PremiumFed rate Hike News Highlights: Following a day US Federal Reserve hiked key interest rates by a quarter of a percentage point, Wall Street's main indices were higher at midday after slumping a day earlier. Earlier on Wednesday, despite hike in rates, FOMC said the US banking system is sound and resilient.
At 12:07 p.m. ET, the Dow Jones Industrial Average was up 398.52 points, or 1.24%, at 32,428.63, the S&P 500 was up 59.20 points, or 1.50%, at 3,996.17, and the Nasdaq Composite was up 251.34 points, or 2.15%, at 11,921.30. The S&P index recorded four new 52-week highs and 10 new lows, while the Nasdaq recorded 42 new highs and 130 new lows.
The Nasdaq led the rally among Wall Street's main indexes as major rate-sensitive technology and growth stocks advanced after the Federal Reserve hinted it was close to pausing interest rate hikes amid turbulence in the banking sector.
As U.S. Treasury yields slipped on growing hopes of an end to the Fed's tightening cycle, Apple Inc, Microsoft Corp and Amazon.com Inc gained around 2% each on Thursday.
Nvidia Corp jumped 3.3% after Needham raised its price target on the chipmaker on likely benefit from near-term data center strength.
Communication services and technology shares led the gains among S&P 500 sector indexes.
The U.S. central bank on Wednesday raised rates by an expected 25 basis points, but its policy statement no longer said "ongoing increases" would likely be appropriate, indicating a clear shift in its stance.
The Fed's softer tone relieved markets that have been roiled by liquidity-crisis concerns in the banking sector since the failure of two U.S. regional lenders earlier this month.
"Markets are hoping that you have one more interest rate hike to go, probably," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.
"I would imagine the hopes (of a rate cut) are smashed. You don't want things going so south that you need a rate cut."
Traders' bets are almost equally split between the Fed pausing its rate hikes in May and another 25 bps hike, according to CME Group's Fedwatch tool.
Meanwhile, troubled regional lender First Republic Bank dropped 6% and extended losses amid volatile trading following Treasury Secretary Janet Yellen's remark that there was no discussion on insuring all bank deposits.
Peers Truist Financial Corp and Western Alliance Bancorp, however, were up 2.1% and 4.4%, respectively.
Data showed jobless claims fell to 191,000 last week from the week prior, against expectations that the number would rise to 197,000.
Globally, the Bank of England raised interest rates by a further quarter of a percentage point and expects the surge in British inflation to cool faster than before.
At 12:07 p.m. ET, the Dow Jones Industrial Average was up 398.52 points, or 1.24%, at 32,428.63, the S&P 500 was up 59.20 points, or 1.50%, at 3,996.17, and the Nasdaq Composite was up 251.34 points, or 2.15%, at 11,921.30.
Block Inc tanked 12.8% after Hindenburg Research said it held short positions in the Jack Dorsey-led payments firm.
Coinbase Global Inc slid 11.1% after the U.S. Securities and Exchange Commission threatened to sue the crypto exchange over some of its products.
Accenture jumped 7.7% on plans to cut about 2.5% of its workforce.
Advancing issues outnumbered decliners for a 3.08-to-1 ratio on the NYSE and a 2.01-to-1 ratio on the Nasdaq.
The S&P index recorded four new 52-week highs and 10 new lows, while the Nasdaq recorded 42 new highs and 130 new lows. (Reuters)
Wall Street bounced but European markets wobbled Thursday as investors weighed fresh interest rate hikes by central banks and signs of a possible pause in US monetary tightening following turmoil in the banking sector.
Central bankers chose to continue their battle against inflation even as investors had hoped for a halt over concerns that rate hikes could further rock the banking system following the collapse of three US regional lenders this month.
The Bank of England and Norway's central bank raised their rates by a quarter point on Thursday after a similar move by the Fed the day before and a heftier half-point hike by the European Central Bank last week.
Switzerland's central bank went with a half-percentage-point increase as it declared that authorities had "put a halt to the crisis" at Credit Suisse after co-engineering the embattled bank's buyout by domestic rival UBS over the weekend.
"The Fed Reserve, along with the major central banks, is clear in its position that the recent turmoil does not pose a risk to the wider financial system," said Richard Flax, chief investment officer at wealth manager Moneyfarm.
