Shares rose, Treasury yields plummeted and the dollar stabilized, with traders betting that the Federal Reserve will make its biggest rate hike in nearly three decades to curb rampant inflation and prevent further hardening. pronounced on the road.
The S&P 500 bounced back from its worst five-day crash since the start of the pandemic, while the tech-savvy Nasdaq 100 outperformed. Parts of the fixed income market show confidence in the Fed’s effort to combat price pressures. The 10-year equilibrium rate of Treasury inflation-protected securities, or the difference between these yields and those of typical government bonds, fell. The flattening performance curve sends the same message.
Money markets and giants such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Plc, now see the Fed raising rates by 75 basis points. The last time officials raised that number was under then-President Alan Greenspan in 1994. Wednesday’s decision will be made at 2 p.m. in Washington and President Jerome Powell’s 30-minute press conference later. The Fed chief indicated in May that officials would move forward with half-point moves in June and July, provided economic data arrived as expected. But in recent days, inflation figures have hit the top, prompting investors to bet on a bigger rise.
For this reason, the highly-examined point chart, which the central bank uses to indicate its outlook on the rate trajectory, may not reflect the latest thinking of Fed officials, as participants had to present their projections. ahead of this week’s market evolution.
“We expect a 75 basis point rise. We would say this has entered the market,” said Anna Han, an equity strategist at Wells Fargo Securities. “We want to have confidence in the Fed, we want to believe that they are seeing what we are seeing and that they will not let inflation escape to the maximum from now on.”
Sam Zell, founder of Equity Group Investments, told CNBC that if he were president of the Fed, he would raise rates by a full point on Wednesday. Zell believes the central bank’s credibility “has been lost” and needs to do something to regain it and convince the world that it seeks to “get control” of inflation. On Tuesday afternoon, Pershing Square founder Bill Ackman said officials would be better off raising rates by 100 basis points “tomorrow, in July and beyond.” He noted that the central bank has allowed inflation to “go out of control” and called for “aggressive action” to help restore market confidence.
More comments:
- “A more aggressive rise by the Fed today will help markets bounce back in the short term,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Yes, this rebound may not take place immediately, but as the stock market is overflowing and sentiment has become very bearish, we believe that a rise of more than 50 basis points should lead to a rebound too soon. time “.
- “While markets now expect a 75 basis point rate hike by the Fed, the press conference following the release of this afternoon’s statement will help analysts assess the Fed’s ability to navigate the Fed. “Powell’s so-called” soft “landing, as a more aggressive approach is needed to curb inflation,” said Quincy Krosby, LPL Financial’s equities strategist.
- “Market prices are probably nearing an end right now, but the Fed should point out that it is taking it seriously when it comes to tackling inflation,” said Win Thin, global head of foreign exchange strategy. of Brown Brothers Harriman.
- “The Fed is likely to dampen pressure and match market expectations with a 75 basis point rise,” said Fawad Razaqzada, a market analyst at City Index and FOREX.com. “If it doesn’t, and it’s just a 50 bp rise, I’d expect to see a strong recovery in risk assets and a fall in the dollar. That said, any weakness for the greenback is likely to be short-lived. “The Fed continues to be head and shoulders above other major central banks in terms of falconry.”
If recent history is a guide, the Fed meeting potentially offers an opportunity for stocks to enjoy a small boost. Over the past year, the S&P 500 has risen after six of the Fed’s eight rate decisions. In January and March, shares rose about six percent and nine percent in the days after central bank meetings, recovering from the heavy losses that led to the announcements.
On the economic front, sentiment for U.S. home builders fell to a two-year low in June as rising inflation and higher mortgage rates affected housing demand. Retail sales fell in May for the first time in five months, constrained by a drop in car purchases and other high-value items. An indicator of New York State manufacturing activity contracted unexpectedly for a second month in June, while a measure of inflationary pressures on producers rebounded.
On the other hand, the European Central Bank has accelerated work on a new tool to combat unjustified jumps in euro area bond yields as markets tighten in anticipation of the first rate hike in more than a decade. Following an emergency meeting on Wednesday, called after Italian yields rose sharply since Europe’s sovereign debt crisis, the governing council said it had ordered committees to create a new instrument to deal with it. in the so-called fragmentation.
Meanwhile, Bitcoin fell again, bringing the witness to the brink of $ 20,000, as evidence of the deepening stress on the crypto industry was accumulating.
This week’s key events:
- Bank of England rate decision, Thursday.
- Home starts in the US, initial unemployment claims, Thursday.
- Bank of Japan policy decision Friday.
- Eurozone CPI on Friday.
- US Conference Board Leading Index, Industrial Production, Friday
Some of the main movements in the markets:
Stocks
- The S&P 500 was up 0.8% at 11:32 a.m. New York time
- The Nasdaq 100 was up 1.3%.
- The Dow Jones Industrial Average rose 0.4%.
- The Stoxx Europe 600 rose 1.5%.
- The MSCI World Index rose 0.7%.
Coins
- The Bloomberg Dollar Spot index fell 0.1%.
- The euro fell 0.1% to $ 1.0405
- The British pound rose 0.5% to $ 1.2060
- The Japanese yen rose 0.7% to $ 134.52
Good
- The yield on 10-year Treasury bonds fell seven basis points to 3.41 percent.
- Germany’s 10-year yield fell 11 basis points to 1.65 percent
- The 10-year yield in the UK fell 12 basis points to 2.46 per cent
Goods
- West Texas Intermediate crude fell 1.1% to $ 117.67 a barrel
- Gold futures rose 0.5% to $ 1,823 an ounce