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News

US Fed hikes rates, signals more to come

 

Thursday, May 5, 2022

The news shaping the markets today

Russia announced a ceasefire at the Azovstal steel factory in Ukraine’s city of Mariupol to allow the evacuation of civilians. The RUB/USD forex pair traded higher on the news.


Macao’s monetary authority raised its base rate by 50 basis points to 1.25% at its latest meeting. However, the MOP/USD pair remained flat in forex trading this morning.


Australia’s private house approvals fell by 3.0% to 9,932 units in March, following 14.6% growth a month ago, which exerted pressure on the AUD/USD forex pair.


China’s general services PMI dipped to 36.3 in April, from 42.0 in the previous month. This being the sharpest decline in services activity since February 2020 sent the CNY/USD pair lower in forex trading this morning.


Hong Kong’s monetary authority boosted its base rate by 50 basis points to 1.25% this morning. However, the HKD/USD forex pair traded flat on the news.

 

What’s happening: The US Federal Reserve boosted its target fed funds rate at its meeting on Wednesday.

What happened: The US central bank increased its interest rate by 0.5%, its first rate hike of more than 25 percentage points in over 20 years.

Policymakers signalled further big rate hikes at upcoming meetings this year and also announced another major step to combat rising inflation.

Why it matters: The US Fed boosted its benchmark interest rate by 0.5% to a new range of 0.75% to 1.0%. This takes interest rates in the US to the highest mark since the onset of the pandemic two years ago. All ten members of the central bank voted unanimously to raise rates by 0.5% in a bid to cool elevated inflation levels.

The US has been facing accelerating inflation, which has greatly impacted economic activity in the country. The CPI (Consumer Price Index) climbed to 8.5% in March, representing the highest inflation rate since 1981.

The latest policy decision came after the US economy added 431,000 jobs in March, below market expectations of 490,000 job adds. Wages grew 5.6%, while the unemployment rate declined to 3.6% in the month.

The Fed also announced plans to begin easing its massive $9 trillion balance sheet. Credit tightening by the central bank will result in higher loan rates for customers and businesses. This is expected to cool spending amid surging prices for food, energy and other goods by making borrowing more expensive for consumers and businesses.

Fed Chair Powell said rate hikes of 50 basis points should be on the table at the next couple of meetings. He added, however, that the Fed committee was not considering a rate hike of 75 basis points or more.

How stock markets responded: US stock markets closed sharply higher, following a volatile trading session on Wednesday, after the Fed announced its policy decision. The Dow Jones jumped over 932 points to close at 34,061.06. The S&P 500 and Nasdaq 100 climbed 2.99% and 3.41%, respectively.

What to watch: Investors will keep an eye on the jobs report for April and consumer price data, which are expected to significantly impact the Fed’s rate decision at its upcoming meetings.

The markets today

UK stocks will be in focus today ahead of the interest-rate decision from the Bank of England

 

Context: British stocks closed lower on Wednesday, ahead of the release of the Federal Reserve’s interest rate decision.

Details: Investors continued to monitor several factors, including accelerating inflation, the ongoing war in Ukraine and the resurgence of covid-19 cases in China, which have impacted the global growth outlook. Despite the economic pressures, the Bank of England is expected to increase its benchmark rates at its fourth consecutive meeting today.

Investors also responded to economic data showing an increase in UK’s consumer credit by £1.3 billion in March, following an increase of £1.6 billion in February, while mortgage approvals for house purchase came in little changed at 70,700 in March.

The blue-chip FTSE 100 index declined 0.9% to close at 7,493.45 on Wednesday, snapping a five-session winning streak. The domestically focussed FTSE 250 index tumbled 1.47% to settle at 20,219.48. The indices were weighed down by a decline in the stocks of GlaxoSmithKline, Diageo and Unilever.

Energy stocks received some support amid a surge in oil prices after the European Commission announced further sanctions against Russia, including the phasing out of Russia’s oil over the next six months. Brent crude oil futures climbed 5.3% to close at $110.56 per barrel on Wednesday.

What to watch: Investors await the Bank of England’s policy decision today. UK’s central bank, which hiked its key bank rate by 25 basis points to 0.75% at its March 2022 meeting, is expected to raise rates further to 1% at its meeting today.

The release of services PMI data will also remain in focus today. The S&P Global/CIPS services PMI is projected to decline to 58.3 in April, from 62.6 in the prior month.

Other Markets: European trading indices closed lower on Wednesday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 0.49%, 1.24% and 1.08%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0616 and 1.0637 Negative
GBP/USD – 1.2616 and 1.2634 Positive
Dow Jones – 33963.92 and 34129.21 Positive
S&P 500 – 4256.06 and 4295.62 Positive
Gold – 1899.60 and 1903.36 Positive

Market snapshot

What else to watch today

Germany’s factory orders, new passenger car registrations and construction PMI, France’s industrial production and construction PMI, Spain’s Tourist arrivals and consumer confidence indicator, Turkey’s inflation rate, producer prices, manufacturing PMI and foreign exchange reserves, South Africa’s S&P Global PMI, Eurozone’s construction PMI, Italy’s construction PMI, UK’s new car registrations and composite PMI, US Challenger job cuts, unit labour costs, nonfarm labour productivity, initial jobless claims, continuing jobless claims, natural gas stocks change and new light-vehicle sales, Brazil’s balance of trade, Saudi Arabia’s interest rate decision, India’s M3 money supply and central government budget value, as well as Argentina’s industrial production.

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