US stocks turned positive on Wednesday afternoon even as minutes from the Federal Reserve’s most recent monetary policy meeting showed the central bank was still committed to taking an aggressive approach to raising interest rates.
Minutes from last month’s meeting, when the central bank lifted its benchmark interest rate by 0.75 percentage points, acknowledged concerns about the bleak economic outlook and said a minority of officials favoured “calibrating” the pace of rate rises to minimise the negative economic impact.
However, the minutes also underscored policymakers’ commitment to bringing down inflation, with “many” officials arguing that “the cost of taking too little action . . . likely outweighed the cost of taking too much action”.
Wall Street’s benchmark S&P 500 inched up 0.3 per cent shortly after the minutes were published, having been flat beforehand. The Nasdaq Composite, which is dominated by high-growth tech stocks that are considered particularly sensitive to higher interest rates, added 0.5 per cent.
Treasury prices also picked up slightly. The yield on the 10-year Treasury note, which falls when prices rise, dipped 0.04 percentage points to 3.9 per cent.
Markets had struggled for direction earlier in the day as investors digested hotter than expected US producer inflation data and looked ahead to third-quarter earnings season.
The producer price index, which tracks the prices that businesses receive for their goods and services, rose 8.5 per cent in the year to September, down from 8.7 per cent in August but above the 8.4 per cent expected by economists. Month on month, prices received by US producers for their goods and services climbed 0.4 per cent — higher than consensus expectations of 0.2 per cent growth, and well above a contraction of 0.2 per cent recorded in August.
Investors have been closely scrutinising inflation data for clues about how vigorously the Federal Reserve and its global peers will tighten monetary policy. Signs of still-hot price growth have fuelled concerns that the US central bank will raise interest rates more aggressively, moving so far and fast that it compounds a protracted slowdown.
Such fears have weighed heavily on equity markets, with the S&P 500 in September concluding its longest streak of quarterly losses since the 2008 financial crisis.
Markets are pricing in expectations that the Fed will implement another three-quarter-point increase at its November meeting, following three consecutive 0.75 percentage point rises. Its current target range stands at 3 to 3.25 per cent.
Wednesday’s PPI report is to be followed on Thursday by a widely anticipated consumer price index reading for September, with economists polled by Reuters expecting a rise of 8.1 per cent. That figure would mark a slight easing in the annual rate of inflation from 8.3 per cent in August.
US earnings season kicks off in earnest this week, with Wall Street banks leading the charge. Companies’ financial statements will be analysed closely for signs of strain from high prices and rising borrowing costs.
Reflecting the challenges facing companies as they navigate an increasingly gloomy economic backdrop, Netherlands-based health technology group Philips issued a profit warning on Wednesday, noting that supply chain challenges were “more significant than anticipated” during the third quarter. Shares in the group dropped more than 12 per cent after it said it expected prolonged disruptions, together with a “worsening macro-environment”.
Elsewhere in equity markets, Europe’s regional Stoxx 600 gauge closed 0.5 per cent lower. Hong Kong’s Hang Seng lost 0.8 per cent.
