US Stocks Edge up, British Pound Retreats
Wall Street stocks edged higher Wednesday following more dovish Federal Reserve signals, while the British pound declined after a ratings agency warned it could downgrade Britain due to the risk of a “hard” Brexit.
The Fed minutes lent color to the central bank’s decision of January 30 to keep interest rates steady, and confirmed a cautious stance towards further tightening made clear by Fed Chairman Jerome Powell.
The minutes noted that amid rising global risks and concerns about trade tensions, US growth would “step down” from last year’s rapid pace. “Anyone thinking maybe the Fed did not intend to send the message Powell delivered at the press conference can stop wondering,” FTN Financial economist Chris Low said. “The Fed really is on long-term hold and the next policy move really could be a cut.”
— Charles V Payne (@cvpayne) December 12, 2018
US stocks rose just after the minutes were released at 1900 GMT but pulled back after that around the same time President Donald Trump renewed his threat to impose tariffs on European auto imports if no new trade deal is reached with the EU. The S&P 500 finished up 0.2 percent. European and Asian bourses rose on the heels of a positive Wall Street session Tuesday amid optimism over US-China trade talks.
But the pound was under pressure as Fitch warned it could slash Britain’s credit rating due to the economic hit from a potential no-deal Brexit. A British departure from the European Union without a divorce agreement would put the country at risk of “substantial disruption to UK economic and trade prospects, at least in the near term,” Fitch said. The action came as Prime Minister Theresa May met with European Commission President Jean-Claude Juncker in Brussels, a round that yielded no major breakthrough.
In a further blow to May, three MPs on Wednesday quit Britain’s governing Conservatives over Brexit, saying the issue had “re-defined” the party and was “undoing all the efforts to modernise it”. With less than six weeks until Brexit day, fears are rising that Britain could crash out of the EU without a deal.
Among individual companies, British supermarket giant Sainsbury plunged 18.7 percent after UK regulators warned that a planned mega-merger with Walmart-owned Asda raised “extensive competition concerns” and could spark higher prices and less choice. Walmart lost 2.3 percent during the US session. US-traded shares of UBS sank 3.6 percent after a Paris court fined the Swiss banking giant 3.7 billion euros ($4.2 billion) for encouraging customers to commit tax fraud.
Meanwhile, American Airlines, United Continental and Delta Air Lines all lost about one percent after smaller rival Southwest Airlines said the US government shutdown dented business more than previously thought. Southwest now expects a revenue hit of $60 million, up from the previous projection of $10 to $15 million. Shares of Southwest slumped 5.7 percent.