The central banks appear "confident in the higher capital and liquidity standards in place today when compared with the Global Financial Crisis" of 2008, he added.
Wall Street's main indices were higher at midday Thursday after slumping a day earlier following the Fed's rate announcement.
In Europe, London finished the day 0.9 percent in the red as the BoE acknowledged that "uncertainties around the financial and economic outlook have risen".
Paris added 0.1 percent, while Frankfurt was flat.
The US markets are "betting that we have reached a peak in terms of rate hikes and that from here, looser monetary policy should follow," said Fawad Razaqzada, analyst at City Index and Forex.com.
While the US, Swiss and UK central banks all hiked interest rates, "the message from these banks was the same: more increases may be required, not will be, if inflationary pressures persist," he added.
Fed chief Jerome Powell warned Wednesday that the banking sector's woes were likely to bring "tighter credit conditions for households and businesses" that would affect "economic outcomes".
He also said there needed to be more supervision and regulation of banks to prevent another crisis.
But the Fed also signalled it could soon pause rate hikes as its accompanying statement replaced a previous warning about the need for "ongoing increases" with a conditional one saying "some additional policy firming may be appropriate".
Market jitters remain over rising rates because they are widely regarded as a catalyst behind the collapse of Silicon Valley Bank (SVB), the sector's biggest failure since the 2008 financial crisis.
"Uncertainty in the banking sector has undoubtedly altered the outlook for monetary policy, as central banks will have to balance their mandate of reining in inflation whilst ensuring financial stability," said Pushpin Singh, economist at the Centre for Economics and Business Research, a London think tank.
Nerves were also jangled on Wednesday when US Treasury Secretary Janet Yellen declared that authorities were not looking at a blanket increase in deposit insurance for banks.
"Yellen's comments seem to have reignited worries about the US banking system which we thought had been put to bed," IG analyst Chris Beauchamp told AFP.
"In hindsight this will seem like a major error," he said. (AFP)
Mortgage rates in the US fell for a second straight week, easing costs for homebuyers in the market’s busiest season.
The average for a 30-year, fixed loan was 6.42%, down from 6.6% last week, Freddie Mac said in a statement Thursday. It was the biggest one-week decline since mid-January.
Investors are assessing the fallout from four bank failures and the potential impact of the Federal Reserve’s latest interest-rate bump. Policymakers announced a quarter-point increase Wednesday, while sticking to their outlook that more hikes might be needed to tame inflation.
Read more: Fed Opts for Hike-and-See in Gamble Crisis Will Stay Contained
For the housing market, “the news is more positive" as demand ticks up and prices stabilize, Sam Khater, Freddie Mac’s chief economist, said in the statement. “If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season."
So far, the season is off to a slow start, with buyers put off by still-high prices and current owners reluctant to trade away mortgages they may have locked in when rates were at historic lows.
At the current 30-year average, the monthly payment on a $600,000 loan would be $3,761. That’s up from $3,012 a borrower would have paid a year ago, when rates were two percentage points lower.
“Home shoppers are looking to find the optimal combination of prices and mortgage rates before entering the market," said Hannah Jones, economic data analyst at Realtor.com. “However, elevated rates and high prices mean that point doesn’t yet exist in the market for many would-be buyers." (Bloomberg)
Oil fell as investors weighed the Federal Reserve policy outlook after another hike and digested a mixed snapshot of US supply and demand.
West Texas Intermediate futures mostly traded between $70 and $71 a barrel on Thursday. Brent and WTI, though down from Wednesday’s close, were near the same levels they were at before Fed Chair Jerome Powell advised that more tightening may be in store after this week’s 25 basis-point increase, and said officials don’t expect to be cutting rates this year. His comments came less than two weeks after the most severe banking crisis since 2008.
The appeal of risk assets including commodities was also bruised as Treasury Secretary Janet Yellen said regulators weren’t looking to provide “blanket" deposit insurance without working with lawmakers, putting the focus back on the fragility of financial institutions. European equities fell at the open, while US futures continue to climb.
Crude is headed for the steepest first-quarter drop since 2020, when the pandemic hammered demand. The slump has been driven by concerns about a potential US recession, robust Russian oil flows despite sanctions, and the banking turmoil. Still, there are signs of strong demand in Asia as China recovers after ditching its Covid Zero policy late last year.
