© Reuters. FILE PHOTO: People walk past screens displaying the Hang Seng stock index and stock prices outside the Exchange Square in Hong Kong, China January 23, 2024. REUTERS/Joyce Zhou/File Photo
By Herbert Lash
NEW YORK (Reuters) -World shares slipped lower and Treasury prices pared gains after the Federal Reserve left interest rates unchanged as expected on Wednesday and indicated it would not reduce them until the pace of inflation was “moving sustainably” towards its 2% target.
The pared losses after the U.S. central bank also dropped a longstanding reference to possible further hikes in borrowing costs in a statement unanimously approved by policymakers at the conclusion of a two-day meeting.
With no indication of rate reductions soon, futures pared bets for a cut in March to less than 50% and increased the likelihood to almost 90% when the Fed meets in May, according to CME Group’s (NASDAQ:) FedWatch Tool.
“The good news is we can forget about any more tightening. The bad news it’s ‘when’, not ‘if’, they’re going to cut rates, and that ‘when’ has been pushed out to what had been the fringes of consensus,” said Art Hogan, chief market strategist at B. Riley Wealth in New York.
MSCI’s gauge of stocks across the globe shed 0.18% and Wall Street remained under the weather, with the tech-rich Nasdaq down 0.85% at a week’s low after Google-parent Alphabet (NASDAQ:)’s projections for rising AI costs slammed most megacap and chip stocks.
The outsized weighting of so-called Magnificent Seven stocks in the is under renewed focus from investors, even as their collective strength has pushed the benchmark index to multiple record highs this month.
European shares, meanwhile, rose slightly, with the pan-regional index earlier closing up 0.01%, lifted by robust corporate updates and strong market performances in Spain and Italy.
The dollar index, which has gained almost 2% against a basket of major currencies this month in its biggest advance since September, had dipped against the euro and yen earlier as traders awaited the Fed’s statement. It was last down 0.30% at 103.06.
Treasury yields earlier had dived as investors bid up prices, which move inversely to their yield, on signs of slowing labor costs and a weaker-than-expected reading of private payrolls. Data painting a resilient economy had forced prices lower on fears the Fed would not cut rates anytime soon.
The two-year Treasury yield, which reflects interest rate expectations, fell 14.6 basis points to 4.213%, while the yield on the benchmark 10-year note initially shot up on the Fed statement, but was last down 10.1 basis points at 3.956%.
Euro zone government bond yields dropped after mixed economic data from Germany and France, and dovish comments from European Central Bank officials.
Germany’s 10-year government bond yield, the benchmark for the euro area, fell 9.7 basis points to 2.177%.
Other market moves were largely subdued as traders stayed on guard ahead of the Fed decision.
Earlier China’s blue-chip index lost 0.9% after a survey showed manufacturing activity shrinking in January for a fourth month.
That dragged MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.4%, and it was heading for a monthly loss of roughly 5%, snapping a two-month winning streak.
In Japan though, the ended the month with a more than 8% gain, its best January performance since 1998.
The yen strengthened 1.03% at 146.06 per dollar and was on course for a monthly decline of 4.5%, which would be its largest monthly drop since June 2022.
Oil prices fell, pressured by lackluster economic activity in leading crude importer China, but a first monthly gain since September remained in sight as flaring tensions in the Middle East heightened supply concerns.
fell 2.3% to $76.03 per barrel and was at $81.71, down 1.4% on the day.