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US stocks pause for breath as traders await Federal guidance

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LONDON: US stock markets hovered Thursday as investors awaited fresh signals from the Federal Reserve about the direction of US interest rates, although European indices finished the day with solid gains.
Oil prices bounced but made little impact on the losses of nearly seven percent seen in the previous two days due to slowing demand expectations and easing fears that the Israel-Hamas war could turn into a conflict across the crude-rich Middle East.
The dollar wobbled before Thursday’s key speech from Fed chair Jerome Powell, while bitcoin neared $37,000 on hopes of US approval for a so-called exchange-traded fund that would directly track the price of the world’s most popular cryptocurrency.
Powell will appear on a panel to talk about monetary policy challenges, while Atlanta chief Raphael Bostic and his Richmond counterpart Tom Barkin are due to speak elsewhere.
The Fed voted earlier this month to hold its benchmark lending rate at its current 22-year high for the second consecutive meeting.
“The market is eagerly anticipating his response to the significant drop in bond yields since last week’s Fed monetary policy update,” said Patrick Munnelly at Tickmill.
One of the reasons monetary policymakers cited for not raising policy interest rates is that high bond yields were doing the job of slowing business activity.
– Waiting on Powell –
“European markets booked some muted gains on Thursday with the majority of investors waiting for news from the Fed, with Powell scheduled to speak later this evening,” said XTB analyst Walid Koudmani.
“Whether this pause for breath triggers profit-taking and a broader selloff in stocks or not will likely be dictated by the tone of Powell’s comments.”
Last week’s hint by the US central bank at an end to its interest rate-hiking cycle, followed by data showing a softer labour market, has provided traders with some much-needed confidence as a tough year draws to a close.
But after a healthy run-up across global markets, some have run out of steam as the possibility of more tightening casts a shadow owing to stubbornly high inflation.
Comments from Fed decision-makers ramming home their determination to slay prices have also kept the euphoria in check, with many keeping their options open for another rate hike if needed.
Earlier this week, Minneapolis Fed chief Neel Kashkari insisted on seeing more data before deciding whether more work was needed, while Chicago counterpart Austan Goolsbee played his cards close to his chest, saying only that inflation was “the number-one thing”.
Hopes that rates have peaked and could come down next year provided support to US stocks, as did another drop in 10-year Treasury yields, while the VIX index — or so-called fear gauge — fell to its lowest level since September.
The latest US jobless data showed a small dip in new claims for unemployment benefits but more people on benefits overall.
“The key takeaway from the report is that continuing jobless claims have reached their highest level since April, lending some resonance to the idea that there has been some softening in what is still a generally tight labor market,” said Briefing.com analyst Patrick O’Hare.
The European Central Bank also paused its rate-hike campaign last month following 10-straight increases.
French central bank chief Francois Villeroy de Galhau, a member of the ECB’s governing council, said Thursday the Frankfurt-based institution would not hike rates again unless there was a “surprise” or “shock”.
But he added that it was “too early” to talk about cutting rates.



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