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On Wednesday, Wall Street stocks traded cautiously as investors reacted to the Federal Reserve’s hawkish remarks, while shares related to artificial intelligence weakened due to the possibility of the US limiting chip supply to China.
In the tech-focused Nasdaq Composite, there was a 0.5% rise, bouncing back from earlier losses, while the benchmark S&P 500 traded 0.1% higher, fluctuating throughout the day.
These moves came after the Wall Street Journal reported that the US was considering imposing new restrictions on chip exports to China, particularly those used in artificial intelligence. This further escalated tensions between the two countries. As a result, Nvidia, a company that experienced significant growth this year due to the demand for its AI chips, saw a 0.7% decline in its stock price.
Meanwhile, Federal Reserve Chair Jay Powell reiterated his view that interest rates are likely to increase by the end of the year. This raised concerns among investors about the potential negative impact of higher borrowing costs on the US economy. Powell made these comments at the annual European Central Bank conference in Portugal.
The US central bank had previously indicated that it could raise the benchmark federal funds rate twice more before the year ends, pushing it above the current target range of 5% to 5.25%.
Earlier in the day, ECB Vice-President Luis de Guindos stated that eurozone interest rates would almost certainly increase at the next policy meeting in July. However, he questioned the likelihood of a second rise in September.
The decision of the central bank will depend on the eurozone inflation report, to be released on Friday. Economists polled by Reuters expect the report to show a slowdown in price growth to 5.6% in the year leading up to June, down from 6.1% the previous month.
The pan-European Stoxx 600 ended the day with a 0.7% increase. France’s Cac 40 added 1%, and Germany’s Dax gained 0.6%.
Following the Bank of England’s larger than expected rate increase to 5%, sterling fell 0.9% against the dollar. This represents its largest daily decline in a month, with its value dropping to $1.2637. Traders continue to grapple with the potential negative effects of this rate hike on economic growth.
Barclays’ Head of FX Research, Themos Fiotakis, stated that sterling had previously rallied “too much” before the last central bank meeting and was therefore “susceptible to a bit of a sell-off.”
The S&P/ASX 200 index in Australia increased by 1.1% after official data revealed a faster than expected cooling of inflation in May. This raises the possibility of the Reserve Bank of Australia pausing its interest rate rises.
In Asia, trading was mixed. China’s CSI 300 declined by 0.1%, while Hong Kong’s Hang Seng added 0.1%. Japan’s Topix, however, rose by 2% due to strong gains in the technology sector.
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