Markets on edge as US Fed meets to tackle high inflation
Summary
Markets fell in London on Tuesday as the Federal Reserve prepared to raise interest rates amid high inflation, rising energy costs and renewed AI-related concern. Oil prices climbed toward $110 a barrel, while the yield on the 10-year U.S. Treasury note hit 5.03 percent. Investors also sold technology stocks after leading AI figures urged the sector to slow down.
Key Facts
- Brent crude futures pushed toward $110 a barrel, while average U.S. diesel prices hit a record high of just under $6.27 a gallon.
- The yield on the 10-year U.S. Treasury note reached 5.03 percent, its highest level since 2007.
- The Federal Reserve began a rate-setting meeting Tuesday, with markets expecting a 25-basis-point hike.
- The European Central Bank raised interest rates last week, while the Bank of England was forecast to keep its benchmark rate unchanged on Thursday.
- Microsoft published a humanist AI code of conduct as concerns grew over the pace of AI development.
A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, July 19, 2021. Reuters-Yonhap
LONDON — Oil prices jumped, U.S. bond yields rallied and equities retreated Tuesday as the Federal Reserve looked set to raise interest rates, with high inflation and concerns about artificial intelligence (AI) dominating market sentiment.
Brent crude futures again pushed towards $110 a barrel, while average diesel prices in the United States struck a record high of just under $6.27 a gallon, heaping pressure on President Donald Trump ahead of midterm congressional elections.
"There's no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates," said Susannah Streeter, chief investment strategist at Wealth Club.
The yield on the 10-year U.S. Treasury note hit 5.03 percent, a level last seen in 2007 before the global financial crisis, as investors price in a likely hike in U.S. interest rates.
The U.S. Federal Reserve began a rate-setting meeting Tuesday with markets expecting policymakers to pull the trigger on a hike to tackle persistently high consumer prices in the world's biggest economy.
Market expectations for a 25-basis-point rate increase have risen sharply after official data published last week showed U.S. annual inflation remaining far above the Fed's target.
With the crisis in the Middle East showing little sign of abating and Yemen's Houthi rebels taking control of a crucial outlet for shipping, crude has spiked this month to more than $100 a barrel.
The surge in energy costs has ramped up pressure on central banks to raise borrowing costs.
The European Central Bank last week lifted interest rates in the eurozone.
The Bank of England is forecast to maintain its benchmark rate on Thursday as the U.K. economy struggles for growth.
Wall Street's main indexes were lower in late morning trading on Tuesday, following losses in Europe and Asia.
There was renewed weakness for technology stocks after executives driving the AI sector said advances in AI should be slowed.
"It looks as if investors are happier reducing some risk now, rather than leaving all their chips on the table, and mostly on the chip sector," said Trade Nation analyst David Morrison.
Trump on Monday dismissed fears that AI could wipe out humanity, repeatedly calling them a hoax and rejecting global calls to put guardrails around the fast-moving technology.
Anthropic chief Dario Amodei, whose company makes the popular Claude AI system, opened the floodgates on Saturday when he called for the sector to slow down.
His comments were echoed by OpenAI's Sam Altman and SpaceXAI's Elon Musk.
Microsoft on Monday published a "humanist AI code of conduct" as the concerns grew.
"AI should not exceed human control. Models should remain subordinate to humanity," read one part.
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