Wall Street subdued ahead of Fed interest rate decision

By ELAINE KURTENBACH and MATT OTT
AP Business Writers

Early trading on Wall Street is muted ahead of the Federal Reserve’s final decision of the year on interest rates.

Futures for the Dow Jones Industrial Average and the S&P 500 were flat Wednesday, shifting between tiny gains and losses.

A 7.1% U.S. consumer price index reading for November has raised hopes that pressure on the economy may ease, with the Fed widely expected to raise its benchmark rate a half-point.

A half-point move in either direction would be twice the typical size and a big deal at almost any point in the long history of the Fed, yet it would be a step back from the four consecutive 0.75 percentage point hikes approved since the summer as the Fed fights inflation hovering near four-decade highs

Rate decisions by the Bank of England and European Central are expected Thursday.

Germany’s DAX slipped 0.5%, while the CAC 40 in Paris lost 0.3%. Britain’s FTSE 100 also gave up 0.3%.

The Bank of Japan’s latest quarterly “tankan” survey showed a deterioration in business conditions for major Japanese manufacturers, reflecting higher costs for industrial inputs and energy and weaker demand as the Fed and other central banks raise interest rates to tame inflation.

“Today’s Tankan survey suggests that while the services sector is going from strength to strength, the outlook for the manufacturing sector continues to worsen,” Darren Tay of Capital Economics said in a commentary. He noted that capital spending projections also weakened slightly.

Tokyo’s Nikkei 225 advanced 0.7% to 28,156.21 and the Hang Seng in Hong Kong added 0.4% to 19,673.45. South Korea’s Kospi was up 1.1% at 2,399.25.

The Shanghai Composite index was virtually unchanged, at 3,176.53.

In Australia, the S&P/ASX 200 gained 0.7% to 7,251.30. India’s Sensex gained 0.7% while the SET in Bangkok added 0.4%.

On Tuesday, the S&P 500 rose 0.7% and the Nasdaq composite gained 1%. The Dow Jones Industrial Average picked up 0.3%. The Russell 2000 index rose 0.8%.

Delta Air Lines rose about 4% before the opening bell after it raised its fourth-quarter outlook and issued an optimistic forecast for 2023 . Other major carriers were pulled along, rising between 1% and 3% early Wednesday.

Stocks pared earlier back gains as analysts cautioned investors not to get carried away by hopes for a more dovish move by the Fed, the detail of the inflation data “under the hood being less encouraging than it is on the surface,” Mizuho Bank economists said in a report. They noted that core services prices were up 0.4% from a month earlier, distorting inflation risks.

“To be precise, the headline understates underlying inflation risks that concern the Fed,” the report said.

Tuesday’s report offered hope that inflation peaked during the summer, though prices remain painfully high.

Some of Wall Street’s wildest action Tuesday was in the bond market, where yields fell sharply immediately after the inflation report’s release.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, hovered around 3.51% early Wednesday after falling from 3.62% late Monday. The two-year yield, which more closely tracks expectations for the Fed, dropped to 4.2% from 4.39%.

Even if inflation is abating, the global economy is still at potential risk from rate increases already pushed through. High interest rates are used to slow an overheated economy, but they can also push it into recession. The housing industry and other businesses that rely on low interest rates have shown particular weakness, and worries are rising about the strength of corporate profits broadly.

In other trading, U.S. benchmark crude gained 58 cents to $75.97 per barrel in electronic trading on the New York Mercantile Exchange. It jumped $2.22 on Tuesday to $75.39 per barrel.

Brent crude, the pricing basis for international trading, gained 63 cents to $81.31 per barrel.

The dollar slipped to 135.01 Japanese yen from 135.59 yen. The euro rose to $1.0664 from $1.0633.

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Kurtenbach reported from Bangkok; Ott reported from Washington.