United States
Equities slipped Wednesday as the Federal Reserve's quarterly forecasts now show the federal funds rate 50 basis points higher in 2023. The major averages recovered at the close to end well above afternoon lows, with megacaps in particular seeing late dip-buying. The Dow Jones industrial average declined 0.8 percent, the S&P 500 declined 0.5 percent, and the NASDAQ was off 0.2 percent.
The Fed noted progress on vaccinations had reduced the spread of the virus, and that economic activity had picked up, with inflation higher due to the reopening and other transitory factors. Fed Chair Jerome Powell told reporters after the Fed policy statement that the Federal Open Market Committee had discussed its asset buying program and will continue to assess progress toward the Fed's goals. He repeated that the Fed would provide plenty of notice before making any changes in asset purchases.
As the major stock averages slipped after the Fed statement, many bank stocks recovered the day's losses to lead the market as long-term US Treasury yields rose. Bank America moved into positive territory, up 0.6 percent, and JP Morgan gained 0.6 percent.
Among other sectors, communications services, utilities, consumer staples, technology, and materials sagged the most post-Fed. Megacaps suffered from worries about rising interest rates, with Facebook down 1.7 percent, Google down 0.5 percent. Apple, down earlier, recovered in the final hour to end up 0.4 percent. Consumer discretionary held up better on a better showing at retailers, including Amazon, up 1 percent.
Among companies in the news, GM rose 1.6 percent after raising its guidance and stepping up its investments in electric vehicles. Centene, the managed care provider, rose 3.7 percent on better guidance. Dish Network, the TV service, rose 2.7 percent on an analyst upgrade. On the downside, H&R Block fell 6.5 percent as analysts disliked its growth outlook. La-Z-Boy, the furniture seller, fell 12 percent after citing supply disruptions and rising materials prices. Roblox, the video game maker, fell 8 percent on declining usership, as fewer people are stuck at home playing video games.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 2 cents to US$74.14 while spot gold fell US$25.65 to US$1,833.43. The US dollar rallied vs. major currencies. The US Treasury 30-year bond yield rose 2 basis points at 2.21 percent and the 10-year note yield gained 6 basis points at 1.56 percent.
Europe
Equities were narrowly mixed ahead of the Federal Reserve policy announcement with autos and commodities under pressure. The Europe-wide STOXX 600 firmed 0.2 percent while the German DAX eased 0.2 percent and the French CAC and UK FTSE 100 firmed 0.1 percent.
Among sectors, autos & parts lagged to dampen German markets, with VW down 0.6 percent on reports that shortages of semiconductors and other components are forcing German automakers to suspend production and reduce work shifts. Softer-than-expected Chinese industrial production figures and Chinese steps to depress commodities prices weighed on materials stocks. Banks also lagged despite news the ECB would keep its lower capital requirement in place for another nine months. Banks suffered from expectations for continued low rates and no relief from ECB limits on dividend payouts. Utilities and chemicals held up best.
Among companies in focus, Swissquote Group, the online financial services company, rose 19 percent after raising its profits guidance. SCS, the UK furniture retailer, rose 11 percent on a strong trading update. On the downside, Colruyt, the Dutch grocery chain, fell 11 percent on an earnings miss. Banco Santander fell 1.8 percent on a report it is in talks to sell batches of bad loans to vulture funds.
In economic news, UK consumer prices were much stronger than expected in May. A second successive 0.6 percent monthly gain was double the market consensus and lifted the annual inflation rate from 1.5 percent to 2.1 percent, the first time that it has been above the 2 percent target since July 2019.
Asia Pacific
Asia/Pacific equities mostly weakened with China lagging after disappointing economic data and government steps to push down commodities prices.
Chinese markets dropped with the CSI down 1.7 percent and the Shanghai composite off 1.1 percent. Materials stocks were hit as metals and other commodities fell after the Chinese government ordered state-owned enterprises to cut exposure to commodities markets. The government said it would release its secret commodities stockpiles in a bid to push down prices. Risk assets also reacted badly to the mid-month batch of Chinese economic indicators, all on the soft side of expectations, with slower industrial production growth in focus.
Hong Kong followed mainland China markets lower, with the Hang Seng index down 0.7 percent. Worst were commodities-linked stocks, along with technology and property shares. Among companies in focus, Sa Sa Holdings, the beauty products retailer, fell 6.8 percent on an earnings miss. On the positive side, HSBC rose 1.6 percent after an upgrade at Citi, and China Life Insurance rose 0.1 percent on better premium income.
Japanese equities were mixed with the Nikkei down 0.5 percent and the broader Topix flat as the Chinese market selloff and soft Chinese economic data dampened market sentiment. Risk appetite suffered as traders pared risk positions headed into the Federal Reserve policy announcement. Best performing sectors were miners, shipping, banks, precision equipment, and rubber products. Selling off were semiconductors and other tech stocks, in line with Wall Street. Strength in Toyota, up 1.0 percent on strong car sales, limited the market selloff.
Australian markets, with the All Ordinaries index flat as most sectors rose, paced by energy on rising oil prices. News of an Australia-UK free trade deal was a positive, especially for Australian agriculture firms. On the day, financials, utilities, and retailers also outperformed, but gains were offset by a selloff in materials prices as copper and other metals prices dropped on fallout from the Chinese government steps to depress prices. Among companies in focus, Insurance Australia Group rose 1.2 percent after revising up its revenues guidance. On the downside, Shaver Shop, the shaving product retailer, fell 8.3 percent on disappointing guidance.
In economic data for May, Chinese industrial production rose 8.8 percent on the year after increasing 9.8 percent previously, just below the consensus forecast for an increase of 8.9 percent, but disappointing market expectations. Separately, Chinese retail sales rose 12.4 percent on the year after advancing 17.7 percent previously, below the consensus forecast for growth of 14.0 percent. Finally, Chinese fixed asset investment rose 15.4 percent year-to-date after increasing 19.9 percent previously, below the consensus forecast for growth of 16.8 percent.
Meanwhile, Japan's private sector machinery orders rose 0.6 percent on the month in April after increasing 3.7 percent in March, and rose 6.5 percent on the year after dropping 2.0 percent previously.
Looking ahead*
On Thursday in Asia/Pacific, New Zealand GDP. Singapore merchandise trade, China house prices, and Australian labour force reports are due, plus the Bank of Japan policy announcement. In Europe, the Swiss National Bank will make its policy announcement, plus reports are due on Swiss merchandise trade, Italian merchandise trade, and Eurozone HICP. In North America, reports are scheduled on US jobless claims, Philadelphia Fed manufacturing, and US leading indicators.
