ASX set to open lower as Wall Street slides

Stocks are falling on Wall Street, giving back some of their recent gains as uncertainty about interest rates and inflation persists.

The S&P 500 was down 0.9 percent in early afternoon trading after renewed mixed earnings reports from major companies. The Dow Jones was down 0.2 percent while the Nasdaq Composite was down 1.2 percent. The Australian stock market is set to retreat with futures at 5.04am AEDT, indicating a decline of 23 points, or 0.3 percent, on the open. The ASX gained 0.4 percent on Wednesday.

The pullback follows Tuesday’s 1.3 percent gain for the S&P 500, following Federal Reserve Chair Jerome Powell’s first public comments since last week’s central bank rate hike. Markets took some solace in Powell’s signal that Friday’s exceptionally strong jobs report would not prompt the Fed to be more aggressive on interest rates.

But analysts pointed out that Powell’s comments were just as hard on inflation as before. He said that while he has seen inflation improving, he still has a long way to go to get it fully under control. The Fed can help bring down inflation by raising interest rates and keeping them high, but that also increases the risk of a deep recession and hurts asset prices in the meantime.

The Fed has announced that it will raise interest rates a few more times and then keep them high at least until the end of the year. Wall Street has pushed back its forecast of how high interest rates will rise by the summer closer to the Fed’s following blockbuster report on Friday, which shows much stronger-than-expected job growth, which could add pressure on inflation. But investors are still betting on the possibility of a rate cut later this year.

John Williams, the president of the Federal Reserve Bank of New York, said he still thinks the Fed’s main interest rate target of 5 to 5.5 percent by the end of the year will remain “a very reasonable view” thereafter. be Friday’s extraordinarily strong jobs report. With the federal funds rate currently in a 4.50 percent to 4.75 percent range, that would line expectations for two more hikes before a pause. He was speaking at a CFO Network summit hosted by the Wall Street Journal.

But Williams also warned that if stock prices rise and bond yields fall too much, among other loosening financial conditions, interest rates may need to rise because it could push up inflation.

Uncertainty about where inflation and interest rates are headed has been at the heart of Wall Street’s big swings over the past year. So have expectations that the economy will fall into a deep recession, which would bring corporate profits to their knees.

Companies have so far reported relatively lackluster earnings for the final three months of 2022 as rising costs eat into their margins.