“The main immediate downside risk was the FOMC hiking by 50bps, with that outcome avoided oil has held up pretty well," said Paul Horsnell, head of commodities research at Standard Chartered bank. “Brent was $76.20 just before the FOMC decision, not far different from that right now."
As traders weighed the Fed’s likely course of action over 2023, the dollar eased Thursday, offering support to raw materials including oil that are priced in the currency. The weakening greenback should deliver a “strong tailwind for commodity markets," according to Australia & New Zealand Banking Group Ltd.
Meanwhile, US crude stockpiles expanded to the highest since May 2021 as strong builds on the Gulf Coast outweighed a decline at the key storage hub of Cushing, Oklahoma, Energy Information Administration data showed. Still, combined oil and fuel exports jumped to a record 12.3m b/d, and gasoline holdings shrank again. (Bloomberg)
The Bank of England is focusing on inflation, announcing an 11th consecutive interest rate increase despite concerns about the economic fallout from troubles in the global financial system.
Britain’s central bank boosted its key rate by a quarter-percentage point to 4.25% on Thursday, a day after the U.S. Federal Reserve approved a similar move to tame inflation that is crimping household budgets and slowing economic growth.
The decision came after the U.K. statistics agency surprised policymakers Wednesday by reporting that inflation accelerated to 10.4% in February, driven by the cost of food, clothing and dining out.
Before the figures were released, many analysts had expected the Bank of England to keep rates on hold because of concern about turmoil in the global financial system following the collapse of two U.S. banks and the ensuing troubles at Switzerland's Credit Suisse, which forced a hastily arranged takeover by rival UBS.
The bank “continue to monitor closely indications of persistent inflationary pressures," it said in announcing its decision. “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required."
Still, Thursday’s move was the smallest rate hike since May of last year as the Bank of England forecasts a steep drop in inflation later this year. Inflation is expected to slow to 2.9% by the end of the year as energy costs fall and big price increases recorded last year drop out of the calculation.
Raising interest rates increases the cost of borrowing, which reduces spending and relieves upward pressure on prices. But it also tends to slow economic growth.
Central bankers worldwide are struggling to balance competing economic demands as they try to rein in inflation, which erodes savings and increases costs for consumers and businesses, without unnecessarily damaging economies weakened by the COVID-19 pandemic, Russia’s war in Ukraine and now banking upheaval.
The U.S. Federal Reserve weighed in with its assessment of the risks Wednesday, raising its key interest rate by a quarter-point as Fed Chair Jerome Powell tried to reassure Americans that it is safe to leave money in their banks.
The Swiss central bank hiked its key rate by half a point Thursday and declared that the government-orchestrated takeover of Credit Suisse by rival Swiss bank UBS “put a halt to the crisis."
A week ago, the European Central Bank hiked rates by a large half-point, brushing aside the financial market jitters and calling Europe’s banking sector resilient. (AP)
Hungary's forint led Central Europe's currency gains on Thursday after the U.S. Fed signalled a likely pause on rate hikes, weakening the dollar and boosting appetite for riskier assets.
In a widely expected move, the Fed raised interest rates by 25 basis points on Wednesday, but recast its outlook to a more cautious stance after the collapse of two regional banks in the United States stoked fears of a banking sector crisis. The Fed shift would align more with central Europe, where policymakers having been holding steady on policy since last year after sharp hiking cycles started earlier than global peers like the Fed or ECB.
A widening rate differential has put some pressure on currencies. Markets see rates in the Czech Republic and Hungary staying unchanged at policy meetings next week as rate setters there show no willingness at the moment to hurry into rate cuts even as their economies tipped into recession at the end of 2022. (Reuters)
Banking shares slipped in Europe on Thursday as the instability that surged through the global banking system this month is prompting investors to adjust to more challenging economic and lending conditions ahead.
The Federal Reserve on Wednesday indicated it was on the verge of pausing further increases in borrowing costs after the collapse of two U.S. lenders earlier this month triggered worries of contagion throughout the banking system.
Fed Chair Jerome Powell said the banking industry stress could trigger a credit crunch with "significant" implications for a slowing U.S. economy.
The turmoil that began in the United States spread quickly around the globe, ensnaring one of Europe's biggest banking names in 167-year-old Credit Suisse AG, which was forced into a shotgun marriage with Swiss peer UBS Group to avert a wider crisis.
