Australia

Australian shares are expected to rise this morning following a mixed session in the US. The Federal Reserve decided to leave interest rates unchanged for now, although Chairman Jerome Powell hinted at the potential need for more increases later this year.

ASX futures were 16 points or 0.2% higher as of 6:00am on Thursday, suggesting gains at the open.

US stocks finished mixed on Wednesday after the Federal Reserve opted not to lift interest rates but emphasized that further increases are likely later this summer.

The decision to skip a rate hike was widely expected heading into this week's policy meeting, but a forecast for more rate increases in the near future caught some investors off guard. Wednesday’s sideways trading paused a widening rally for major indices, which has been fueled by hopes that interest rates could peak without triggering a major economic downturn.

The S&P 500 rose by less than 0.1% while the Nasdaq Composite ticked 0.4% higher. The Dow Jones Industrial Average lost 0.7%, dragged by a decline in UnitedHealth Group. In Canada, the S&P/TSX Composite added 0.1%.

In commodity markets, Brent crude oil shed 1.0% to US$73.55 a barrel while gold inched up 0.1% to US$1,945.27.

Australian government bonds were higher, with the 2 Year yield increasing to 4.08% and the 10 Year yield rising to 3.97%. US Treasury notes were also higher, with the 2 Year yield moving up to 4.73% and the 10 Year yield increasing to 3.81%.

The Australian dollar jumped to 68.05 US cents from its previous close of 67.66. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged down to 96.88.

Asia

Chinese shares ended mixed Wednesday, extending their range-bound pattern in recent sessions. Analysts have pointed to conflicting signals. While worries over China’s economic recovery continued to weigh on sentiment, buying interest may be emerging from the market's undemanding valuations. The benchmark Shanghai Composite Index edged 0.1% lower to 3228.99. The Shenzhen Composite Index added 0.25% and the ChiNext Price Index declined by 0.2%. Banks were among the top losers, as Bank of China shed 1.5% and Bank of Communications lost 2.0%. Media companies offered the market some support, with IReader Technology rising 6.3%.

Hong Kong shares ended lower, retreating from gains the previous session after the central bank cut key lending rates Tuesday. The move, though quite limited, is considered by many investors to be the prelude to a slew of decisions to ease policy. The Hang Seng Index ended 0.6% lower at 19408.42. Financials and consumption-related industries weighed on the market. Ping An Insurance dropped 4.7% and CITIC was 2.1% lower. Online travel booking agency Trip.com backtracked 5.25% and Budweiser Brewing was 2.1% lower. Among gainers were tech companies, following its US counterparts after a relatively subdued US inflation reading Tuesday. The Hang Seng Tech Index rose 0.4% with Baidu increasing 1.4%.

The Nikkei Stock Average of Japan rose 1.5% to 33502.42, its highest closing level since March 1990, amid risk-on sentiment spurred by a benign US inflation report overnight. A further cooldown in the CPI is possible, which could offer scope for the Fed to pause its rate-increase cycle for now, the APAC strategy team at Saxo Markets said in a commentary. The best performers on Japan's benchmark index included Toyota Motor, which climbed 6.3%, Trend Micro, which added 6.0%, and Sumitomo Metal Mining, which was 5.8% higher.

Indian shares ended higher amid improving risk appetite. The benchmark Sensex index rose 0.1% to settle at 63228.51. The slight gain followed broad optimism in Asian risk assets, including equities and commodities, as investors looked forward to a likely pause in the Fed's monetary tightening this month. The latest US economic data showed inflation cooling, which could further encourage the central bank to be less aggressive in raising interest rates. Industrial companies led gains on the index. Tata Steel rose 2.4% and Power Grid Corp. of India was 1.65% higher.

Europe

European stocks rose ahead of the Federal Reserve's next interest rate decision, though US blue-chip shares languished in the red. The pan-European Stoxx Europe 600, along with Germany’s DAX and France’s CAC 40, each added 0.5%. Banks and miners were among the biggest risers.

