NEW YORK, June 16 — US stocks retreated on inflation fears yesterday while European equities made gains, as investors await the outcome of the latest Federal Reserve meeting.
American traders began their morning with a flurry of government economic data for May pointing to a bumpy US recovery, including a 6.6 per cent spike in producer prices in the latest 12 months and a 1.3 per cent drop in retail sales.
Investors have been trying to balance optimism over the US economy’s reopening with fears recent sharp prices will be long-lasting, and the latter won out in the day’s trading, which saw the Dow lose 0.3 per cent and the Nasdaq tumble 0.7 per cent.
Sentiment could go any direction today, when the Fed concludes the two-day meeting of its policy committee, which will be followed by a press conference by Fed Chair Jerome Powell.
The central bank is almost certain not to raise rates but could signal plans to at least discuss staring to taper the easy money policies that have buoyed markets despite the Covid-19 pandemic.
“Each month of high prices and sluggish labour market growth will test the Fed’s patience,” FHN Financial’s Chris Low said in a commentary, though the central bank is likely to characterise the price jump as in line with expectations.
“Most likely, Powell will council patience that some of the strength will moderate in the next few months,” Low said.
Several observers warn that the Fed’s pledge to avoid tightening rates until US unemployment is tamed and inflation is consistently higher could backfire if the economy overheats.
That could force the central bank to raise borrowing costs faster than expected.
“We’re in a tug-of-war between the understanding that we’re having great economic growth and great earnings growth juxtaposed with the fact that we need to get our head wrapped around what inflation looks like,” said Art Hogan, chief strategist at National Securities.
On the digital currency front, bitcoin dipped a little below US$40,000 (RM164,680) after Elon Musk said Tesla would start accepting the unit again once it is mined using energy that relies less on polluting sources.
Oil prices climbed as demand optimism overshadowed Covid-19 concerns, with both main crude contracts around multi-year highs.
“That oil has rallied so significantly in the face of notable US dollar strength suggests the rally has plenty left in it,” OANDA analyst Jeffrey Halley said.
With crude prices listed in the US currency, dollar strength can make it more expensive to purchase for holders of rival units. — AFP
