By Stella Qiu SYDNEY, March 18 (Reuters) - Asian shares rallied on Wednesday as oil prices paused their gains, with markets turning to the U.S. Federal Reserve meeting to see how policymakers will
Stocks slump after Fed keeps rates unchanged as oil prices climb
Market Reaction to Fed Decision and Rising Oil Prices
By Chuck Mikolajczak
NEW YORK, March 18 (Reuters) - Global stocks fell on Wednesday, extending declines after the Federal Reserve kept interest rates unchanged, while a rise in crude prices and an earlier reading on U.S. inflation kept equities under pressure.
The U.S. central bank's summary of economic projections (SEP) showed the Fed's benchmark overnight interest rate would fall by just a quarter of a percentage point by the end of this year, with no hint of the timing of such a move, while the inflation projection for the end of the year was 2.7%, up from the 2.4% view in December.
Investor Sentiment and Market Focus
"Overall investors are kind of getting what they want. They got a patient Fed, acknowledging that tensions in the Middle East could complicate an already uncertain environment and they still project one interest rate cut this year despite inflation expectations going higher, at least based on the median projection," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
"But it really is about tensions in the Middle East, when is the Strait of Hormuz going to reopen and what's the risk to Gulf State supply around oil. That's really what the market's focused in on."
Wall Street Performance
On Wall Street, U.S. stocks closed sharply lower, with each of the 11 major S&P sectors in negative territory, led by a 2.5% drop in the S&P 500 consumer staples index.
The Dow Jones Industrial Average fell 768.11 points, or 1.63%, to 46,225.15, the S&P 500 dropped 91.33 points, or 1.36%, to 6,624.76 and the Nasdaq Composite stumbled 327.11 points, or 1.45%, to 22,152.42.
Oil Prices and Geopolitical Tensions
U.S. crude rose 0.11% to settle at $96.63 a barrel and Brent settled at $107.38 per barrel, up 3.83% after Iran's huge Pars gas field was hit on Wednesday. It was the first reported strike on Iranian energy infrastructure in the Gulf during the U.S.-Israeli war on Iran, a major escalation that prompted Tehran to warn its neighbors to evacuate their energy installations.
Crude prices showed little reaction to the announcement by the Trump administration for a 60-day waiver of Jones Act shipping law in a bid to help ease deliveries of fuel and fertilizer to combat rising prices and supply disruptions.
Inflation Data and Economic Indicators
Adding to inflationary concerns caused by spiking energy prices, the Labor Department said its Producer Price Index for final demand surged 0.7% last month, the most since last July, and well above the 0.3% rise forecast by economists polled by Reuters.
In the 12 months through February, the PPI increased 3.4%. That was the largest gain in a year and followed a 2.9% advance in January.
Other data from the Commerce Department showed factory orders rose 0.1%, which matched expectations, after an upwardly revised 0.4% drop in December.
Global Market and Central Bank Responses
MSCI's gauge of stocks across the globe shed 9.05 points, or 0.89%, to 1,004.00 and was on track to snap a two-day run of gains, while the pan-European STOXX 600 index closed down 0.75%.
Central Bank Decisions Worldwide
Focus Turns to Fed and Powell
Investors are also awaiting more decisions from a host of other central banks this week including the European Central Bank, Bank of England and Swiss National Bank.
The Reserve Bank of Australia kicked things off on Tuesday by hiking interest rates for a second straight month, taking its benchmark rate to 4.1% and warning of a material inflation risk from the Iran war.
That was followed on Wednesday by the Bank of Canada, which kept its key policy rate on hold, as expected, but Governor Tiff Macklem warned it was ready to raise borrowing costs if higher energy prices risked turning into persistently elevated inflation.
Bond Yields and Currency Markets
The yield on benchmark U.S. 10-year notes jumped 6.3 basis points to 4.265% while the 2-year note yield, which typically moves in step with interest rate expectations for the Fed, rose 10.2 basis points to 3.773%.
The 10-year yield is up about 30 basis points in March while the 2-year has jumped surged 39 basis points, which would mark its largest monthly climb since October 2024.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,advanced 0.62% to 100.17, with the euro down 0.62% at $1.1467.
Against the Japanese yen, the dollar strengthened 0.52% to 159.81, nearing the key 160 level that has previously prompted interventions by the Bank of Japan to prop up the currency.
(Reporting by Chuck Mikolajczak; Additional reporting by Lucy Raitano in London and Stella Qiu in Sydney; Editing by Mark Potter, Alex Richardson, Emelia Sithole-Matarise and Deepa Babington)
