Oil prices surge while US stocks fall as Fed keeps rates unchanged
Wall Street stocks finished sharply lower Wednesday after the Federal Reserve kept interest rates unchanged despite lofty US inflation as escalations in the Middle East war pushed oil prices skyward.
Major US indices ended down more than 1.5 percent after initially greeting the Fed's decision to keep interest rates level.
However, markets shifted course during Fed Chair Kevin Warsh's press conference where he pledged to achieve price stability and return inflation to the US central bank's two percent target as he simultaneously defended a decision to not hike interest rates.
"The market is getting mixed messages from the Fed," said Adam Sarhan of 50 Park Investments.
"Basically, we’re left with a situation where the problem is not solved," said Sarhan of inflation that stood at 3.5 percent in June on an annual basis.
Besides the Fed decision, the market also digested the latest spike in oil prices after President Donald Trump vowed to hit back hard at Iran after it attacked US bases in Jordan.
On Wednesday, Saudi Arabia and the United States announced strikes on militant bases in Iraq, while US ally Israel accused Iran-backed Hezbollah of a truce violation.
International benchmark Brent oil futures shot up nearly eight percent to $90.74 a barrel.
"We continue to see oil prices and inflation pressures moving higher as inventories drain further amid the lack of peace in the Persian Gulf," said a note from Bart Melek of TD Securities.
Equity investors have also been on guard about earnings from large technology companies at the nexus of the buildout of artificial intelligence infrastructure central to the US economic growth outlook.
After a blowout second quarter, the Nasdaq-100 index earlier this week slipped into a correction, defined as a drop of 10 percent or more.
Analysts have seen the tech industry pullback as prompted by worries the current batch of earnings won't justify the second-quarter gains.
On Wednesday afternoon after the stock market closed, Microsoft gained after its earnings, while Meta fell sharply.
At the Fed meeting, Warsh reiterated his commitment to achieving price stability.
"We are on the job. We will deliver. We are focused like a laser, making sure we can do it," he said, adding that there was "no magic wand" with which the Fed could lower inflation quickly.
But DoubleLine CEO Jeffrey Gundlach told CNBC that the bond market's reaction showed it was skeptical of Warsh's statements. The yield on the 30-year US Treasury hit 5.22 percent, well above the 4.61 percent level before the start of the Middle East warn.
"If you really want to get to two percent, I think you have to raise interest rates," Gundlach told CNBC. "The bond market vigilantes are saying, 'If you really want us to believe your rhetoric, you’ve got to start acting.'"
Arun Sundaram, senior vice president at CFRA Research, said the jump in the 30-year Treasury yield "is likely a signal that investors doubt the Fed's credibility in returning inflation to its two percent target."
The dollar also pulled back against the euro and other major currencies.
Earlier, London's benchmark FTSE 100 managed to set a record high as surging oil prices boosted energy majors Shell and BP.
London's main index hit 10,951.06 points, beating its previous record of 10,934.94 reached at the end of February, before paring gains.
The South Korean index -- seen as a bellwether for the AI industry owing to the outsize dominance of tech firms SK hynix and Samsung -- slumped six percent to extend Tuesday's near 11-percent collapse.
Chipmaker SK hynix shed almost 20 percent despite announcing huge profits and promising to continue spending. The company has lost more than half its value since hitting a record high just one month ago.
Tokyo's stock market closed down 1.5 percent and Taipei dropped nearly four percent.
Elsewhere, the Hermes share price tumbled more than 11 percent on the Paris market after its results showed demand in key market China is not reviving.
However, shares in Gucci parent Kering soared more than 15 percent on the Paris CAC 40.
- Key figures around 2020 GMT -
New York - DOW: DOWN 2.2 percent at 51,594.14 (close)
New York - S&P 500: DOWN 1.5 percent at 7,316.15 (close)
New York - Nasdaq Composite: DOWN 1.7 percent at 24,442.94 (close)
London - FTSE 100: UP 0.3 percent at 10,908.41 (close)
Paris - CAC 40: DOWN 0.6 percent at 8,408.27 (close)
Frankfurt - DAX: FLAT at 25,460.48 (close)
Seoul - Kospi: DOWN 6.0 percent at 5,663.24 (close)
Tokyo - Nikkei 225: DOWN 1.5 percent at 61,434.19 (close)
Hong Kong - Hang Seng Index: UP 2.0 percent at 25,807.92 (close)
Shanghai - Composite: UP 0.4 percent at 3,828.47 (close)
Brent North Sea Crude: UP 7.9 percent at $90.74 per barrel
West Texas Intermediate: UP 6.6 percent at $84.46 per barrel
Euro/dollar: DOWN at $1.1457 from $1.1387 on Tuesday
Pound/dollar: DOWN at $1.3350 from $1.3289
Dollar/yen: DOWN at 163.47 yen from 163.85 yen
Euro/pound: UP at 85.78 pence at 85.69 pence
burs-jmb/sla
(R.Mohlala--TPT)
