Global Stocks Mostly Pause as Fed Decision Looms – Barron’s

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A man walks past the New York Stock Exchange on Wall Street on May 10, 2021 in New York City.

AFP via Getty Images

Stocks traded mixed across the globe on Wednesday, with U.S. equity futures largely flat as investors awaited the outcome of the two-day Federal Open Market Committee meeting.

The Nikkei 225 index slipped 0.5%, while China’s CSI 300 index lost 1.7%, with modest losses also sprinkled across the region. Fresh data out of China showed signs of the country’s strong rebound from the Covid-19 pandemic starting to moderate, with industrial production and retail sales rising, but at a slower pace, along with fixed-asset investment.

The European Stoxx 600 and U.S. stock futures were flat, though Dow Jones Industrial Average futures were tilting lower.

The S&P 500 and Nasdaq Composite backed away from records to close lower on Tuesday, with the Dow industrials also dropping. Stocks slipped following data that showed a bigger-than-expected 1.3% drop in retail sales for May, while the producer-price index excluding food and energy rose 0.7%, against expectations for an increase of 0.5%.

The data provide a fresh economic backdrop for the Federal Reserve decision, which investors will be watching closely for any sign the central bank is nearing a reduction in the size of its bond-purchasing program. Such a signal could send bond prices lower and yields higher, which tends to be a negative for stock valuations.

“Given the recent elevated inflation readings and the middling jobs reports, this is among the most consequential Fed meetings in some time as the committee balances these aspects of the dual mandate,” said Scott Ruesterholz, portfolio manager at Insight Investment, which has $1.03 trillion in assets under management.  

“There is a tremendous amount of uncertainty: how much of the inflation is being driven by transitory factors, like supply chain disruptions, and how much of the slower job growth is being driven by temporary measures like enhanced unemployment benefits,” he said in emailed comments.

But like others, Ruesterholz expects the Fed to “strike a patient tone, wanting to ensure they do not overreact and slow the pace of recovery.”

More data are ahead for Wednesday—building permits and housing starts and import prices for May.

The yield on the 10-year U.S. Treasury note was unchanged at 1.4931%, while the U.S. dollar was also steady. Copper prices slipped, after China said it plans to release national metal reserves in a bid to cool a surge in commodities prices. That also hit shares of mining stocks in Europe, with Anglo American, Rio Tinto and Glencore weakening.

Oil prices hovered at two-year highs, with West Texas Intermediate crude up 0.7% to $72.64 and Brent crude rising nearly 0.8% to $74.55 a barrel. Investors are waiting on a weekly U.S. report from the Energy Information Administration that is expected to show a fourth straight weekly fall in domestic crude inventories.

Shares of Oracle could be active after the enterprise software company late on Tuesday reported better-than-expected fiscal fourth-quarter results, but softer-than-anticipated guidance for the August quarter. The stock has also rallied nearly 30% since mid-March, so investors may be compelled to take profits.

Germany’s Ifo Institute lowered its forecast for economic growth for the country in 2021 to 3.3% from 3.7% forecast in March, citing bottlenecks with supplies of intermediate products.