Fed Raises Rates By 0.75 Percentage Point, Largest Increase Since 1994
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The Federal Reserve approved the largest interest rate increase since 1994 signalling it would continue lifting rates this year at the most rapid pace in decades as it races to slow the economy and combat inflation that is running at a 40-year high. Officials agreed to a 0.75-percentage-point rate rise at their two-day policy meeting that concluded Wednesday, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%. The rate increase departed from unusually precise guidance delivered by many members of the rate-setting Federal Open Market Committee in recent weeks indicating they would raise rates by a smaller half percentage point, as officials did at their meeting last month. The committee vote was 10-1, with Kansas City Fed President Esther George dissenting in favor of a half-percentage-point increase. New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3% this year. The median projection would lift the fed-funds rate to around 3.375%, or by an additional 1.75 percentage point over the following four meetings this year. Most officials had projected in March that they would raise rates to at least 1.875% this year. At a press conference following the latest decision, Fed Chairman Jerome Powell said Wednesday’s move was “an unusually large one.” He added that he expected either a 0.50 percentage point or 0.75 percentage point increase at the Fed’s July meeting.
On Wednesday, the SMI gained 0.8 per cent to 10,784 points. Among the 20 SMI stocks, there were 16 price gainers and three price losers, and one share closed unchanged. 44.33 (previously: 45.27) million shares were traded. Across Europe, financial stocks were sought after with the prospect of rising interest rates - including in Switzerland. Swiss Life (+3.2%), Zurich Insurance (+1.7%) and Swiss Re (+1.8%) were among the higher performers on the Swiss stock exchange. The Credit Suisse share, which has been badly battered lately, pulled out with a discount of 0.2 per cent. The bank hired forces from competitors JP Morgan and BNP Paribas to strengthen its UK investment banking operations. In the luxury goods sector, Swatch and Richemont rose 2.5 and 2.1 per cent respectively, supported by positive economic data from China. China is one of the most important sales markets for both suppliers. Among the second-line stocks, the chemical company Clariant presented favourable business figures. The company had increased sales by 26 per cent in the first quarter of the current financial year. The EBITDA margin rose. The share price climbed by 0.5 per cent. Due to the Ukraine war and high inflation, Autoneum revised its outlook and the shares dropped by 3 per cent. At today's meeting of its monetary policy council, the Swiss National Bank (SNB) is expected to leave its monetary policy unchanged. Analysts expect the SNB to confirm its interest rates (key rate and bank deposit rate) at minus 0.75 per cent and not to change its rhetoric on the franc. The monetary policy decisions will be announced at 9.30 am.
European stocks made solid gains Wednesday on news the European Central Bank would hold an emergency meeting to "discuss current market conditions." The Stoxx Europe 600 index rose by 1.4% to 413.1 points. In Paris, the CAC 40 and the SBF 120 gained 1.4% each. In Frankfurt, the DAX 40 gained 1.4%, and the FTSE 100 in London gained 1.2%. In addition to relief on the bond market, the ECB's announcements led to a rebound in equities across all sectors. Some stocks that have been under heavy attack since the beginning of the year benefited from this rebound, such as Elior (+8.1%), Faurecia (+5%) and Solutions 30 (+10%). Banking stocks also rebounded as the ECB seeks to allay fears of a new sovereign debt crisis in the eurozone. Unicredit gained 4.4% in Milan, Commerzbank rose 4.1% in Frankfurt and Societe Generale increased by 2.9% in Paris. Kering added 2.6% as Jefferies raised its recommendation on the luxury group's stock from "hold" to "buy". The financial intermediary believes that the recent drop in the luxury group's valuation multiples makes the stock attractive. Atos lost 5.2%, following a 23.4% plunge. Invest Securities on Wednesday lowered its advice on the stock to "neutral" from "buy" and cut its target price from €38 to €20. Atos announced on Tuesday during an investor day that it was planning to split up, hoping to finalise this operation in the second half of 2023. Swedish fashion group Hennes & Mauritz (H&M) fell 6.5% in Stockholm, despite announcing better-than-expected sales for the second quarter of its 2021-2022 financial year.
U.S. stocks soared Wednesday after the Federal Reserve approved its biggest interest-rate increase since 1994 but suggested moves of that scale likely wouldn’t become common. The S&P 500 rose 54.51 points, or 1.5%, to 3789.99, snapping a five-day losing streak. The Dow Jones Industrial Average added 303.70 points, or 1%, to 30668.53, and the Nasdaq Composite rose 270.81 points, or 2.5%, to 11099.15. Stocks rose broadly, with 10 of the S&P 500’s 11 sectors ending higher. Technology stocks, which have been among the hardest-hit areas of the market this year, were among the biggest gainers. Microsoft, Nvidia, Amazon.com and Netflix each added about 3% or more. Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed Wednesday, with the KBW Nasdaq Bank Index up 1.6%. Energy stocks slid, marking a relatively rare retreat for the year’s best-performing S&P 500 sector. The S&P 500 energy sector fell about 2.1%. Online gaming platform Roblox (+10.6%) said on Wednesday that the strong dollar was hurting its international business and is expected to have cut 4% off its revenue growth in May. Chinese search engine giant Baidu (+2.8% for the ADR on Nasdaq) is negotiating the sale of its 53% stake in video-on-demand platform iQIYI (-2.4% for the ADR) on the basis of a valuation of nearly $7bn for the entire company, Reuters reported on Wednesday. According to the agency, the deal price could reach $8.13 per share, compared with a last closing price of $4.67. The Court of Justice of the European Union announced on Wednesday the annulment of a 1 billion euro fine imposed by the European Commission on semiconductor manufacturer Qualcomm (+0.6%) for abuse of a dominant position in the market for LTE chipsets for Apple's iPhone and iPad (+2%). Ford (+0.5%) will recall more than 2.9 million vehicles due to a transmission problem that could block gear shifting, according to a report by the NHTSA, the US road safety agency.
In Asia, major indexes are mixed on Thursday. In Tokyo, the Nikkei 225 index recovered by 1.1 per cent to 26,625 points after the recent heavy losses. South Korea’s Kospi is up 1.3 per cent having already increased by 2 per cent during trading hours. Only small gains are recorded in Shanghai. However, Shanghai had recently been able to detach itself from the downward trend, as did Hong Kong, where the Hang Seng fell by 0.4 per cent.
Long-dated U.S. government debt yields slipped on Wednesday. The 2-year Treasury note was yielding 3.299% after hitting a nearly 15-year high this week. The 10-year Treasury note also eased by 20 basis points to 3.286%.
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