US stocks pared gains on Wednesday after minutes of the Federal Reserve’s latest meeting showed officials wanted to see more evidence of cooling inflation and support for a rate hike in 2023.
Wall Street’s benchmark S&P 500 index gained 0.8 percent and the tech-heavy Nasdaq Composite added 0.7 percent in a volatile trading session. The stock market was already more than 1 percent higher before the minutes were released.
Earlier comments by Fed chairman Jay Powell that the US central bank will slow the rate of rate increases “is not an indication of the weakness of the committee’s decision to achieve the goal of price stability or a decision that inflation is already on a continuous downward path.”, participants in the December meeting said. , according to the minutes.
Investors also seized on economic data released on Wednesday that showed a contraction in US manufacturing activity in December, for the second month in a row, bringing it to the lowest level since May 2020.
A report from the Institute for Supply Management also showed that the decline in prices paid by manufacturers accelerated last month.
“Almost all the survey-based evidence now points to, at best, a complete stagnation in activity or, more likely, a shallow recession beginning,” said Paul Ashworth, chief economist for North America at Capital Economics.
US job vacancies in November fell marginally on the previous month but exceeded forecasts, with almost 10.5m positions available, far more than the 10mn predicted by economists.
US government bonds rose, with the yield on the 10-year Treasury falling 0.09 percentage points to 3.69 percent. Bond prices rise when yields rise.
In currencies, the US dollar fell 0.3 percent against a basket of six currencies, while the pound rose 0.8 percent against the dollar, and the euro gained 0.5 percent against the greenback.
“The minutes of the Fed’s December meeting did not favor the dollar, with officials admitting many downside risks,” said Karl Schamotta, chief market strategist at Corpay.
Schamotta added that inflation is slowing in EU countries like Germany and falling gas prices are weighing on the pound and the euro.
Warmer weather meant European natural gas contracts fell 10 percent to €62.75 per megawatt hour – the lowest level since the end of 2021. Brent crude oil prices also fell sharply, falling 4.3 percent to $77.84 a barrel.
In European equities, the regional Stoxx Europe 600 added 1.4 percent, taking gains for the week of more than 3 percent. France’s Cac 40 and Germany’s Dax rose 2.3 percent and 2.2 percent, their biggest one-day gains since early November. London’s FTSE 100 added 0.4 percent.
The higher move came during a week when French, German and Spanish inflation figures missed expectations, raising hopes that price growth has picked up in the euro zone. Data out on Wednesday showed France’s harmonized index of consumer prices rose 6.7 percent in the year to December, a slowdown from 7.1 percent in November.
Investors cut their predictions on the European Central Bank’s terminal policy rate, with markets now expecting interest rates to rise to 3.3 percent in July, down from 3.5 percent.
Some investors may go further, however. “The market is likely to continue to act too quickly for the price of less aggressive policy actions” from the ECB, analysts at Rabobank cautioned.
Asian equities also rose on Wednesday, with Hong Kong’s Hang Seng rising 3.2 percent. The index has gained about 40 percent since the start of November. China’s CSI 300 index of Shanghai- and Shenzhen-listed shares gained 0.1 percent.