By Swissquote Analysts
Fed Raises Rates but Nods to Greater Uncertainty After Banking Stress
Topic of the day
The Federal Reserve approved another quarter-percentage-point interest-rate increase but signaled that banking-system turmoil might end its rate-rise campaign sooner than seemed likely two weeks ago. The decision marked the Fed's ninth consecutive rate increase aimed at battling inflation over the past year. It will bring its benchmark federal-funds rate to a range between 4.75% and 5%, the highest level since September 2007. Officials sent a hint that they might be done raising interest rates soon in their post meeting policy statement. "The committee anticipates that some additional policy firming may be appropriate," the statement said. Officials dropped a phrase used in their previous eight statements that said the committee anticipated "ongoing increases" in rates would be appropriate. The policy statement said it was too soon to tell how much recent banking stress would slow the economy. "The U.S. banking system is sound and resilient," the statement said. "Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain."
The Swiss stock market ended slightly weak on Wednesday despite seeing a good spell in positive territory around mid afternoon. The mood was cautious with investors looking ahead to the Federal Reserve's monetary policy announcement due later in the day. The benchmark SMI, which dropped to 10,763.41 around mid morning, climbed to 10,846.70 later on in the session, before dropping to settle at 10,782.28, down 10.30 points or 0.1%. Credit Suisse and UBS Group shares tumbled by about 6% and 3.7%, respectively. These two stocks had moved up sharply in the previous session, recovering well after suffering sharp losses a session earlier. Geberit, Sika and Novartis lost 0.9 to 1.1%. Roche Holding ended 0.67% down. Sonova surged nearly 2%. Nestle gained about 1.6%, while ABB, Givaudan, Holcim, Lonza Group and Alcon gained 0.6 to 0.9%. In the Mid Price Index, PSP Swiss Property drifted down more than 3%. Swiss Prime Site shed about 2.5%, while Tecan Group and Baloise Holding lost 1.77% and 1.6%, respectively. Julius Baer ended lower by about 1.1%. AMS and Kuehne & Nagel rallied 2.5% and 2.3%, respectively.
The major European markets closed higher on Wednesday after a cautious session as investors digested hotter than expected UK inflation data and looked ahead to the Federal Reserve's monetary policy announcement due later in the day. Although concerns about banking turmoil eased somewhat thanks to coordinated efforts by governments and central banks to rescue troubled U.S. and European banks, investors chose to stay cautious amid uncertainty about the outlook for interest rates. Two key policymakers of the European Central Bank warned on risks posed by high inflation and signaled that they are not done with raising interest rates despite the latest banking crisis that has put the aggressiveness of central banks in tightening policy under doubt. The pan European Stoxx 600 gained 0.15%. The U.K.'s FTSE 100 climbed 0.41%, Germany's DAX edged up 0.14% and France's CAC 40 advanced 0.26%, while Switzerland's SMI ended 0.1% down. Among other markets in Europe, Austria, Belgium, Czech Republic, Finland, Greece, Iceland, Ireland, Poland, Portugal, Russia and Spain closed weak. Netherlands and Norway ended higher, while Sweden settled flat. In the UK market, Ocado Group, HSBC Holdings, B&M European Value Retail, Endeavour Mining Plc, Reckitt Benckiser, Unilever, Fresnillo, Haleon, Coca-Cola, Diageo, Relx and JD Sports Fashion gained 1.4 to 2%. British Land drifted down 5%. Land Securities Group, Unite Group, Airtel Africa and Segro lost 2.4 to 3.7%. In Paris, L'Oreal surged more than 2%. Pernod Ricard, Danone and Thales gained 1 to 1.5%. Air Liquide climbed nearly 1%. Unibail Rodamco tumbled more than 7%. TotalEnergies, Capgemini and Societe Generale lost 1 to 1.6%. In the German market, Covestro and Zalando both gained about 2.5%.
Stocks and government-bond yields sank after the Federal Reserve raised interest rates but signaled that further rate hikes might be limited. Stock investors took the decision warily, especially after Fed Chairman Jerome Powell said in a press conference that the central bank will have to wait and see how badly turmoil in the banking sector will drag down inflation and hiring. That effect could lead to fewer rate increases ahead - but likely only insofar as tighter credit conditions from banks introduce their own economic friction. The S&P 500 lost 65.90, or 1.6%, to end at 3936.97. The Dow Jones Industrial Average fell 530.49, or 1.6%, to 32030.11, and the tech-heavy Nasdaq Composite lost 190.15, or 1.6%, to 11669.96. Meanwhile, some of the bank stocks hardest hit by the recent financial agita faced further declines. Zions Bancorp lost $2.17, or 6.7%, to $30.12, and Truist Financial fell $1.21, or 3.6%, to $32.49. Each is down by more than 20% this year. First Republic Bank, which has been the focus of a JPMorgan Chase-led rescue effort, fell $2.44, or 15%, to $13.33, after a sharp gain on Tuesday. GameStop, a favorite of day traders, surged $6.22, or 35%, to $23.87. The videogame retailer reported an unexpected profit.
The stock markets in East Asia and Australia showed no consistent trend on Thursday. In Tokyo, the Nikkei 225 index was little changed at 27,432 points. In addition to the weak US data, the firmer yen, which worsens the chances of domestic companies on the export market, has a braking effect. The dollar depreciated across the board after the Fed statements.
U.S. treasury yields moved lower after the central bank's 2 p.m. decision and fell further as Mr. Powell spoke half an hour later. The policy-sensitive two-year yield ended at 3.977%, down from 4.175% on Tuesday. The benchmark 10-year yield settled at 3.497%, compared with 3.603% a day earlier. Yields fall as bond prices rise.
Bank of America raises Pernod Ricard target to EUR 243 (235) – Buy
CS lowers Pearson target to 980 (1,000) p – Neutral
Deutsche Bank raises Elmos target to EUR 75 (54) – Hold
Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.