US stocks wavered and the tech-heavy Nasdaq Composite index broke through 10,000 while investors awaited the Federal Reserve’s monetary policy meeting.
The S&P 500 opened 0.2 per cent higher before moving into the red, but the tech-heavy Nasdaq Composite maintained its three-month rally in early trading, setting a new intraday record before falling back into four digits. The dollar slipped to its lowest level in three months.
Donald Trump tweeted before the market opened on Wednesday: “Nasdaq hits all-time high. Tremendous progress being made, way ahead of schedule. USA!”
Equities in Europe trimmed earlier gains, after a downbeat forecast of the economic recovery from the pandemic in advanced nations by the OECD. London’s FTSE 100 gained 0.3 per cent and the Euro Stoxx 600 edged 0.2 per cent higher.
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Global stocks have rallied since late March, with the Nasdaq soaring about 45 per cent and the S&P 500 all but erasing its losses for the year.
Investors are looking to the Federal Reserve’s monetary policy decision on Wednesday. Economists expect that interest rates will be kept on hold at near zero but have warned that any hesitation over its willingness to dish out support measures could hit markets.
When the Covid-19 crisis gripped markets this year, the Fed took extraordinary steps to cushion the financial blow and soothe market disruptions. That has helped global equity markets to stage a powerful rally, defying threats from a resurgence in US-China tensions and the risk of lasting economic damage.
“Fed chair [Jay] Powell is similarly expected to reaffirm the downside skew of economic and market risks, the expectation of easy money as far as the eye can see, and the willingness to take policy as far as is needed to generate recovery,” said Steven Englander, head of North America macro strategy at Standard Chartered. “This is dovish, but widely expected.”
The bull run in stock markets contrasts with a chorus of downbeat economic forecasts. The OECD was the latest to warn on Wednesday of the lasting impact of coronavirus. The Paris-based group said rich countries faced a disappointing recovery from the historic downturn, which would leave deeper scars than any peacetime recession in the past 100 years.
There are some concerns that signs of economic improvement in the US, following an unexpected rise in employment of 2.5m people in May, could push the Fed to hint towards weakening its stimulus measures.
“There is a degree of uncertainty whether the Fed considers the improvement in data as an opportunity to signal a less loose policy and thus take the liquidity punchbowl away from markets,” said Chris Turner at ING.
But “we expect the Fed to err on the side of caution given the uncertainty about the recovery”, he added. The Fed is expected to release US economic forecasts, updated for the first time in six months.
In currencies, the dollar index fell to its lowest level in three months, slipping a further 0.4 per cent against a basket of currencies, partly due to expectations of the Fed’s monetary policy remaining accommodative.
Sovereign bonds were steady ahead of the Fed’s decision, with the 10-year US Treasury yield, which moves inversely to price, at around 0.8 per cent.
In Asia-Pacific, Japan’s benchmark Topix closed 0.2 per cent lower while Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 were almost flat.
China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks shed 0.2 per cent after an official inflation reading for May showed that producer prices contracted by a greater extent than economists had forecast.
In Hong Kong, shares in Cathay Pacific were volatile a day after the city’s government said it would take a stake in the struggling airline as part of a HK$39bn ($5bn) rescue plan. Shares initially surged 19 per cent before paring gains to close down 1 per cent.
Oil prices fell, with international marker Brent dropping 1.6 per cent to $40.52 a barrel. US marker West Texas Intermediate slipped 1.8 per cent to $38.23.
