NEW YORK (AP) — Stocks are slipping in early trading as Wall Street waits for the Federal Reserve’s latest move on interest rates and watches Washington edge closer to what would be a catastrophic default on U.S. government debt. The S&P 500 was 0.4% lower early Tuesday. The Dow was down 0.5% while the Nasdaq composite fell 0.2%. Some of the sharpest action was among companies that reported results for the first three months of the year, as earnings reporting season stays in high gear. Australia’s central bank surprised markets by increasing its benchmark interest rate by a quarter percentage point.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
Wall Street inched lower before the bell Tuesday ahead of what many hope will be the last interest rate hike by the U.S. Federal Reserve for some time.
Futures for the Dow Jones industrials ticked down 0.2% before the bell and the S&P 500 slipped 0.1%, with the response to the third failure of a sizeable U.S. bank on Monday muted.
Investors appear more focused on the next moves at the Federal Reserve, which begins a two-day meeting Tuesday. Most economists expect the Fed to raise short-term rate by another quarter of a percentage point, up to a range of 5 to 5.25% from virtually zero early last year.
The Fed has been raising rates sharply in hopes of getting high inflation under control. But high rates are a notoriously blunt tool that slow the entire economy, raise the risk of a recession and hurt prices for investments. They also contributed to the recent turmoil in the financial sector, particularly for banks top heavy with rate sensitive investments like bonds.
If banks tighten lending practices after the recent failures, it could magnify the effect of rate increases already in place. A number of economists expect a recession to hit later this year.
First Republic had been feared as the next to topple following March’s failures of Silicon Valley Bank and Signature Bank. That fueled a larger worry that runs on smaller and midsized banks could take down the economy, like the financial industry’s woes did in 2008.
One lever that’s propped up Wall Street in recent weeks has been a stream of companies reporting better-than-expected profits for the first three months of the year.
Elsewhere, France’s CAC 40 lost 0.2% at midday, Germany’s DAX fell 0.4% and Britain’s FTSE 100 was unchanged. Economic and inflation reports are expected in Europe ahead of the central bank meeting later in the week.
Australia’s S&P/ASX 200 dipped 0.9% to 7,267.40, after the Reserve Bank of Australia raised interest rates by a quarter-percentage point, an unexpected move that signaled further tightening might be ahead.
South Korea’s Kospi gained 0.9% to 2,524.39. Hong Kong’s Hang Seng gained 0.2% to 19,933.81.
Japan’s Nikkei 225 edged up 0.1% to close at 29,157.95. Trading in Tokyo will be closed for Golden Week holidays the rest of the week. Trading was closed in Shanghai for Labor Day.
Recent China manufacturing data showed a contraction, reflecting how the weakening export market is starting to hurt the domestic economy, according to analysts.
“We believe that the government will resume subsidies on electric vehicles, which would benefit both the manufacturing and services sector. The government might also push infrastructure construction faster,” said Robert Carnell and other analysts at ING in their report.
In energy trading, benchmark U.S. crude fell 20 cents to $75.46 a barrel. Brent crude, the international standard, fell 17 cents to $79.14 a barrel.
In currency trading, the U.S. dollar inched down to 137.37 Japanese yen from 137.47 yen. The euro stood at $1.0970, down slightly from $1.0978.
Kageyama reported from Tokyo; Ott reported from Washington.