Citigroup downgraded Europe's banking sector on Thursday, warning the rapid pace of interest rate hikes will further weigh on economic activity and lenders' profits.
"The European banking sector's fundamentals look healthy. But the ongoing confidence crisis could limit banks' risk appetite and reduce the flow of credit," Citigroup equity strategists led by Beata M Manthey said.
The index of top European banks was down 1% in early trading, with German banking giants Deutsche Bank and Commerzbank both falling 0.8%.
The rescue of Credit Suisse, which followed the collapses of California-based Silicon Valley Bank (SVB) and New York-based Signature Bank ignited broader concerns about investors' exposure to a fragile banking sector.
Switzerland's financial market regulator FINMA on Thursday defended its decision to impose steep losses on some of Credit Suisse bondholders as part of its rescue, saying the decision was legally watertight.
The decision to prioritise shareholders over Additional Tier 1 (AT1) bondholders rattled the $275 billion AT1 bond market and some Credit Suisse AT1 bondholders are seeking legal advice.
The convertible bonds were designed to be invoked during rescues to prevent the costs of bailouts falling onto taxpayers as it happened during the global financial crisis in 2008.
"The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a 'viability event', in particular if extraordinary government support is granted," FINMA said. (Reuters)
Taiwan’s central bank unexpectedly raised its key interest rate on Thursday, with Governor Yang Chin-long taking a cautious stance on inflation in his first policy decision since renewing his term in office.
The benchmark rate was increased by 12.5 basis points to 1.875%, the central bank said in a statement. Of the 24 economists surveyed by Bloomberg, 19 had expected the rate to stay unchanged at 1.75%.
The central bank has hiked rates at five of its last policy meetings as it contends with an inflation rate that remains uncomfortably high and a Federal Reserve that continues to tighten monetary policy — most recently with a 25 basis-point hike on Wednesday.
“Today’s decision suggests that the central bank is clearly concerned about inflation risks, given the egg shortage and the coming power tariff hike," Michelle Lam, an economist at Societe Generale SA, said in a message Thursday. “Given these, inflation will likely remain above 2% for the rest of the year.
Lam, who had forecast the 12.5 basis point increase, called the central bank’s move “brave". She says this is likely to be the last rate hike of the current cycle.
Most analysts had expected Taiwan to stay on hold after data showed the economy contracted in the fourth quarter and a global banking crisis triggered financial market turmoil.
The central bank downgraded its forecast for economic growth this year to 2.21% from its previous estimate of 2.53% made in December. It sees gross domestic product contracting for a second straight quarter in the first three months of the year before progressively expanding through the rest of 2023. (Bloomberg)
U.S. stock index futures climbed on Thursday, a day after the Federal Reserve hinted it was close to pausing its market-punishing interest rate hikes following the recent turmoil in the banking sector.
The Federal Reserve raised rates by 25 basis points, as expected, on Wednesday but its policy statement no longer said "ongoing increases" would likely be appropriate.
The shift in the central bank's tone relieved markets that have been roiled by concerns about a liquidity crisis in the banking sector since the failure of two U.S. regional lenders earlier this month.
At 4:33 a.m. ET, Dow e-minis were up 158 points, or 0.49%, S&P 500 e-minis were up 27.5 points, or 0.69%, and Nasdaq 100 e-minis were up 123.25 points, or 0.97%.
However, Wall Street's main indexes closed sharply lower on Wednesday after Fed Chair Jerome Powell told a news conference that the central bank was still intent on fighting inflation while also monitoring the extent to which the recent bank failures had cooled demand and slowed lending.
There is a now an equal split between traders' odds of the Fed pausing its rate hikes in May and of another 25 bps hike, with the likelihood of rate cuts soon after that.
While U.S. Treasury yields slipped on growing hopes of an end to the Fed's tightening cycle, there was a 1%-3% increase in the prices of major growth stocks such as Apple Inc, Microsoft and Amazon.com.
Those pre-market gains helped boost futures for the tech-heavy Nasdaq.
Shares of troubled regional lender First Republic Bank rose 3.1% in premarket trade after slumping on Wednesday following Treasury Secretary Janet Yellen's remark that there was no discussion on insuring all bank deposits.
Shares of PacWest Bancorp and Western Alliance Bancorp gained 4.7% and 6.0%, respectively.
