European and US markets were little changed yesterday, with investors waiting on a US rate cut to give a clear lead after solid gains in Asian trade.
Oil was firmer but off early highs as the United States and Iran continued to trade brickbats.
A strong US performance on Thursday was enough to give Asian markets solid gains overnight but investors quickly cooled on comments by a top Federal Reserve official, which had been taken to indicate a sharp interest rate cut at the end of the month.
John Williams, the influential vice chairman of the Fed’s policy-setting board, said central banks should move quickly to support the economy even when borrowing costs were already low.
He pointed to studies suggesting that, when there are few stimulus options available, officials should “move more quickly than [they] otherwise might,” rather than waiting “for disaster to unfold”.
While a spokesman later clarified that Williams was not outlining Fed policy and was not flagging a half-point cut, analysts said the remarks provided an insight into how officials were thinking.
Markets have been wavering this week over how big the Fed’s expected reduction would be, with 25 basis points priced in but some traders hoping for 50.
Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co, cautioned about becoming too excited by the prospect of a sharp US rate cut doing much to support the economy.
“I don’t think a few rates cuts are going to make the difference, whether it’s 25 or 50 basis points at the end of this month,” he told Bloomberg TV.
Elsewhere yesterday, oil was firmer overall but off early highs after President Donald Trump said a US navy vessel downed an Iranian drone in the strategic Strait of Hormuz, a claim strongly denied by Tehran.
The alleged incident Thursday comes amid soaring tensions between the two foes after Iran shot down a US drone last month.
Markets are concerned about escalating tensions in the Gulf through which nearly a third of the world’s oil is transported.
“With the situation... turning into a powder keg again, Brent crude prices will remain propped up,” noted Fiona Cincotta, an analyst at City Index trading group.
On the corporate front, the world’s leading brewer AB InBev said it was selling its Australian unit Carlton & United Breweries for 16 billion Australian dollars (US$11.3 billion).
AB InBev, a Belgian-Brazilian behemoth that owns brands such as Stella Artois and Budweiser, is saddled with more than $100 billion in debt from previous acquisitions and so the news gave the shares a sharp boost of nearly six percent.