ASX set to edge lower after volatile Wall Street session; Powell gets second term


The Labor Department on Thursday reported that wholesale prices soared 11 per cent in April from a year earlier. Many of the costs at the wholesale level are being passed on to consumers as companies try to cover higher expenses. That has raised more concerns about a potential pullback in spending that could crimp economic growth.

Inflation pressure has been building for consumers. On Wednesday, the Labor Department’s report on consumer prices came in hotter than Wall Street expected. It also also showed a bigger increase than expected in prices outside food and gasoline, something economists call “core inflation” and which can be more predictive of future trends.

Rising inflation has prompted the Federal Reserve to pull its benchmark short-term interest rate off its record low near zero, where it spent most of the pandemic. It also said it may continue to raise rates by double the usual amount at upcoming meetings. Investors are concerned that the central bank could cause a recession if it raises rates too high or too quickly.

The Senate confirmed Jerome Powell for a second four-year term as Federal Reserve chair, giving bipartisan backing to Powell’s high-stakes efforts to curb the highest inflation in four decades.

The 80-19 vote reflected broad support in Congress for the Fed’s drive to combat surging prices through a series of sharp interest rate hikes that could extend well into next year. The Fed’s goal is to slow borrowing and spending enough to ease the inflation pressures.

Inflation has been worsened by Russia’s invasion of Ukraine and the conflicts impact on rising energy prices. China’s recent lockdowns amid concerns about a COVID-19 resurgence have also worsened supply chain and production problems at the centre of rising inflation.

The impact of higher prices for consumers has been global. On Thursday, Britain said its economy grew at the slowest pace in a year during the first quarter. That is raising fears that the country may be headed for a recession.

The latest round of corporate earnings are also being closely watched by investors as they assess how companies and industries are handling the pressure from inflation. Entertainment giant Disney fell 0.9 per cent after missing analysts’ forecasts in its latest earnings report. Coach and Kate Spade owner Tapestry jumped 15.5 per cent for the biggest gain in the S&P 500 after reporting strong financial results.

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“We’ll continue to pay attention to what the Fed has to say, but it’s worthwhile to pay attention to company outlooks on earnings calls,” Price said. “That’s something that investors will focus more and more on as we go into the second half of the year, how durable are company earnings.”

Health care companies and retailers were among the market’s gainers Thursday. Pfizer rose 2.8 per cent and Home Depot gained 2.4 per cent.

Bitcoin got caught up in the selling. The digital currency was down 2.9 per cent to $US28,551 in late afternoon trading late, according to CoinDesk. Only six months ago it was over $US66,000.

“Bitcoin is still vulnerable to one last plunge that could coincide with a stock market selloff, before many crypto investors feel the bottom is in place,” Edward Moya, senior market analyst at OANDA, wrote in a research note Thursday.

AP

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