Stocks fall after US Fed rate cut plans

TDT | Manama

The Daily Tribune - www.newsofbahrain.com

Stock markets mostly retreated on Thursday as traders reacted to political uncertainty in Europe and the US Federal Reserve’s plan to only cut interest rates once this year. European stocks closed firmly in the red, Paris and Frankfurt shedding around two percent each as investors continued to track fallout from far-right gains in last weekend’s EU elections.

Wall Street was trading mixed as the tech-heavy Nasdaq climbed while the Dow slipped back and the S&P 500 remained flat. The Federal Reserve left its key lending rate unchanged on Wednesday and pencilled in just one rate cut this year, down from the three expected in March.

Despite US annual inflation dipping to 3.3 percent last month, the fall was below expectations, while the consumer price index remains comfortably above the Fed’s two-percent target.

In France, the European Union’s second-largest economy, President Emmanuel Macron is under pressure ahead of snap elections he called after a drubbing by the far right in EU-wide polls. “Yesterday’s cautious Fed meeting and ongoing political worries in Europe continue to put pressure on equity markets generally,” said Chris Beauchamp, chief market analyst at online trading platform IG.

The early French legislative elections called for June 30 and July 7 “have sent investors scurrying from European stocks”, he added. The brighter performance by the Nasdaq index shows that “the technology sector remains the primary driver of market performance”, according to FOREX.com market analyst Fawad Razaqzada. “One has to wonder how much further the sector can hold up the market.”

Investors were also keeping an eye on the yen as the Bank of Japan started a two-day policy meeting, with speculation swirling that it is preparing the ground for a further tightening after lifting interest rates in March for the first time in 17 years. Japan has been an outlier in recent years, deciding against raising interest rates to fight high inflation. And just as major central banks are looking to cut borrowing costs, the BoJ has decided to start hiking them.