Wall Street muted as Fed keeps rates on hold; US-Iran tensions escalate

Wall Street remained in a sombre mood with a short-lived recovery when the Federal Reserve kept its key rate unchanged as chair Kevin Warsh said the central bank was doing less well on price stability, with the artificial intelligence investment programmes making it harder to judge supply and productivity.

Renewed tensions between the US and Iran pushed oil prices higher and weighed on stock markets on both sides of the Atlantic after the Islamic Republic’s surprise strike yesterday, with President Donald Trump promising a hard and fast retaliation.

Earnings from Meta Platforms and Microsoft are due after the bell in the latest update on the AI sector, which has been under scrutiny from investors more recently, even as the corporate reporting season has generally been upbeat.

And Australian futures are pointing to a muted start to the trading day across the Tasman while the kiwi dollar gained against the greenback with the ANZ’s monthly business confidence gauge the main piece of local data today.

Resolute focus

The Fed kept the federal funds rate in a range of 3.5%-to-3.75% in a majority decision, with three members of the federal open market committee voting to raise the key rate, amid growing concerns about the pace of inflation.

Chair Warsh said the central bank was resolute in delivering on its price stability target, while noting it wasn’t doing as well on that measure as it was on employment, with the US economy showing impressive resilience.

“Chair Kevin Warsh emphasised that future decisions will remain entirely data dependent, noting that inflation remains above target while economic growth, business investment and the labour market continue to show resilience,” Moomoo market strategy consultant Greg Boland said in a note. “The lack of forward guidance leaves September's meeting very much ‘live’.”

Stocks on Wall Street initially rallied on the Fed decision having been knocked by the latest bout of military strikes in the Middle East, which pushed Brent crude oil futures for September up 7.7% to US$90.59 a barrel.

The Dow Jones Industrial Average dropped 1.7% in late trading, with Caterpillar, Goldman Sachs and Sherwin-Williams at the bottom of the leaderboard. The S&P 500 nudged into positive territory briefly, before resuming its decline, down 0.7%, while the tech-heavy Nasdaq Composite dropped 0.6%.

Earnings from Meta and Microsoft are due after the close of trading, with the focus on AI infrastructure spending keeping investors uneasy.

Meta chief executive Mark Zuckerberg hit the publicity trail ahead of the result, saying the way AI research was developing threatened to centralise power among the leading players, while talking up the potential benefits of the technology.

Business keeps going

The corporate earnings season continued, with Ford Motor Co raising its profit outlook for a second time this year on growing demand, while consumer goods firm Procter & Gamble gave a more subdued outlook as it missed analysts’ expectations.

GE Healthcare rallied as it beat expectations, noting stronger growth in its radiology products, while VF missed analysts’ forecasts on a soft performance from its Vans brand of shoes.

Meanwhile, Hims & Hers tumbled after the US Federal Trade Commission said it was suing the telehealth firm, accusing it of sharing users’ health data with online advertisers, and engaging in deceptive billing and cancellation practices.

Across the Atlantic, stock markets were mixed, with France’s CAC 40 down 0.6% as Hermes sank 11% as Chinese demand remained subdued. Germany’s DAX was marginally weaker, while the UK’s FTSE 100 rose 0.3%.

Australian futures are pointing to a 0.1% gain for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar jumped to 58.10 US cents at 7.30am in Auckland from 57.87 cents yesterday.

ANZ’s monthly business outlook survey is on the data radar today, while Oceania Healthcare holds its annual meeting, where activist shareholder Tommy Scrivener is pushing for a strategic review to bridge the gap between the aged care firm’s net tangible assets and its share price.

Reporting by Paul McBeth. Image from Joshua Woroniecki on Unsplash