US equities faltered in morning trade on Wednesday as markets digested further remarks from Federal Reserve chair Jay Powell on the pace and duration of higher interest rate rises to fight inflation.
The blue-chip S&P 500 was down 0.2 per cent while the tech-heavy Nasdaq Composite was flat as Powell spoke for a second day to lawmakers in Washington.
Although his address was largely similar to the one he delivered on Tuesday, investors were buoyed by Powell emphasising that no decision had been made on interest rates ahead of the central bank’s meeting later this month.
“I stress that no decision has been made on this,” he told lawmakers.
The S&P on Tuesday lost 1.5 per cent, its biggest daily loss in a fortnight after Powell said the US central bank may need to raise interest rates more aggressively if the economy and inflation do not cool.
Successive data releases in February, such as consumer price inflation, have shown an economy in the grips of sticky inflation despite a year-long campaign of higher interest rates.
Analysts said the stocks were more resilient than expected in the wake of the Fed’s downbeat assessment. “I’ve been quite impressed and surprised that equities are holding on,” said Veronica Clark, an economist at Citigroup. “It could be a response to data we’ve had so far, as stronger activity should be positive for equities — but investors may be waiting for payrolls and consumer price index data. They could yet fall more.”
Investors will be carefully watching the release of US non-farm payroll and unemployment data on Friday.
European equities mostly recouped most of their early losses by the afternoon. The region-wide Stoxx 600 closed up 0.1 per cent, while London’s FTSE 100 rose 0.1 per cent and the CAC 40 in Paris lost 0.2 per cent. Germany’s Dax edged up 0.5 per cent after industrial production data was stronger than expected.
The moves followed heavy falls for many of Asia’s biggest markets. The Hang Seng in Hong Kong dropped 2.4 per cent and South Korea’s Kospi lost 1.3 per cent.
The yield on two-year US Treasuries, which are more sensitive to monetary policy, rose 0.04 percentage points to 5.05 per cent.
On Tuesday, the two-year yield rose above 5 per cent for the first time since 2007 as investors began to expect the Fed to raise rates by half a percentage point at its next meeting, instead of the quarter percentage point that had been anticipated.
The yield on US 10-year notes fell 0.03 percentage points to 3.95 per cent. The yields on 10-year German Bunds were flat at 2.65 per cent. Bond yields fall when prices rise.
Earlier in the day the dollar index, which measures the greenback against a basket of six peer currencies, touched its highest point since early December, before giving up gains to trade flat.
In commodities Brent crude was down 1.1 per cent at $82.37 per barrel, while US equivalent West Texas Intermediate was down 1.5 per cent at $76.40 per barrel.