"Given the current data, we expect a pause at the June meeting, as the Fed tries to assess how much tightening credit conditions are impacting market liquidity," Fabiana Fedeli at M&G Investments wrote.

In the United Kingdom, the FTSE 100 inched 0.1% higher, with Vodafone leading the list of risers. Shares of Vodafone were up 3% after the mobile-phone operator and CK Hutchison Group Telecom Holdings, a subsidiary of CK Hutchison Holdings Ltd., announced a deal to merge their UK businesses. The tie-up between Vodafone UK and Three UK would create Britain's largest telecommunications operator with 27 million customers, knocking BT-owned EE off the top spot, Interactive Investor said.

"Investors have fallen out of favor with Vodafone lately, with shares down 40% over the past 12 months even after today's jump," Interactive's head of investment Victoria Scholar noted. "Perhaps this deal could reinvigorate Vodafone's bull case amid hopes that the combined entity will benefit from its increased force in the sector."

North America

US stocks finished mixed on Wednesday after the Federal Reserve opted not to lift interest rates but emphasized that further increases are likely later this summer.

The decision to skip a rate hike was widely expected heading into this week's policy meeting, but a forecast for more rate increases in the near future caught some investors off guard. Wednesday’s sideways trading paused a widening rally for major indices, which has been fueled by hopes that interest rates could peak without triggering a major economic downturn.

The S&P 500 rose by less than 0.1% while the Nasdaq Composite ticked 0.4% higher. The Dow Jones Industrial Average lost 0.7%, dragged by a decline in UnitedHealth Group. In Canada, the S&P/TSX Composite added 0.1%.

"The pause or the skip, combined with higher forecast rates, was initially interpreted negatively," said Larry Kochard, chief investment officer at Makena Capital Management. "But Powell kind of downplayed that and emphasized he still thinks we're on track for a soft landing."

The Fed's decision not to raise rates follows 10 straight meetings that ended in rate hikes stretching back to March 2022. The central bank's moves have been aimed at taming what was the highest consumer-price inflation in decades.

The question now turns to whether July will bring another interest rate hike and whether more could follow later this year. A continued stretch of strong economic data has suggested that beating inflation might require more tightening, but some economists warn that the Fed's previous rate hikes have yet to take full effect.

Inflation has slowed in recent months but still remains well above the Fed's 2% target. Last month, the year-over-year consumer-price index was at 4.0%. More troubling, year-over-year core inflation (which strips out volatile food and energy prices) was 5.3% last month, much higher than the level central bankers would consider stable.

Derivatives markets show that many traders are counting on a steady decline in inflation over the next 12 months. But that might be too optimistic, said Neil Dutta, head of economics at Renaissance Macro Research.

"I think there's a limit to how far you can stretch the immaculate-disinflation story," Dutta said. "This idea that inflation will just take care of itself -- that does strain credulity a bit."
Data out Wednesday showed input prices paid by companies falling in May, but economists at Citigroup said that trend could be slow to translate into easing consumer-price pressure. Subtracting out inflation, the economy is set to grow by an annualized rate above 2% in the second quarter, according to the Atlanta Fed's widely followed model, a further sign that the economy is not abruptly weakening.

After a stretch earlier this spring when stock indices' gains were hanging on a handful of soaring big technology stocks, a bigger basket of equities is now rising. In June, all 11 of the S&P's industry sectors have climbed.

"You're seeing this broadening out of the rally, which is telling you that the average stock is beginning to follow along with the idea that things might be OK," said Hans Olsen, chief investment officer at Fiduciary Trust.

Elsewhere in the stock market, comments from a major insurer about demand for medical procedures shook up healthcare stocks. UnitedHealth executives said that demand for elective procedures such as knee and hip replacements are picking up again after a pandemic lull, boosting shares in hospital companies and firms that make medical devices. HCA Healthcare gained 1.5% and Boston Scientific rose 4.2%.

Meanwhile, insurers suffered. UnitedHealth dropped 6.4% and CVS Health was off by 7.8%.