ASX set to rise, oil jumps as Middle East tensions escalate; Fed keeps rates on hold after ‘family fight’

Oil prices are back to jumping as Middle East tensions escalate, while the Federal Reserve kept interest rates on hold, with three of the central bank’s rate-setting committee dissenting. The S&P 500 added 0.2 per cent, the Dow Jones was down 1.

3 per cent, and the Nasdaq composite was 0.2 per cent higher. The Australian sharemarket is set to rise, with futures pointing to a gain of 37 points, or 0.

4 per cent, at the open. The ASX rose by 1 per cent on Wednesday, after the latest Australian Bureau of Statistics figures showed inflation had eased. The Australian dollar was trading at US69.

79¢. The Federal Reserve left its key interest rate unchanged despite persistently high inflation and a spike in energy prices caused by the Iran war. The Fed’s rate-setting committee reached the 9-3 decision after two days of deliberations, marking the fifth straight meeting at which the benchmark rate was kept at around 3.

6 per cent. The three dissenters were in favour of a quarter-point hike. In reaction to the dissents, Federal Reserve chair Kevin Warsh told reporters at a press conference following the Fed’s announcement, “I asked for a good family fight and I got one.”

Action was strong in the oil market, where the price of Brent crude leaped 7.5 per cent to $US90.38 per barrel for September delivery after fighting resumed in the war with Iran and raised worries about the global flow of oil.

Iran launched a barrage of missiles at American forces in the Middle East, while the US military partnered with Saudi Arabia to strike Tehran-backed militias in Iraq. Brent oil’s price had swung as low as $US72 early this month and as high as $US102 last week on uncertainty about whether the United States and Iran could reach a deal to allow oil tankers to move freely again from the Middle East to customers worldwide. The swings have raised worries that inflation will reaccelerate, just when it had begun to slow more than economists expected.

That had traders coming into the day betting on a roughly 34 per cent probability that the Federal Reserve would raise its main interest rate in the afternoon, according to data from CME Group, which would be the first increase in three years. Higher rates can keep a lid on inflation, but they can also slow the economy and undercut prices for stocks and other investments. Fed officials instead voted to keep the federal funds rate steady, though three members of the policymaking committee did want to raise rates.

Higher rates particularly hurt stocks seen as the most expensive, and scrutiny has already been rising on makers of computer chips and other winners of the frenzy around artificial-intelligence technology. Unlike the dot-com bubble at the turn of the millennium, the recent surges for sellers of computer processors and memory are backed by real revenue and profits. But that exceptional growth won’t be sustainable if AI does not produce as much profit and productivity as hoped.

The scepticism has hit South Korea’s stock market in particular because it’s dominated by two tech giants, Samsung Electronics and SK Hynix. Seoul’s Kospi index tumbled 6 per cent Wednesday, a day after it plunged 10.8 per cent, and trimmed its gain for the year so far to 34.

4 per cent. SK Hynix’s stock in Seoul dropped 9.6 per cent.

It reported record amounts of revenue and profit for a quarter thanks to strong demand because of AI. But its 257 per cent growth in revenue still wasn’t enough to meet analysts’ expectations. On Wall Street, Nvidia was the heaviest weight on the S&P 500 after the chip company sank 2.

1 per cent. Rival Advanced Micro Devices fell 3.3 per cent, and Micron Technology dropped 6.

8 per cent. KLA Corp., whose products and services help make semiconductors, fell 8.

4 per cent even though it reported stronger-than-forecast profit and revenue for the latest quarter. Expectations were high after its stock surged nearly 150 per cent in this year’s first six months. Helping to limit the US stock market’s losses was Apple, which rose 0.

9 per cent. Analysts say it’s almost become an “anti-AI” bet among Big Tech stocks because of its more limited spending on the technology versus rivals. Apple’s total market value has topped $US5 trillion after climbing more than 26 per cent this year.

On Tuesday, gains for stocks outside of AI helped offset weakness for Micron and other tech companies. Analysts have been saying such a rotation in the market from AI to less-loved areas could be healthy, but the majority of US stocks fell with tech on Wednesday. Hims & Hers Health tumbled 12.

3 per cent, for example, after the Federal Trade Commission, Utah and California sued the company. They alleged it shared consumers’ sensitive health information about medical conditions with third-party advertising platforms despite claiming its services maintain consumers’ privacy. Hims & Hers said the governments are contorting “the law to try to manufacture claims,” which it called baseless.

In stock markets elsewhere around th