ASX set to go sideways as Wall Street drifts; Fed chief in no hurry to lower rates

Trump signalled to Prime Minister Anthony Albanese on Tuesday that he was considering an exemption of the new steel and aluminium tariffs for Australia. However, his top trade adviser Peter Navarro subsequently said Australia was “killing” the US aluminium market, clouding Canberra’s hopes.

In the meantime, much of Wall Street’s focus on Wednesday swung to a different part of Washington. Just a day ahead of a key inflation reading, Fed chair Jerome Powell said again in testimony on Capitol Hill that the FUS central bank is in no hurry to cut interest rates any further. He also told Congress it was unwise to speculate on tariff policy at this time. Powell is due to testify before the House Financial Services Committee on Wednesday.

To Krishna Guha at Evercore, the Fed is taking an “extended time-out on rates,” but remains oriented towards lowering borrowing costs further if and when there is further inflation progress.

The Fed had cut its main interest rate sharply through the end of last year, hoping to give a boost to the job market and the overall economy. But worries about inflation potentially staying stubbornly high have helped force the Fed and traders alike to cut back expectations for how many cuts to rates may arrive in 2025. Some traders are even betting on the possibility of zero, in part because of worries about the effects of tariffs.

“We’re in a pretty good place,” Powell said about where the economy and interest rates are. He said again he’s aware that going too slowly on rate cuts could damage the US economy, while moving too quickly could fan inflation higher.

Higher rates tend to put pressure on share prices and other investments, while tapping the brake on the economy by making borrowing more expensive. That could be risky for a US stock market that critics say already looks too expensive.

One way companies can offset such pressure is to deliver stronger profits. And big US companies have mostly been doing so this earnings reporting season, as they show how much profit they made during the last three months of 2024. That, though, hasn’t always been enough.

Tesla shares were 6.3 per cent lower in late trade a day after a consortium led by CEO Elon Musk offered $US97 billion ($155 billion) to buy the nonprofit that controls artificial intelligence startup OpenAI.

Marriott International fell 5.4 per cent even though it reported a better profit for the latest quarter than analysts expected. Investors focused instead on its forecasted range for an important underlying measure of profit this upcoming year, which fell short of what analysts were expecting.

Helping to offset such losses was DuPont, which climbed 6.8 per cent after the chemical company reported better profit than Wall Street expected. The Delaware company said its results were helped by strong demand in its electronics business, which it is spinning off later this year.

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Coca-Cola rose 4.7 per cent after reporting stronger profit and revenue than analysts expected. Growth in China, Brazil and the United States helped lead the way.

In the bond market, the yield on the 10-year Treasury rose to 4.54 per cent from 4.50 per cent late Monday. The two-year Treasury yield, which moves more closely with expectations for upcoming action by the Fed, held steady at 4.28 per cent.

In other international markets, indexes were mixed across Europe and Asia. Hong Kong’s Hang Seng fell 1.1 per cent, and South Korea’s Kospi rose 0.7 per cent for some of the bigger moves, while Japanese markets were closed for a national holiday.

Trump has pressed ahead with 10 per cent tariffs on Chinese goods, while China has retaliated by imposing tariffs on US coal and liquefied natural gas products as well as crude oil, agricultural machinery and large-engine cars.

“Beijing’s restraint in targeting only a small sliver of US goods is deemed to be a deliberately less than proportionate response to avert an escalatory tit-for-tat spiral,” said Vishnu Varathan, head of macro research at Mizuho.

“Nonetheless, the reality is that US-China trade tensions are set to structurally ramp-up, even if a negotiated compromise is the endgame for Trump 2.0 tariffs,” Varathan added.

with AP, Bloomberg

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