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The share market’s winning run faces a test after US stocks retreated as the most anticipated Federal Reserve meeting in months got underway.  

The Dow and S&P 500 eased from record levels. The Nasdaq Composite eked out a slender win. Iron ore rebounded. Copper declined. Gold notched a two-week high. Oil fell for a third night.

ASX futures eased 30 points or 0.44 per cent. The S&P/ASX 200 yesterday sealed its longest winning run in six weeks, climbing 54 points or 0.8 per cent to a third straight gain.

Wall Street

Caution set in as a two-day Fed policy meeting began under a cloud of uncertainty. Equities have been buffeted by inflation fears as rising bond yields placed a question mark over the central bank’s forecasts, which in turn determine policy settings. Analysts fear a “taper tantrum” if the Fed announces plans to reduce stimulus support.

“This Fed meeting is one of the most important ones for the market in a long time. It is the first we have had after the recent inflation rate rise and concerns about inflation,” Tom Martin, senior portfolio manager at Globalt Investments, told Reuters.

Analysts expect the Fed to lift its economic forecasts, but  reassure jittery markets it will continue to support the recovery. The meeting ends tomorrow with a policy statement and press conference with Fed Chair Jerome Powell.

“The markets are going to be tuned in to every word,” Rick Rieder, CIO for global fixed income at BlackRock, told CNBC. “If he says nothing, it will move markets. If he says a lot it will move markets.”

The Dow Jones Industrial Average broke a run of six straight record highs, retreating 128 points or 0.39 per cent. The S&P 500 touched a fresh intraday peak before fading to a loss of six points or 0.16 per cent.

The Nasdaq Composite continued to rebound from last week’s technical correction, edging up 11 points or 0.09 per cent. Tech giants Apple, Alphabet and Amazon helped the index to its highest level in two weeks.

Growth stocks have been pummelled in recent weeks amid valuation concerns as the cost of borrowing increased. The growth stock-heavy Nasdaq outperformed overnight as the yield on ten-year US treasuries fell for a second night before steadying near its previous close.

Volatility continued to abate. The VIX or Volatility Index eased almost 2 per cent to its lowest level in more than a year.

Retail sales fell more than expected last month during a bitterly cold snap. Sales slumped 3 per cent. The impact of the report was softened by an upward revision to January sales from a 5.3 increase to a 7.6 per cent increase.

Australian outlook

The stock market’s tentative recovery faces a litmus test this session. While headline losses in the US were insignificant, the underlying dynamics were unfavourable. Essentially, Wall Street was strong where the ASX is weak, and weak where the ASX is strong.

The financial sector fell 1.1 per cent and materials almost 0.9 per cent. Energy stocks dived 2.8 per cent and industrials 1.4 per cent. Technology gained 0.8 per cent and communication services 0.9 per cent.

Still, the mood on the market has improved so much over the last few sessions, that a fourth advance does not seem out of the question. ThinkMarkets analyst Carl Capolingua said this week’s action showed “a great deal of belief in equities here”.

“If we can knock off that February 17 high at 6938, there’s really nothing holding us back from the all-time high of 7197 set on February 20 last year,” he said.

With central bank policy very much under the spotlight, a speech from RBA Assistant Governor Christopher Kent may attract more interest than usual. Kent is due to address an online finance industry event on “Small Business Finance in the Pandemic” at 10.30 am AEDT.

The dollar has been treading water this week. Overnight, the Aussie rebounded from a brief dip towards 77 US cents, edging up 0.01 per cent to 77.45 US cents.

Commodities

Iron ore rallied yesterday, soothing concerns about the impact of Chinese pollution caps. The spot price for ore landed in China rose $2.65 or 1.6 per cent to US$166.30 a tonne.

Mining stocks remained under the cosh amid concerns about the demand implications of pauses in European vaccination rollouts.  BHP’s US-listed stock fell 1.63 per cent and its UK-listed stock 0.47 per cent. Rio Tinto dropped 1.01 per cent in the US after edging up 0.23 per cent in the UK.

Gold claimed a two-week high as traders hedged against Fed surprises, and inflation pressures eased. Gold for April delivery inched up $1.70 or 0.1 per cent to US$1,730.90 an ounce. The NYSE Arca Gold Bugs Index dipped 0.4 per cent.

Oil declined for a third session ahead of what is expected to be market-unfriendly US inventory data. Brent crude settled 49 cents or 0.7 per cent lower at US$68.39 a barrel.

Copper fell 1.7 per cent to US$4.07 a pound.

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