By Swissquote Analysts
Fed Official Is Open to Foregoing June Rate Hike
Topic of the day
Federal Reserve Chair Jerome Powell suggested he was open to holding interest rates steady at the central bank’s meeting next month, saying that the current banking stress could mean rates may not need to rise as high as otherwise to slow the economy. Minneapolis Fed President Neel Kashkari said he could support holding interest rates steady at the central bank's next meeting to give officials more time to assess the effects of past rate increases and the inflation outlook. The Fed has raised its benchmark federal-funds rate rapidly over the past year to fight inflation, most recently this month to a range between 5% and 5.25%, a 16-year high. Officials have indicated that their decision on whether to raise rates at their June 13-14 policy meeting could be a close call. A handful have said inflation and economic activity aren't slowing enough to justify leaving rates unchanged. But others, including Fed Chair Jerome Powell, have hinted that they might skip a rate rise to better study the potentially lagged effects of the rapid rate increases. Nevertheless, Powell reaffirmed the Fed was committed to bringing inflation down to its 2% goal. “Failure to get inflation down would not only prolong the pain but also increase, ultimately, the social costs of getting back price stability, causing even greater harm for families and businesses,” he said.
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The Zurich stock exchange ended the week on a firm note. Nevertheless, the increase of the SMI turned out to be moderate at 1.2 per cent to 11,571 points. Among the 20 SMI stocks, there were 17 price gainers and 3 price losers. 52.42 (Wednesday: 27.47) million shares were traded. The daily winner in the SMI was Logitech with a plus of 4.1 per cent. It was noticeable that the shares of the pharmaceutical giant Novartis (-0.6%), which are considered less cyclical and therefore defensive, as well as Nestle (+0.5%) and also Swisscom (-0.1%) were far behind. Richemont (-1.2%) was the laggard, in the absence of any breaking news. UBS rose by 3.7% and Credit Suisse by 2.6%. Here, the further increase of market interest rates, which render the classic credit business more lucrative, probably provided support. Julius Baer rose by 2.3 per cent. Dufry gained over 2 per cent among the second-tier stocks. The duty-free shop operator now has access to 87.13 per cent of Autogrill, an Italian operator of motorway service areas and airport restaurants. Dufry had had to make a mandatory offer after the holding company transferred its 50 per cent stake to the Benetton family in exchange for a Dufry participation.
The European stock markets closed higher on Friday as US policymakers battled over whether to raise the debt ceiling. The Stoxx Europe 600 index rose 0.7% to 468.9 points. In Paris, the CAC 40 and the SBF 120 gained 0.6% each. The DAX 40 in Frankfurt climbed 0.9%, while the FTSE 100 in London added 0.4%. The gas price, measured by the European TTF gas, hovers at around 3 cents per kilowatt hour, the same level as two years ago. Since the beginning of the year, the shares of DAX companies have delivered a strong performance, receiving a tailwind from current politics in Berlin. Rheinmetall is benefiting from the rising defence spending; the share has gained a good 40 per cent since the beginning of the year. In second place are the shares of Siemens Energy, which is advantageously positioned with its power generation and power transmission operations. The share is up about 38 per cent since the beginning of the year. Vonovia ranks last with a minus of 20 per cent compared to the end of the year. Here, among other things, rising interest rates and falling property prices are creating headwinds. The shares of Adidas and Puma closed 3.3 and 5.6 per cent down. The first quarter figures and the outlook of the sporting goods retailer Foot Locker had a negative impact. Munich Re shares were among the DAX winners, up 2.7 per cent, after analysts at Berenberg raised their price target slightly to 385 euros per share. The Commerzbank share, on the other hand, fell by 1.4 per cent - according to information provided by traders, Bank of America lowered the stock to „Underperform".
Fear crept onto Wall Street Friday after talks to raise the debt ceiling sputtered in Washington, bringing a week of steady trading to a tense conclusion. Further darkening the outlook were comments from Fed Chair Jerome Powell that cast doubt on whether the central bank will raise interest rates again next month. Powell said that a slowdown in bank lending could cool the economy and inflation, a remark that pressured short-term government-bond yields. Major indexes started the day higher but turned negative after Congressional negotiators said they had made little progress in the debt-ceiling talks. The S&P 500 lost 0.1%, the Dow fell 109.28 points, or 0.3%, to end at 33426.63 and the Nasdaq Composite dropped 0.2%. Financial stocks lost ground Friday but ended the week in positive territory after Western Alliance—a bank that has drawn investor concern—said Wednesday that deposits have been growing this quarter. The KBW Bank Index gained 5.8% this week, its best performance so far in 2023. On the other hand, disappointing quarterly results for Foot Locker pulled down the company’s stock price and added to concerns that a year of stubborn inflation is leaving more shoppers tapped out. Same-store sales fell more than 9% year over year, the shoe retailer said. Its shares dropped 27% Friday. Companies that rely on consumers’ appetite to spend broadly lost ground on Friday. Ulta Beauty dropped 4.4%, Nike - whose sneakers are a mainstay on Foot Locker shelves - gave up 3.5%, and Best Buy shed 3.4%.
In Asia, major indexes broadly closed with gains on Monday. The biggest increase was recorded in Hong Kong, where the Hang Seng Index rose by 1.3 per cent. The Shanghai Composite improves by 0.1 per cent. China's central bank left its interest rates unchanged on Monday, as expected. The Nikkei-225 is up 0.3 per cent while the Kospi climbs 0.9 per cent in Seoul.
U.S. Treasury yields finished mostly higher on Friday, handing the policy-sensitive 2-year rate its biggest weekly rise in almost eight months after statements by the Federal Reserve (Fed) chairman endorsing the scenario of unchanged rates in June. Meanwhile, the 2-month T-bill rate soared amid news of a delay in negotiating a debt-ceiling deal in Washington. The 10-year Treasury note rose 3 basis points to 3.683. The 2-year Treasury note remained stable at 4.268%.
Rating Sonova: Vontobel downgrades to Hold (Buy) - Target 270 (340) CHF
Rating SoftwareOne: Res. Partn. upgrades to Buy (H) - Target 16.50 (14) CHF
Target price Zurich Insurance: LBBW lowers to CHF 400 (420) - Sell
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