ASX set to retreat, Wall Street drifts as Fed makes no move on interest rates; $A slumps

US stock indexes are drifting lower after the Federal Reserve decided to keep interest rates where they are, a move that could upset President Donald Trump but was one that Wall Street was widely expecting.

The S&P 500 was edging down by 0.1 per cent in afternoon trading, coming off its first loss after setting all-time highs for six successive days. The Dow Jones swung to a loss of 310 points, or 0.7 per cent, in mid-afternoon trade, and the Nasdaq composite was down 0.2 per cent.

Wall Street remains in the green after the Fed held fire on interest rates. Credit: AP

The Australian sharemarket is set to slide, with futures at 4.53am AEST pointing to a loss of 30 points, or 0.3 per cent, at the open. The ASX added 0.6 per cent on Wednesday. The Australian dollar fell sharply. It was 1.2 per cent lower to 64.30 US cents at 5.07am.

In the bond market, Treasury yields gave back some of their gains from the morning, when a report suggested the US economy’s growth was much stronger during the spring than economists expected. It grew at a 3 per cent annual rate, according to an advance estimate, a full percentage point more than forecast. But underlying trends beneath the surface may be more discouraging.

“Cutting through the noise of the swings in imports, the economy is still chugging along, but it is showing signs of sputtering,” said Brian Jacobsen, chief economist at Annex Wealth Management.

The data reinforced the dilemma facing Fed officials as they voted Wednesday on what to do with interest rates. They could have lowered rates, which would give a boost to the economy as Trump has so been angrily calling for. But lower rates could also give inflation more fuel when Trump’s tariffs may be set to increase prices for US households.

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Trump on Wednesday announced a 25 per cent tariff on imports coming from India, along with an additional tax because of India’s purchases of Russian oil, beginning on Aug. 1. That’s when stiff tariffs Trump has proposed for many other countries are also scheduled to kick in, unless they reach trade deals that lower the rates.

Fed Chair Jerome Powell has been insisting that he wants to see more data about how tariffs are affecting inflation and the economy before the central bank makes its next move, and he will speak shortly to offer more details about the decision.

Two officials on the Fed’s committee did dissent in Wednesday’s vote, an indication that Powell may face increasing pressure to cut rates soon. Much of Wall Street expects the Fed to resume lowering rates in September. It’s been on hold this year after cutting rates several times late last year.

The yield on the two-year US Treasury note edged up to 3.87 per cent from 3.86 per cent late Tuesday. It tends to closely follow expectations for what the Fed will do with its overnight interest rate.

The 10-year Treasury, which also takes into account longer-term expectations for the economy and inflation, was holding at 4.34 per cent.

On Wall Street, stocks were mixed as most big US companies continue to report profits for the spring that were bigger than analysts expected.

Humana rose 10.3 per cent after the insurer and health care giant reported stronger results for the spring than expected. It also raised its forecasts for profit and revenue over the full year.

Video-game maker Electronic Arts climbed 7 per cent after likewise topping Wall Street’s expectations. The company said it saw better-than-expected contributions from EA Sports and other games, and it will reveal its new Battlefield game on Thursday.

Companies are under pressure to deliver solid profit growth. They need to in order to justify the big jumps in their stock prices during recent months, which has caused some critics to say the broad US stock market looks too expensive.

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Trane Technologies, whose stock came into the day with a 27.5 per cent gain for the year so far, tumbled even though it reported a stronger-than-expected profit for the latest quarter. The heating, ventilation and air conditioning company’s revenue came up short of analysts’ estimates, as did its forecast for profit in the current quarter. It dropped 8 per cent.

Starbucks swung between gains and losses after it reported a weaker profit than analysts expected as it tries to turn around its operations. The company is hoping to boost its performance through improved store operations and new products, including a cold foam protein drink. Its stock was most recently up 0.4 per cent.

Palo Alto Networks fell 4.4 per cent after saying it would buy CyberArk, an identity-security company, for $US25 billion ($38.9 billion) in cash and stock. CyberArk shares added 1.4 per cent.

In stock markets abroad, indexes were mixed across Europe and Asia. Hong Kong’s Hang Seng fell 1.4 per cent, and South Korea’s Kospi rose 0.7 per cent for two of the bigger moves.

AP

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