NEW YORK: Stock markets picked up gingerly, while oil prices continued to recover and government bond yields dipped, as a decision by the Federal Reserve to leave rates unchanged countered the effects of poorly received results from Apple.
The US stock market took a hit from Apple’s sliding shares, after the tech giant — the biggest company in the US stock market — reported disappointing earnings on Tuesday evening.
US shares fluctuated on news the Fed had left US rates unchanged as it signalled concerns about a slowdown in economic growth has eased.
The S&P 500 edged higher to close up 0.2 per cent, although tech stocks were down about 1 per cent and Apple remained down 6.3 per cent.
US energy companies gained nearly 2 per cent, after West Texas Intermediate — the main US crude oil gauge — climbed above $45 a barrel for the first time since early December.
European shares were also buoyed by the continuing oil price recovery.
After the FTSE Asia Pacific index fell 0.7 per cent earlier on Wednesday, partly because of concerns over Apple’s Asian suppliers dragging down stock markets in tech-heavy South Korea, Taiwan and Japan, the pan-European Stoxx 600 equity index gained 0.3 per cent, helped by a 2 per cent jump in energy shares.
The near-synchronous movements in financial markets showed how the “risk-on, risk-off” trend of recent years was still very much present, according to HSBC.
“Over the past few years, it has been declared dead on several occasions. The reality is that it has never gone away,” the UK bank’s analysts wrote. “Although, at times, its influence may have declined, it has always been there. And this lurking risk factor is likely to remain until we see a genuine normalisation of financial market conditions.”
Government bonds also rose with the yields on 10-year US Treasuries, German Bunds and UK gilts all slipping lower on Wednesday.
The exception was the 10-year Japanese bond yield, which rose 5 basis points to minus 0.05 per cent ahead of a widely anticipated Bank of Japan meeting on Thursday.
Analysts had widely expected no change in interest rates from the Fed. Still, the language of the Fed’s statement gave investors some incentive to take more risk, market participants said.
“The Fed basically said, ‘we aren’t doing it [raising rates] today; however, the economic conditions that encouraged us to put rate increases on pause have relieved themselves.’” said Rob Bernstone, managing director in equity trading at Credit Suisse.
Fed funds futures markets imply roughly 50 per cent odds that the next 25 basis point rate rise will occur by September, though some market participants saw the Fed’s comments as opening the door to a summer tightening.
Still, the dovishness of the Fed has weighed on the dollar in recent weeks with the DXY dollar index slipping for a third day running on Wednesday.
Currency valuations are at the top of the list for Japan’s policymakers, which are also meeting later this week. The yen has appreciated sharply since the BoJ implemented negative interest rate policy at the end of January.
The central bank is expected to announce further easing measures on Thursday. The Nikkei 225 shed 0.4 per cent on Wednesday with the yen paring modest gains and trading flat late at ¥111.31.
Some analysts think the BoJ may push interest rates further into negative territory and juice up its asset purchasing stimulus programme in order to tackle slow economic growth and deflationary pressures.
Among commodities, the price of Brent crude, the international oil marker, rose 3.2 per cent to $47.21 a barrel, taking its rally from January’s 12-year low to more than 70 per cent amid hopes that recent low prices have crimped production. Gold was up $2.38 to $1,246 an ounce.
One monetary guardian that may have also have to consider easing policy more aggressively is the Reserve Bank of Australia.
The Aussie dollar tumbled over 2 per cent after the economy experienced its first brush with deflation in more than seven years as the headline consumer price index fell 0.2 per cent quarter-on-quarter in the first three months of 2016.
The data pushed up the odds of a 25 basis point rate cut in May up to 50 per cent, from 15 per cent on Tuesday, according to an index tracked by Credit Suisse.
Markets had begun to discount the prospect of further easing after commentary in the minutes from the central bank’s April meeting seemed to put a floor under rates at their record low level of 2 per cent.
“Whereas the RBA was previously thinking that low inflation would allow it to cut interest rates if demand faltered, it is now clear that low inflation itself is the problem . . . It’s possible that rates may even be reduced to 1.75 per cent at Tuesday’s RBA meeting, just hours before the Federal Budget,” analysts at Capital Economics said.
The Sydney stock market could not get a bounce from a weaker Aussie. It dropped 0.6 per cent as China-based industrial commodities fell back in response to Beijing’s crackdown on speculation in the sector.