On the economic data front, a reading due at 8:30 a.m. ET is expected to show a rise in jobless claims last week, hinting at some cooling in labor demand. Data on home sales is also expected later in the day.
Among other stocks, Coinbase Global Inc fell 10.8% after the U.S. Securities and Exchange Commission (SEC)threatened to sue the crypto exchange over some of its products. (Reuters)
Arvinder Singh Nanda, Senior Vice President, Master Capital Services Ltd
The US Federal Reserve in its latest policy on Wednesday decided to take a much smaller hike in key interest rates by a quarter(25 bps) of a percentage point in March 2023, taking the rate to 4.75%-5% target range. The Fed also signaled for pausing further rate hikes amidst the recent financial sector turmoil after the failure of two banks.
The Indian Equity market was expecting this quarter of a percentage point interest rate hike. The Indian Market had already discounted the rate hike itself in a recent sell-off. Rising interest rates make it expensive for people to borrow and spend. The US dollar is expected to find selling pressure as foreign institutional investors (FIIs) have started pulling out of Indian equity markets.
The Philippine central bank slowed the pace of its interest-rate increases as it seeks to cool still-hot inflation while allowing itself some policy-maneuver room in the event of risks from a global banking turmoil.
Thanks to the deposit guarantee and the newly announced lending capacity by the fed, the 25-basis point rate hike is ideal despite what is happening with regional banks. If the Fed had decided to hold the rates constant, it would have underlined structural issues in the banking system and markets would have reacted negatively in fact, said Sreeram Ram Das- Vice President at Green Portfolio PMS
Several factors are driving the minds of policymakers, and before March, it was mainly ‘inflation’. If you see, it was certain the Fed was going to hike rates by 50 basis points before the SVB debacle; but by the beginning of this week, the probability of holding the rates constant was at 50%. This underlines, how probabilities and markets are shifting to an array of sentiments, he added
Finance minister Niramala Sitharaman is scheduled to meet managing directors of public sector banks (PSBs) on March 25 for performance review in the backdrop of failure of few banks in the US and liquidity crisis faced by Credit Suisse.
The meeting is going to take stock of the progress made by banks in achieving targets set for the various government schemes, including Kisan Credit Card (KCC), Stand-Up India, Pradhan Mantri Mudra Yojana (PMMY), and emergency credit line guarantee scheme (ECLGS) to help businesses affected by Covid-19, according to sources.
China's yuan firmed on Thursday as investors were relieved by more dovish comments from the U.S. central bank that reined in expectations for more interest rate hikes, boosting sentiment for the yuan and other Asian currencies. The U.S. Federal Reserve raised interest rates by another quarter of a percentage point on Wednesday, lifting its benchmark overnight rate to the 4.75%-5.00% range.
Sensex, Nifty pare losses to recover from opening lows. Sensex rose 27 points to trade above 58,000
Indian government bond yields fell in early session on Thursday, mirroring their U.S. counterparts, after the Federal Reserve raised interest rates by an expected 25 basis points, but signalled it was nearing a pause in further increases.
The 10-year benchmark 7.26% 2032 bond yield was at 7.3256% as of 10:00 a.m. IST, after ending at 7.3495% on Tuesday. The yield dipped to 7.3137% earlier in the day, its lowest level since February 8.
Indian stocks fell Thursday during the morning trade in line with weakness in the US markets, which declined sharply overnight as the US Federal Reserve went ahead with its further monetary policy tightening to bring down inflation to its target even as volatility in the banking system continued due to recent collapse of some banks.
Monetary policy tightening in the form of interest rate hikes in the advanced economies is detrimental for India, and other developing countries, as investments tend to shift to those advanced countries where returns on investments are reasonable and stable.
Oil fell as investors weighed the Federal Reserve policy outlook after another hike and digested a mixed snapshot of US supply and demand.
Indian shares opened lower on Thursday, led by IT stocks, after the Federal Reserve reiterated its fight against inflation even as it signalled it might soon pause interest rate hikes and as the U.S. treasury secretary ruled out insuring all banking deposits.
The Nifty 50 index was down 0.39% at 17,082, while the S&P BSE Sensex fell 0.45% to 57,948.52, as of 9:38 a.m. IST. The broader Asian equity indexes were subdued.
