Stan Choe
Updated ,first published
US stocks fell after a renewed rise in oil prices fueled inflation concerns, while Federal Reserve chairman Jerome Powell warned of the uncertain impact of the Middle East conflict as the central bank kept interest rates on hold.
The S&P 500 fell 0.9 percent and was on track for its first loss this week. The Dow Jones was down 660 points, or 1.4 percent, and the Nasdaq composite was down 1.2 percent. As expected, the Federal Reserve kept interest rates steady and projected high inflation, unemployment and a rate cut of just one per year as officials considered economic risks from the US’s war with Israel and Iran.
Australia’s share market is expected to decline, with futures pointing to a loss of 125 points, or 1.4 percent, at the open. Part of the ASX edge up on Wednesday. The Australian dollar was trading at US70.54¢ at 6.08am AEDT.
Shares fell under pressure from a 4.7 percent rise in the price of a barrel of Brent crude, the international standard, to $US108.27. Benchmark US crude rose 1.5 percent to $97.61 a barrel.
Oil and natural gas prices have been rising since the war began because of disruptions to the Persian Gulf energy sector. Iran’s state television said on Wednesday that the Islamic Republic would be attacking oil and gas infrastructure in Qatar, Saudi Arabia and the United Arab Emirates after an attack on facilities linked to its South Pars natural gas field.
If the disruption keeps oil and gas prices high for a long time, it could cause a downward spiral of inflation in the global economy.
A report released Wednesday morning showed that inflationary pressures were already at their worst before the war began. It said headline U.S. inflation rose unexpectedly last month to 3.4 percent, and the cost increases could hit U.S. households if producers pass them through at all.
A cut in interest rates would boost the labor market and investment prices, and President Donald Trump has been calling for it angrily. But low interest rates will also increase inflation.
The Iran war has made it difficult for anyone to make economic predictions. Gasoline prices are rising and will add to inflation for at least the next month or two. The average price of a gallon of gasoline rose again overnight, reaching $3.84. It was less than $US3 last month.
Global oil flows remain largely constrained, ING Bank analysts Warren Patterson and Ewa Manthey wrote in a research note on Wednesday, even as hopes grew that Iran could allow more ships to pass through the Strait of Hormuz, the world’s main waterway for oil and gas shipments.
About a third of the world’s crude oil goes through the route, which is largely closed as Iran blocks ships linked to the United States, Israel and their allies.
On Wall Street, mixed earnings reports helped steer the market.
Macy’s rose 5.2 percent after reporting stronger profit and revenue in the latest quarter than analysts had expected. The retailer behind Bloomingdale’s and Bluemercury is in the midst of a transformational growth plan under CEO Tony Spring.
But General Mills slipped 1 percent after the company behind the Pillsbury, Progresso and Wheaties brands reported weaker-than-expected profit for the latest quarter. CEO Jeff Harmening is investing in his brands in hopes of driving growth, and it’s in line with his profit forecast for the full fiscal year.
In the bond market, Treasury yields rose following a higher-than-expected update on headline inflation. The yield on the 10-year Treasury rose to 4.22 percent from 4.20 percent late Tuesday and from just 3.97 percent before the war with Iran began.
In stock markets abroad, most indexes fell in Europe following a strong finish in Asia. They were affected by rising commodity prices, which increased as trade moved westward around the world.
Tokyo’s Nikkei 225 gained 2.9 percent after the government reported exports in February were higher than expected. South Korea’s Kospi jumped 5 percent.
