by John BIERS
Wall Street stocks retreated and the dollar strengthened Wednesday after Federal Reserve Chair Jerome Powell said low US inflation was likely a “transient” issue, comments seen as dimming the odds of an interest rate cut.
On a day in which leading European and Asian markets were closed because of holiday, Wall Street was the main focus.
After lingering in positive territory much of the day, the S&P 500 fell on the Fed statement and news conference, closing down 0.8 percent and snapping a three-day streak of record closes.
Analysts spotlighted Powell’s remarks on inflation after the Fed kept interest rates unchanged and released a policy statement that contained no major surprises.
Heading into the meeting, investors had been looking for clues on whether the Fed was more likely to lift or cut interest rates in the near term, with US President Donald Trump loudly calling for the latter.
“Powell downplayed the need to address the muted inflation pressure with a change in policy, including a rate cut, since he thinks the recent deceleration in inflation is being caused by transitory factors,” said Briefing.com.
“The news provided an excuse to sell a market trading near record highs.”
The dollar also picked up momentum following Powell’s remarks.
Powell downplayed negative data points in the US economy and “dismissed talk of easing,” said BK Asset Management’s Kathy Lien, who predicted the dollar would likely continue to strengthen.
Powell sees the “glass half full” on the US economy and “sees no reason to be talking about rate cuts,” Lien wrote in a client note.
“This view contrasts sharply with other central banks that have recently expressed concerns about growth and talked openly about the possibility of a response to counter that trend,” she added.
“Economic and monetary policy divergences were the reasons for the dollar’s strong gains in April and they will continue to be a source of demand for the greenback.”
Earlier, US private-sector hiring surged by 275,000 new positions in April — beating the consensus forecast by more than 100,000 — driven by a huge increase in the dominant services sector, payroll services firm ADP reported.
The figures come ahead of Friday’s much-anticipated government jobs report.
Meanwhile, an industrial survey showed US manufacturing activity hit its slowest pace in more than two years last month on falling production and weaker demand.
In earnings news, tech giant Apple surged 4.9 percent as it reported better-than-expected quarterly results with gains in services helping to offset slumping iPhone sales.
– Key figures around 2050 GMT –
New York – Dow: DOWN 0.6 percent at 26,430.14 (close)
New York – S&P 500: DOWN 0.8 percent at 2,923.73 (close)
New York – Nasdaq: DOWN 0.6 percent at 8,049.64 (close)
London – FTSE 100: DOWN 0.4 percent at 7,385.26 (close)
Pound/dollar: UP at $1.3045 from $1.3032 at 2100 GMT Tuesday
Euro/pound: DOWN at 85.79 from 86.06 pence
Euro/dollar: DOWN at $1.1192 from $1.1215
Dollar/yen: DOWN at 111.16 from 111.42
Oil – Brent Crude: UP 12 cents at $72.18 per barrel
Oil – West Texas Intermediate: DOWN 31 cents at $63.30 per barrel (Agence France-Presse/AFP)