US stock markets digested the Federal Reserve's (Fed) plans for an aggressive tightening of monetary policy on Thursday. After a roller coaster ride, the indices finally closed in the plus. The S&P 500 advanced +0.4% and the Dow Jones gained +0.3%. The Nasdaq Composite traded little changed from the previous day (+0.1%).
Ten-year US government bond yields rose to 2.667% in early trading on Thursday, trading at their highest level since March 2019, and eventually settled at around 2.65% over the course of the day. Two-year US Treasuries eased slightly to yield around 2.45%.
Meanwhile, the EU countries agreed on Thursday on further sanctions against Russia. The measures include, among other things, an import ban on coal and wood.
Asian stock exchanges show a mixed picture on Friday. In Tokyo, the Nikkei trades slightly higher and the Shanghai Composite gains just +0.5%. In Hong Kong, the Hang Seng Index loses around -0.3%. Uncertainty is currently high, because China is suffering from the worst corona wave since the outbreak of the pandemic. Shanghai, for example, is under a strict lockdown to contain the spread of the virus.
The Fed announced on Wednesday further details on the planned reduction of the central bank balance sheet. After a warm-up phase, the balance sheet, which now amounts to about USD 9 trillion, is to shrink by USD 95 billion per month. The Fed is thus adopting a much faster pace than in the last tightening cycle: back then, the central bank waited almost two years after the first rate hike before launching the balance sheet reduction in October 2017. In addition, several Fed members have spoken out in favor of a rapid rate hike in recent days. As early as the next meeting on May 4, the Federal Open Market Committee is therefore likely to decide on an interest rate step of 50 basis points.
The US job market continues to show robust development. Thus, initial claims for unemployment benefits, which are published weekly, fell by 5’000 to 166’000. This was announced by the US Department of Labor on Thursday. The number of applications has thus fallen to the lowest level since 1968. Analysts had expected an average of 200’000 new claims. Initial claims for unemployment benefits are considered an indicator of the development of the labor market. They have already been at record low levels since the end of 2021, reflecting the economic recovery that is accompanied by a tightening of labor supply.
The International Energy Agency (IEA) plans to tap emergency oil reserves again to ease the situation in the energy market. Accordingly, the 31 member countries have pledged to release 120 million barrels of crude oil reserves over six months, the IEA announced. In early March, the agency already released reserves worth 62.7 million barrels. In total, IEA members hold emergency stocks of 1.5 billion barrels in crude oil.
European retailers earned slightly more in February than in the previous month. However, with an increase of 0.3%, growth remained below expectations of (+0.5%). Year-on-year sales increased by +5.0%, the statistics office Eurostat reported. While revenues from food and beverages shrank within the month, consumers spent significantly more on fuel (+3.2%). The eurozone is currently experiencing rapid price growth, fueled among other things by the rise in energy costs.
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Source: LGT Bank (Switzerland) Ltd.
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