By Lawrence Delevingne and Amanda Cooper
BOSTON/LONDON (Reuters) – Most Wall Street stocks were little changed and the dollar ticked up on Thursday as investors took some heart from trade talks between the United States, Japan and Italy, though the positive mood was curbed by Federal Reserve Chair Jerome Powell saying the U.S. central bank would be cautious about cutting interest rates.
With a holiday weekend ahead, traders were reluctant to double down on the broad-based decline in risk assets this week, with gold pulling back from a record high set on Wednesday.
The S&P 500 index ticked up 0.1% and the Nasdaq Composite dipped 0.1%. Technology shares got a boost from forecast-busting earnings from Taiwan’s TSMC and Eli Lilly <LLY.N>, which surged 14% after the drugmaker said its experimental pill worked as well as blockbuster drug Ozempic to lower weight and blood sugar.
Alphabet <GOOGL.O> shares fell about 1.4% after a federal judge said on Thursday that Google illegally dominated two markets for online advertising technology.
The Dow Jones Industrial Average fell 1.3%, dragged down by UnitedHealth <UNH.N>. The healthcare insurance giant surprised investors with a quarterly earnings miss and a lower outlook for the full year due to higher-than-expected medical costs, sparking a 22% selloff in shares that reverberated across the sector.
U.S. President Donald Trump unexpectedly joined talks in Washington on Wednesday with a delegation from Japan, saying later that “big progress” had been made in the discussions with lead Japanese negotiator Ryosei Akazawa. Trump gave no details, but it did give some support to those investors betting that some of the tariff impact will be negotiated away in time. On Thursday, Trump and close ally Italian Prime Minister Giorgia Meloni expressed optimism about resolving trade tensions that have strained U.S.-European relations.
The European Central Bank, also grappling with the tariff uncertainty, cut rates by 25 basis points as expected. The bank said the uncertainty was likely to reduce confidence among households and companies, and the volatile market response would have a tightening effect on monetary conditions.
Kirstine Kundby-Mielsen, FX analyst at Danske Bank, said the ECB’s statement had a dovish tone due to the trade uncertainty.
“(Their) focus has shifted to looking at the downside risk to the growth outlook, rather than upside risk to inflation,” Kundby-Mielsen said.
The STOXX 600 index was down slightly after the decision but was still headed for a gain this week, while the euro, which is not far off three-year highs against the dollar, was 0.25% lower on the day at $1.137.
FED IN FOCUS
Central banks were also near the top of the agenda in the U.S. after Fed Chair Powell said on Wednesday that the Fed would wait for more data on where the economy was headed before making any changes to interest rates. But Powell also said Trump’s tariff policies risk pushing inflation and employment further from the central bank’s goals.
The benchmark U.S. 10-year Treasury yield added 5.4 basis points at 4.333%, well off the 4.59% touched last week during the height of market panic. [US/]
“As the dust is starting to settle, there are concerns regarding that stagflationary outlook that Powell warned about,” City Index strategist Fiona Cincotta said.
Trump’s comments on Thursday that Powell’s termination as Fed chair “cannot come fast enough,” while calling for the U.S. central bank to cut interest rates, added to uncertainty about the U.S. economy.
Christopher Hodge, chief economist for the U.S. at Natixis in New York, said he still thinks Powell will be retained until his term ends but is “less certain” on the point than before. Markets would react poorly if the Fed’s independence was compromised. “The bottom line is the parameters of potential policy outcomes have widened,” Hodge said.
Rising trade tensions and sweeping shifts in the global trading system will trigger downward revisions of the IMF’s economic forecasts but no global recession is expected, the IMF said on Thursday.
The dollar has been a major casualty of the turmoil stemming from tariffs and their impact on economic growth. Investors have ditched U.S. stocks and bonds in the last couple of weeks.
Against a basket of six other currencies, the dollar has fallen to its lowest in three years this month, but it was slightly firmer on Thursday.
The dollar was last up 0.4% on the Japanese yen at 142.42 and about 0.8% on the Swiss franc at 0.819 after both safe havens have benefited from the turbulence.
That was a sharp turnaround for the yen, which touched a seven-month high earlier in the session, before reversing after Akazawa said foreign exchange had not been discussed at the trade talks in Washington.
In commodities, gold came off record highs, down 0.73% at $3,319 per ounce as safe-haven flows and the exodus from the dollar paused.
Oil prices settled around 3% higher on Thursday, supported by hopes for a trade deal between the U.S. and the European Union and new U.S. sanctions to curb Iranian oil exports, which continued to elevate supply concerns.
(Additional reporting by Saeed Azhar in New York, and Alun John and Samuel Indyk in London, Ankur Banerjee in Singapore and Purvi Agarwal in Bengaluru; Editing by Helen Popper, Toby Chopra, Will Dunham, Emelia Sithole-Matarise and Anna Driver)
