodes, with futures indicating a 1.1% slump for the ASX200 when trading opens across the Tasman, while the kiwi dollar traded at 58.47 US cents at 7am in Auckland from 58.60 cents yesterday.
New Zealand’s S&P/NZX 50 index has the added headwind of a2 Milk Co, Spark New Zealand and Briscoe Group going ex-dividend today.
Stats NZ’s December quarter GDP figures are expected to show the economy grew at a 1.7% annual pace as primary industries provided a tailwind for the nation through the end of last year.
Reporting by Paul McBeth. Image from Joshua Hoehne on Unsplash.
