Stocks flat as traders digest Fed comments, oil falls
Market Overview and Key Drivers
By Rodrigo Campos and Danilo Masoni
Global Market Performance
NEW YORK/MILAN, July 1 (Reuters) - A gauge of stock markets around the world edged lower to start the quarter on Wednesday as the U.S. central bank head said inflation expectations have fallen but policy won't be loose, while oil prices fell as optimism over U.S.-Iran talks eased supply concerns.
Traders continue to watch for possible Japanese intervention in the currency market after the yen touched fresh 40-year lows against the dollar, even if it rebounded later in the session.
Federal Reserve Comments and Impact
Speaking on a panel of central bankers in Sintra, Portugal, Federal Reserve chair Kevin Warsh said inflation expectations and inflation risks have come down in recent weeks. He said he will stick firmly to the U.S. central bank's 2% inflation target and "disappoint" anyone who expects loose monetary policy.
His comments weighed on the dollar, which has been underpinned by rising expectations of Fed rate hikes this year, as inflation runs well above the central bank's 2% annual target. Still, many analysts believe the inflation picture will improve in the months ahead.
Expert Analysis
“Nothing that we see suggests that any imbalance either on the activity side or the inflation side is growing rapidly,” said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank’s New York branch.
“You can afford to wait and see how these longer-term technological trends play out,” Englander added. “What we do see is that unit labor costs are very, very soft, and ultimately that's what the Fed controls.”
Currency and Interest Rate Movements
The dollar index, which measures the greenback against a basket of major currencies, rose 0.17% to 101.41, with the euro down 0.39% at $1.1376. The yen was last flat on the day against the dollar.
Interest rate futures imply no move from the Fed at its meeting late this month, while a hike in September is priced in.
Economic Data and Market Reactions
Trades also eyed Thursday's economic data expected to show U.S. employers added 110,000 jobs in June, with the unemployment rate holding steady at 4.3%, according to the median estimate of economists polled by Reuters. The ADP National Employment Report on Wednesday showed that private employment rose by 98,000 jobs last month, below economists' forecasts for 118,000 job gains.
Major Index Performance
For the day, the Dow Jones Industrial Average fell 13.96 points, or 0.03%, to 52,305.24, the S&P 500 fell 16.13 points, or 0.22%, to 7,483.23 and the Nasdaq Composite fell 173.69 points, or 0.66%, to 26,040.03.
MSCI's gauge of stocks across the globe fell 2.51 points, or 0.22%, to 1,117.95. The pan-European STOXX 600 index fell 0.38%, while Europe's broad FTSEurofirst 300 index fell 11.45 points, or 0.45%. Emerging market stocks fell 0.96 points, or 0.06%, to 1,721.93.
Regional Highlights
Japan's Nikkei gained 0.6% after surging 37% last quarter. South Korea's main index fell about 2%, following a 68% rally last quarter driven by AI-fuelled chip demand.
Energy Markets and Oil Prices
In energy markets, oil prices fell as optimism over U.S.-Iran talks eased supply concerns.
Analyst Insights on Oil
"There's more optimism as more oil goes through the Strait of Hormuz," said Phil Flynn, senior analyst for Price Futures Group. "The market is signalling that once we get past this, the gloves are going to come off and we're going to probably produce more oil in the world than we ever have."
Oil Price Movements
U.S. crude fell 2.03% to $68.09 a barrel and Brent fell to $71.17 per barrel, down 2.44% on the day. Despite sharp price declines last quarter, both remain up almost 20% year-to-date.
Oil Price Forecasts
Analysts have cut their 2026 oil price forecasts for the first time since the Iran war began, as the reopening of the Strait of Hormuz eased concerns over prolonged supply disruptions, a Reuters poll showed.
(Reporting by Rodrigo Campos in New York and Danilo Masoni in Milan; additional reporting by Nicole Jao, Karen Brettell, Chuck Mikolajczak, Caroline Valetkevitch and Niket Nishant; Editing by Hugh Lawson, Matthew Lewis and Nick Zieminski)
