The Fed Isn't the Only Central Bank Ramping Up the Inflation Fight
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The Federal Reserve may have delivered the biggest interest-rate increase since 1994, but it isn't alone in trying desperately to put a lid on inflation. The Swiss National Bank surprised markets with a 0.5 point hike on Thursday. It was the first rate increase in 15 years, lifting the benchmark to -0.25% from -0.75%. Over in London, the Bank of England increased its key rate by a quarter-point to 1.25%, a fifth consecutive hike since December. Three of the nine members of the rate-setting Monetary Policy Committee favored a bigger half-point move. The wave of interest-rate increases shows how eager monetary-policy makers are to prevent the fastest consumer-price gains in decades becoming embedded in the economy. That could lead to self-perpetuating high inflation rates that would be even harder to tackle. The current bout of inflation is mainly down to the surge in energy prices resulting from Russia's invasion of Ukraine. "There is no question that the Fed (and central banks more broadly) are in the mode of trading economic growth for price stability," said BMO Capital Markets analyst Ian Lyngen. "As a result of the concerted effort on the part of the global central banking community to tighten monetary policy, the rates market continues to sell off."
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The cut in the key interest rate had clear consequences. The franc then soared by 2 per cent and approached parity at 1.070 francs per euro. The Swiss stock market index SMI slumped by 2.9 per cent to 10,475 points. All 20 SMI stocks closed in the red. 56.2 (previously: 44.33) million shares were traded. Swiss Life (-6.4%), UBS (-6%), Credit Suisse (-4.9%) and Swiss Re (-4.7%) found themselves at the bottom of the league table. Swiss Re was also weighed down by a negative analyst commentary from UBS. Even the defensive heavyweights Nestle (-1.2%), Roche (-1.4%) and Novartis (-2.3%) could not escape the market downturn. The pharmaceutical company Roche also suffered a setback with its drug candidate Crenezumab. Among the mid-caps, Meier Tobler (-2.5%) had commented positively on the course of business in the first half of the year, but this was lost in the general market weakness - this also applied to SIG's capital market day (-5%).
European stocks were back in the red Thursday after the Federal Reserve approved its biggest interest-rate increase since 1994. The Stoxx Europe 600 index lost 2.5% to 402.9 points. In Paris, the CAC 40 and the SBF 120 lost 2.4% and 2.5%, respectively. In Frankfurt, the DAX 40 gave up 3.3%, and the FTSE 100 in London fell 3.1%. The Federal Reserve (Fed) raised its key interest rates by 75 basis points on Wednesday. Investors also reacted to decisions by the Swiss National Bank and the Bank of England, which increased their key rates by 50 and 25 basis points respectively on Thursday. Wendel (-9%) announced on Thursday that its chairman, André François-Poncet, intended to step down and that the name of his replacement would be announced in the second half of the year. Atos has fallen 7.4%. Since Tuesday and the presentation of its plan to split into two separate companies, combined with the announcement that the CEO, Rodolphe Belmer, will leave by the end of September, the stock has lost around 30% of its value. Over the week as a whole, the share price fell by around 40%. The airline Air France-KLM slipped by 6.7%. The company announced on Tuesday the success of its €2.3 billion capital increase. The stock exchange operator Euronext (+1.5% to 76.6 euros) benefited from an upgrade of its recommendation from "neutral" to "overweight" by JPMorgan. The electrical supplies distribution group Rexel (-3.7%) expects its sales to grow between 7% and 9% on a constant day basis, compared to a previous range of 4% to 6%. Europe's major gas suppliers retreated on Thursday after Moscow cut natural gas deliveries via the Nord Stream 1 pipeline. Engie fell 7.3%. Germany's Uniper fell 9.7 percent, Austria's OMV lost 6.3 percent and Italy's Eni gave up 4.9 percent.
U.S. stocks fell sharply Thursday, sending the Dow Jones Industrial Average below 30000 for the first time since January 2021 as volatility continued to rock the market. Major indexes have notched big declines in 2022 as high inflation, rising interest rates and growing concerns about corporate profits and economic growth dent investors’ appetite for risk. Weekly jobless claims data showed 229,000 Americans applied for unemployment benefits in the week ended June 11. The job market has been an area of strength for the economy, but Fed officials have signaled that weaker employment figures may be a necessary consequence of the central bank’s effort to control inflation. The S&P 500 fell 123.22 points, or 3.3%, to 3666.77. The Dow industrials dropped 741.46 points, or 2.4%, to 29927.07. Both indexes ended at their lowest closing levels since December 2020. The technology-focused Nasdaq Composite slumped 453.06 points, or 4.1%, to 10646.10, its lowest close since September 2020. Stocks fell across the board Thursday, with each of the S&P 500’s 11 sectors lower on the day. The energy group, the only sector in positive territory for 2022, logged a decline of 5.6%. Big tech stocks retreated, with Microsoft shares falling 2.7%, Amazon shares declining 3.7% and Nvidia shares dropping 5.6%. Twitter shares lost 63 cents, or 1.7%, to $37.36 after Tesla chief executive Elon Musk addressed Twitter employees in a company meeting Thursday on topics including whether there would be layoffs if he completes his planned takeover of the social-media company. Tesla, which is raising prices on some of its cars amid rising costs, was down $59.70, or 8.5%, to $639.30.
After another sell-off on Wall Street, the red omens predominate the stock markets in East Asia. Meanwhile, the Japanese central bank left its key interest rate at an ultra-low level on Friday, thus not following the series of interest rate hikes in the USA, Switzerland and Great Britain. With a drop of a good 2 per cent, the Japanese market is among the top losers. Aviation stocks suffer amid concerns about the economy's recovery. The shares of JAL fall by 2.9 per cent, those of the ANA Holdings line by 2.1 per cent. The Chinese stock markets hold up quite well, with Hong Kong up 0.8 per cent. In Shanghai, the market was unchanged. South Korea (-1 per cent) experienced a clear downward trend.
Yields on 2- and 10-year U.S. Treasuries had their biggest two-day drops in three months as of Thursday, due to investors flocking to government bonds and U.S. stocks faltering under the Federal Reserve’s biggest interest rate hike in 28 years. The rate on the 10-year US Treasury bond declined by 5 basis points to 3.242% while the 2-year Treasury yield lost 11 basis points to 3.110%.
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