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US stocks dip after Federal Reserve interest rate decision

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US stocks slipped in choppy trading on Wednesday after the Federal Reserve resumed its campaign of higher interest rates.

The US central bank lifted the federal funds rate to a new target range of between 5.25 per cent and 5.5 per cent, its highest level in 22 years.

The benchmark S&P 500 stock index swung between losses and gains while Fed chair Jay Powell spoke to journalists on Wednesday afternoon, trading down 0.2 per cent after he finished. The Nasdaq Composite slipped 0.3 per cent.

The rate rise was widely expected, but there is much less consensus on whether the Fed will make additional increases and Powell left his options open during the press conference.

He said it was “certainly possible” the bank could raise rates again as soon as September, but stressed that “we’re going to be making careful assessments” in response to incoming economic data.

Treasury prices picked up. The yield on the two-year note, which is particularly sensitive to interest rate expectations, fell 0.05 percentage points to 4.84 per cent, while the benchmark 10-year yield dipped 0.05 percentage points to 3.86 per cent. Yields fall when prices rise.

The Fed policy meeting ended hours after the US commerce department reported that new home sales were lower than expected in June, having fallen for the first time in five months as rising borrowing costs weighed on households.

A series of disappointing earnings updates had weighed on US and European markets earlier in the day.

Shares in Microsoft, the second most-valuable company in the US, dropped 4 per cent after it cautioned that revenue from artificial intelligence products would not show until after the end of the year. Rival Alphabet, however, added 6 per cent after it beat analyst forecasts.

The Europe-wide Stoxx 600 fell 0.6 per cent, with consumer cyclicals leading declines after Louis Vuitton and Tiffany owner LVMH reported a decline in second-quarter revenues. 

LVMH cited a general slowdown in the luxury market amid economic uncertainty, and its statement triggered declines across the sector, with Hermès International down 2 per cent and Swiss jewellery maker Richemont falling 1.7 per cent. The Stoxx Europe Luxury 10 index lost 2.4 per cent.

Line chart of Share prices (rebased) showing French luxury groups decline amid economic uncertainty

London’s FTSE 100 index dropped 0.2 per cent, with Lloyds Banking Group among the biggest fallers after the lender reported that its earnings had fallen below expectations in the second quarter, in part because of higher charges for bad loans. Shares in NatWest Group lost 3.7 per cent after chief executive Dame Alison Rose resigned after admitting to leaking confidential information.

The European Central Bank and the Bank of Japan are due to announce their own policy moves on Thursday and Friday, respectively.

In Asia, Hong Kong’s Hang Seng index lost 0.4 per cent and China’s benchmark CSI 300 declined 0.2 per cent after Beijing vowed to stimulate the country’s slowing economy earlier in the week, but failed to convince investors.

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