The US stock markets opened on a sour note on Wednesday ahead of the key Fed rate cut decision.
Unfavourable geopolitical cues, soaring oil prices and a higher-than-expected wholesale inflation seems to be weighing on the major Wall Street Indices.
As of 12:17 p.m. EST, S&P 500 traded 0.57% lower at 6,679.24, Dow Jones Industrial Average shed over 400 points to trade 0.9% lower at 46,570.40, and tech-heavy Nasdaq Composite traded 0.54% or nearly 120 points lower at 22,367.99.
PPI Data Jolt
The prices paid to producers increased at a higher-than-expected rate in February, according to the Bureau of Labor Statistics data that was released earlier in the day. The Producer Price Index or PPI rose 0.7% after a 0.5% gain in the previous month. The figure is indicative of underlying consumer inflation.
Notably, the data does not even take into account the sharp jump in crude oil prices triggered by the Iran conflict. Iran's strategic hold on the Strait of Hormuz has caused one of history's biggest oil disruptions, pushing crude prices into a spiral.
Soaring Oil Prices
Crude oil prices rose as the war in the Middle East showed no signs of de-escalation. Global benchmark Brent Crude crossed $109 a barrel to later pare some gains and trade 5% higher at $108.56 a barrel. West Texas Intermediate also rose 2% to trade at $97.38 per barrel. The jump in prices have fuelled inflation fears further, keeping Wall Street investor sentiment cautious.
On Tuesday, repeated requests by Trump to ally nations like the NATO countries to secure Hormuz for oil vessels went in vain. The President has now declared that he does not need anyone's help.
However, international relations expert James M. Dorsey told NDTV Profit that the war is unlikely to end even if the US pulls out. "Even if the US was to step back from the war, Iran and Israel could suck it back in very easily. If Iran takes complete control on Hormuz access, it would be difficult for Trump to declare victory," he explained.
Fed Rate-Cut Jitters
Signs of rising inflation may lead the Federal Reserve to hold the borrowing rate with no rate cut. Jerome Powell is all set to deliver a key rate cut decision in what will be his second last meeting as the Federal Reserve Chair.
The likelihood of rate cuts depends on the growth of the US economy, along with key inflation measures, and a gauge for the topsy turvy crude oil market. At its last meeting, the Federal Reserve kept its policy interest rate steady in the 3.50–3.75% range.
According to most market analysts, US Fed policymakers are more likely to strike a cautious if not an outright hawkish tone this week. The US inflation is mired about a percentage point above the central bank's target and is poised to move higher, particularly if oil prices that jumped almost 50% in two weeks remain elevated.
Amid the high-risk premium due to the Iran war, the US Fed will have to weigh whether the developing economic shock and higher consumer prices results in tighter financial conditions.
Follow all the LIVE updates of Fed decision here
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