With the again exceptionally strong and fifth interest rate step, the key interest rate of the Fed now reaches a range of 3.00-3.25%. With the multiple tightening of monetary policy, the US central bank is attempting to counter the unchecked rise in inflation. Currently, the US inflation rate is +8.3%. The Fed Chairman Jerome Powell held out the prospect that the Fed will raise interest rates to 4.4% by the end of this year and again to up to 4.6% over next year. In the fight against inflation, the Fed will also have to face a recession. In its updated economic forecasts, the Fed expects the unemployment rate to rise from the current 3.7% to 4.4% by next year. At the same time, GDP growth is forecast to decline to just +0.2% in 2022. As a result of the aggressive tightening, inflation, as measured by the Fed's preferred personal consumption expenditures price index, is expected to fall to +5.4% this year. In August, this figure was 6.3%.
On Wall Street, the Fed's rate hike of this magnitude had been widely expected and investors reacted with relief that an even stronger rate hike was not decided. After a volatile trade, the Dow Jones Industrial closed at the end of the day at 30,183.78 points -1.7% lower, falling to its lowest level in more than two months. The S&P 500 also fell -1.71% to 3,789.93 points and on the Nasdaq indices fell -1.8%.
In bond markets, quotations increased after the interest rate hike. The yield on the benchmark ten-year US government bonds initially climbed to 3.64% – the highest level since 2011 – but then eased back to 3.51%. The yield on two-year Treasuries rose to 4.13%, approaching the high reached in October 2007. On the foreign exchange market, the greenback pushed the euro to its lowest level in around 20 years. Most recently, the euro cost 0.9830 US dollars.
In Asia, most stock indices followed the negative guidance from New York. In Tokyo, the Nikkei 225 falls by about -0.8% and in Hong Kong, the Hang Seng Index falls by about -1.9%. The Shanghai Composite on the Chinese mainland loses about -0.3% and the Shenzhen Component gives up -0.6%. The broadest MSCI index for Asia-Pacific equities outside Japan trades around -1.4% lower than the previous day.
Japan's central bank maintained its policy of steering the yield curve and left its key interest rate unchanged at -0.1% in negative territory. This had been widely expected by analysts. The Japanese yen weakened to 145 against the US dollar shortly after the decision – its lowest level in 24 years. The Bank of Japan expects short- and long-term interest rates to remain at their current levels or lower, changing nothing in its dovish stance. The commentary said: “Japan's economy has recovered, although it has been affected by factors such as a rise in commodity prices.”
Today will be followed by further interest rate decisions from the Swiss National Bank (SNB) – another rate hike of 50 to 75 basis points is expected – and the Norwegian central bank at 10:00 a.m. (CET), as well as the Bank of England's announcement at 1:00 p.m. In London, too, the monetary guardians are likely to react to the high inflation of almost 10% with a new interest rate hike. In addition, the British pound against the US dollar fell in the meantime to the lowest level in 37 years!
In the United States, existing home sales fell less than expected in August. Compared to the previous month, sales, according to the brokerage association National Association of Realtors (NAR), fell for the seventh month in a row, but this time “only” by -0.4%. Analysts had expected a decline of -2.3%. For the year, seasonally adjusted sales totaled 4.8 million, the lowest level since May 2020. According to NAR, weak home sales reflect rising mortgage rates.
|06:00||JP||Bank of Japan Monetary Policy Announcement||-0.1%|
|08:45||FR||Economic Indicator (September)||104.0|
|09:30||SZ||SNB Monetary Policy Announcement||-0.25%|
|10:00||SZ||SNB Press Conference|
|10:00||EZ||ECB Monthly Bulletin|
|10:00||NOR||Norges Bank Monetary Policy Announcement||1.75%|
|13:00||UK||Bank of England Monetary Policy Announcement||1.75%|
|16:00||US||Leading Indicator (August)||-0.4%|
|16:00||EZ||Consumer Sentiment (September)||-24.9|
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: email@example.com
Source: LGT Bank (Switzerland) Ltd.
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