Wall Street cools as Fed’s Warsh signals inflation focus

Stocks on Wall Street and the kiwi dollar fell as investors positioned for interest rates to rise later this year after the Federal Reserve kept its benchmark rate unchanged, with new chair Kevin Warsh signalling a focus on inflation in a pared-back statement.

Big tech names were at the bottom of the leaderboard, with Salesforce, Microsoft and Amazon leading the Dow Jones Industrial Average lower, while SpaceX snapped its stellar run with a modest pullback in late trading.

The conversion of former sustainable shoemaker Allbirds continued as it revealed a rebranding to Smartbird and brought in a new chief executive to oversee the pivot, prompting another surge in the share price.

And locally, Statistics New Zealand will release March quarter gross domestic product figures, which are expected to show the economy was recovering from its protracted downturn before the Middle East conflict.

Inflation elevation

The kiwi dollar dropped to 57.88 US cents at 7am in Auckland from 58.26 cents yesterday as riskier assets were sold off after the Fed kept its federal funds rate in a band of 3.5%-to-3.75%, with officials leaning towards a hike later this year.

Chair Warsh delivered a shorter statement than his predecessor and personally declined to give a projection, saying the current environment wasn’t well suited for more detailed forward guidance and that the central bank would deliver on its 2% inflation target.

“The decision marked the fourth consecutive hold, with officials continuing to shift their focus from the labour market to inflation risks, partly reflecting the impact of the Iran war on energy prices,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note. “The updated projections reflected a hawkish tilt with the dot plot suggesting the next move will be to raise interest rates.”

The yield on 10-year US Treasuries rose 3 basis points to 4.47% and stocks on Wall Street declined, with the Dow falling 0.1% in late trading, the S&P 500 declining 0.4% and the tech-heavy Nasdaq Composite slipping 0.3%.

SpaceX ended its charmed debut on Nasdaq, slipping 1.7% in late trading, with other space stocks benefitting as the likes of AST SpaceMobile and Virgin Galactic rallied, while Kiwi favourite Rocket Lab climbed 5.8% to US$110.73.

A smart move

Allbirds soared 37% after the former shoe company said it would rename itself as Smartbird, not NewBird AI as it previously flagged. The company hired former DCAI boss Nadia Carlsten as chief executive to oversee the pivot to buying high-end servers with AI chips to rent them out.

Across the Atlantic, stock markets were mixed as the UK’s FTSE 100 and Germany’s DAX nudged up 0.1% and France’s CAC 40 dipped 0.2%.

Brent crude oil futures rose 0.5% to US$79.42 a barrel at 7am, with details of the US ceasefire deal with Iran showing the Islamic Republic would get substantial financial relief in return for reining in its nuclear programme.

Wall Street’s decline is set to carry through into the antipodes, with futures pointing to a 0.5% decline for Australia’s S&P/ASX 200 index when trading opens across the Tasman, while futures indicate a 1.4% gain for Japan’s Nikkei 225.

Locally, Stats NZ will release GDP figures for the March quarter, which are expected to show the economy grew 1% in the first three months of the year before the Middle East conflict triggered an energy shock.

AFT Pharmaceuticals goes ex-dividend today, shedding rights to its upcoming 2.5 cents per share return.

Reporting by Paul McBeth. Image from David Vives on Unsplash.