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US stocks were trading lower on Wednesday, as investors awaited for the minutes from the Federal Reserve’s June monetary policy meeting, while weaker than expected data from China damped sentiment.
Wall Street’s benchmark S&P and the tech-heavy Nasdaq Composite were both down 0.2 per cent the day US markets reopened after the Independence Day holiday.
The declines came as investors turned their attention to the release later on Wednesday of the minutes from the Fed’s last meeting, in order to gauge policymaker’s outlook on future interest rates.
The US central bank opted to keep the federal funds rate steady in June, at a target range between 5 per cent and 5.25 per cent, but signalled that its tightening campaign will not end until inflation returns back to its 2 per cent target.
“We don’t expect an adverse reaction from markets, because markets are fully prepared for that [hawkish] tone from the Fed in the minutes,” said Mobeen Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.
“Markets realise that central banks are being more hawkish than necessary . . . The sentiment is that the Fed is in a more of overkill when it comes to inflation, and a dovish pivot is only a matter of time,” he noted.
Traders also will be closely watching the US payroll data coming out on Friday, in order to assess the impact high borrowing costs have had on the economy 16 months since the Fed first started raising rates.
Meanwhile, European stocks ended the day lower, as weaker than expected economic data from China weighed on the region’s basic materials and energy stocks.
Europe’s region-wide Stoxx 600 and France’s CAC 40 both slipped 0.8 per cent. London’s energy-heavy FTSE 100 fell 1 per cent and hit its lowest level since the end of March, dragged down by steep declines in energy and utilities stocks.
The FTSE has risen rose only 0.1 per cent since the start of the year, falling far behind its regional peers, as domestic inflation also damped investor sentiment.
China’s closely watched Caixin services purchasing managers’ index came in at 53.9 on Wednesday, down from 57.1 for May and below consensus estimates of 56.2. Readings above 50 indicate an expansion in activity.
“The services sector recovery appears to be slowing after the initial strong burst of growth immediately after China dropped zero-Covid policy,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.
“This warrants a measured easing approach but not a mega stimulus. Limited fiscal, quasi-fiscal and targeted monetary policy measures are likely to follow,” he noted.
China’s CSI 300 dropped 0.8 per cent and Hong Kong’s Hang Seng index lost 1.6 per cent following the data release. Japan’s Topix was flat.
Oil prices extended their rise from the previous session, spurred by the announcement that two of the world’s top producers, Saudi Arabia and Russia, planned to cut supply in August.
Brent crude, the international benchmark, added 0.8 per cent to $76.83 per barrel. West Texas Intermediate, which is based on US oil prices, rose as much as 3.3 per cent to $72.07.
