Fed’s Powell Says Interest-Rate Pause Is Expected to Be Temporary
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Federal Reserve Chair Jerome Powell said the central bank was likely to raise interest rates in coming months after officials held them steady last week to study the effects of their previous, rapid increases to combat inflation. “Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,” Powell said to the House Financial Services Committee on Wednesday. Fed officials see a risk that their past rate increases, together with recent banking-industry stresses, will eventually create a sharper-than-anticipated slowdown. They are trying to balance that against the risk that the economy proves more resilient than expected and inflation stays too high, requiring them to lift rates higher than otherwise. Last week’s decision followed 10 consecutive increases in the Fed’s benchmark federal-funds rate, which is in a range between 5% and 5.25%. Inflation and economic activity haven’t slowed as much as many officials anticipated this year, casting more uncertainty over how high they might lift rates this year.
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The Swiss stock market ended midweek trading with slight markdowns. Investors are holding back amid concerns about the economy and interest rates, analysts commented. The SMI lost 0.4 per cent to 11,174 points. Among the 20 SMI stocks, there were 18 price losers and 2 price winners. 17.38 (previously: 20.86) million shares were traded. Investors also looked ahead to the interest rate decision of the Swiss National Bank (SNB) on Thursday. Some marked losses were recorded by shares of cyclically oriented companies. Logitech shares, for example, lost 3.6 per cent. Sonova (-1.6%) and Geberit (-1.8) also fell markedly. Sika shed a further 1.9 per cent after Tuesday's sharp losses. The SMI was somewhat supported by index heavyweight Nestle. The stock, which is considered defensive, advanced by 0.7 per cent. Novartis, the pharmaceutical giant, also held up comparatively well with a slight decline of 0.2 per cent. Meanwhile, Roche shares fell more sharply by 0.6 per cent.
European stocks struggled for traction on Wednesday after higher-than-expected U.K. inflation data fuelled expectations of further Bank of England rate rises and as investors awaited testimony from Jerome Powell. The Stoxx Europe 600 index lost 0.5% to 457 points. In Paris, the CAC 40 and the SBF 120 each lost 0.5%. The DAX 40 in Frankfurt was down 0.6%, while the FTSE 100 shed 0.1%. JPMorgan lowered its target price for Elior (down 3.5%) from €2.8 to €2.5, while confirming its "underweight" recommendation. The operator of retirement homes and clinics Clariane (-1.1%), formerly known as Korian, has entered into a new partnership with Banque des Territoires to support the development of its healthcare network in France. Engie (-0.4%) and the Meridiam fund are to buy renewable energy producer BTE Renewables, which operates in South Africa and Kenya, from UK fund Actis for an enterprise value of $1 billion (around €916 million), Actis revealed in a press release. German airline Lufthansa (+0.7% on the Frankfurt stock exchange) has reached an agreement with Swedish bank SEB to sell its payment business Lufthansa AirPlus Servicekarten for €450 million, the two companies announced on Wednesday. Volkswagen (-0.5% in Frankfurt) unveiled new medium-term financial targets on Wednesday, adopting a new strategy focused on improving profitability rather than chasing volumes.
A pullback in tech shares weighed on stock indexes Wednesday, a sign investors were taking a breather after a multiweek rally that lifted the S&P 500 to its highest level in more than a year. All three major indexes fell for the third straight session on Wednesday, with the S&P 500 slipping 0.5% and the tech-heavy Nasdaq Composite dropping 1.2%. The Dow Jones Industrial Average gave up 0.3%, or about 102 points. Investor enthusiasm about artificial intelligence has boosted shares in megacap technology companies in recent weeks, helping power indexes higher. But those tech companies were among the worst performers on Wednesday. Microsoft, Alphabet and Meta Platforms fell between 0.9% and 2.1%. Chip makers also dropped, with Nvidia losing 1.7% and Advanced Micro Devices sliding 5.7%. Indicating the narrowness of Wednesday’s declines, six out of 11 S&P 500 sectors ended up higher on the day. Health insurers were a particular bright spot, with UnitedHealth Group rising 1.6% following its declines last week when company executives warned about increasing demand for elective procedures. Elsewhere in markets, bitcoin rallied to more than $30,000 for the first time since April, according to CoinDesk. Analysts said the cryptocurrency was bolstered by supportive recent moves by traditional financial firms such as BlackRock, which has filed paperwork with the Securities and Exchange Commission for a spot bitcoin exchange-traded fund. The carrier FedEx (-2.6%) published higher-than-expected quarterly results on Tuesday evening, but presented a disappointing outlook for its new financial year, which began on 1 June.
Asian stocks were mixed on Thursday. While the stock exchange in South Korea (+0.5%) presents itself on a positive note, the stock exchanges in the Chinese heartland do not open again until Monday. The Nikkei-225 drops 0.3% in Tokyo.
Short-term U.S. Treasury yields advanced on Wednesday, led by jumps in the 3- and 6-month T-bill rates, after Federal Reserve Chairman Jerome Powell reiterated to Congress that more interest rate hikes are likely on the way this year. The 10-year Treasury note yield limited its rise during the session, ending at equilibrium at 3.721%. The 2-year Treasury note yield gained 2 basis points to 4.718%.
Target price Zurich Airport: UBS raises to CHF 199 (185) - Buy
Target price Bystronic: Mirabaud Securities lowers to CHF 760 (790) - Buy
Rating Medartis: Research Partners starts with Buy - Target 92.40 CHF
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