US stocks fall, dollar rallies on cloudy US Fed outlook after rate cut

The Charging Bull statue, also known as the Wall St. Bull, is seen in the financial district of New York City, US. (Reuters pic)

NEW YORK: Wall Street stocks tumbled on Wednesday and the dollar rose to a two-year peak against the euro after the Federal Reserve cut interest rates but offered mixed signs on what the move meant for future monetary policy.

The US central bank, as had been well telegraphed in advance, moved ahead with a 25-basis-point interest rate cut that it characterised an insurance move against risks washing onto American shores from abroad, including from a prolonged US-China trade war.

Stocks fell sharply midway through a subsequent news conference after Fed Chairman Jerome Powell said the US central bank did not expect a “lengthy cutting cycle.”

But Powell then went on to say the Fed was not committed to a single cut.

“Let me be clear. I said it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that,” Powell said.

Major US indices recovered some from their session lows but still finished solidly lower, with the Dow off 1.2% at 26,864.27.

The dollar also rallied against the euro, which fell below US$1.11 for the first time since May 2017.

Confusing picture

Powell did not do “a great job of selling the story of the rationale for why they did the easing today,” LBBW’s Karl Haeling said.

“The bottom line is the market is concerned we might not be getting as many rate cuts as they thought.”

The Fed’s decision came on the same day as another round of US-China trade talks concluded without signs of significant progress.

One negative byproduct of Wednesday’s Fed decision is that it could boost trade hawks in the Trump administration to take a hard line, said Art Hogan, chief market strategist at National Securities.

“This is essentially monetary policy fixing the damage that trade policy is doing,” Hogan said.

Elsewhere, European stocks finished mixed, while Asian bourses were solidly lower.

In another sign of fallout from the trade row, China reported a third straight month of contraction in manufacturing, despite efforts to shore up the sector.

The Purchasing Managers’ Index (PMI), a gauge of Chinese factory conditions, came in at 49.7 for the month, slightly above Bloomberg forecasts but below the 50.0 mark that separates growth from decline.

Among individual companies, Apple gained 2.0% after reporting better-than-expected quarterly earnings after the close Tuesday, with strong growth in services offsetting weak iPhone sales.

General Electric finished 0.7% lower following a volatile session in which it reported a loss of US$61 million but lifted its full-year forecast on improvements in its struggling power business.

Executives said the prospects for US-China trade tensions and the grounded Boeing 737 MAX remain uncertainties for future performance.