The Indian rupee strengthened against the U.S. dollar on Thursday after the U.S. Federal Reserve hiked interest rates by 25 basis points (bps), as expected, but signalled the monetary tightening cycle may be coming to a close.
The rupee opened at 82.3750 per dollar, its strongest level in a week. The currency ended at 82.6550 on Tuesday. The market was closed on Wednesday for a local holiday.
Brazil’s central bank kept its benchmark interest rate unchanged for a fifth straight meeting even after President Luiz Inacio Lula da Silva and his team stepped up attacks against tight monetary conditions they say are killing the economy.
The bank held the benchmark Selic at 13.75% late on Wednesday, as expected by all analysts in a Bloomberg survey. The decision was in line with the most recent public statements from board members, who said they have not yet discussed rate reductions. Most analysts expect an easing cycle to begin in November, although traders bet on a quarter of a percentage point cut in June.
Shivam Thakral, CEO of BuyUcoin, India’s second-longest-running digital asset exchange
The Bitcoin rally was interrupted by the interest rate hike of 25 basis points announced by the Fed in the latest FOMC meeting. BTC and ETH dropped by 2.48% and 3.11% respectively while other digital assets followed a similar trend. The evolving banking situation in the US is making investors jittery and markets are expected to remain choppy in the coming weeks.
Dhawal Ghanshyam Dhanani, Fund Manager, SAMCO MF on US Fed’s decision to hike interest rates by 25 bps.
Powell in its aggressive battle to tame inflation stands hawkish and raised interest rate by quarter percentage point, despite financial turmoil weighing the economy post collapse of Silicon Valley Bank. FOMC participants’ dot plot continue to recommend that they will keep the current pace of rate hikes in 2023.
However, markets would take a sigh of relief with Fed setting the stage for peaking of rate hikes, hinting departure from previous statements which cautioned “ongoing increases" would be appropriate to tackle inflation, despite status quo in quantitative tightening.
Despite the much anticipated 25 bps rate hike, bond yields are falling suggesting a classic understanding that rates have peaked out and are set to reverse ahead. Given what Mr. Bond Market is indicating, Fed may blink in the next show.
Traders are accustomed to a bumpy ride whenever Jerome Powell speaks. But when Powell speaks at the same time Janet Yellen is talking to Congress about the health of the banking sector, the turbulence can get overwhelming.
That’s what happened Wednesday afternoon as the back half of the Federal Reserve chairman’s press conference overlapped with the Treasury Secretary’s appearance before a Senate subcommittee.
It’s rare that two people of such stature speak at the same time, worse when they project messages that traders interpreted as in opposition. A little while after hearing what they thought was Powell tipping broader protection to depositors should financial stress spread, Yellen came on the feed to knock the hope down. The S&P 500 erased an earlier gain of 0.9%, marking the sixth time this year that an intraday rally of that size was reversed.
“It’s astounding that Yellen and Powell would have given contradictory messages on bank deposits at the same time," said Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes. “Powell essentially said that all deposits are safe, Yellen said, ‘Hold my beer.’ You would have thought that they would have coordinated."
Ravi Singhal of GCL Broking said that short term positional investors can buy quality pharma stocks like Aurobindo Pharma and Zydus Life as these pharma stocks are available at attractive valuation after the recent bloodbath on Dalal Street. He went on to add that FMCG stocks like Marico, Dabur and ITC can be a value pick for up to three months, if someone is interested in FMCG sector stocks.
Market experts advised short term investors to look at high quality pharma and FMCG stocks that are available at discounted and attractive valuations. For long term investors, experts suggested buy on dips strategy in Auto, IT and banking stocks as these stocks may come under the radar of bears after this outcome of FOMC meeting.
A recession is certain and so are rate cuts this year. That’s the message from the bond market metric Federal Reserve Chairman Jerome Powell highlighted a year ago as the best guide to tip-off economic troubles in the US.
The expected three-month T-bill rate dropped to 134 basis points under the current rate. That’s below the previous record nadir it hit in January 2001 — about two months before the US economy fell into recession.
Asian shares inched higher on Thursday after the Federal Reserve hinted it could pause interest rate hikes following turmoil in the banking sector, though it also reiterated its commitment to fighting sticky inflation.
A measure of perceived risk in US corporate credit markets spiked Wednesday after Federal Reserve Chair Jerome Powell ruled out rate cuts this year and committed to the central bank’s goal of taming inflation.
The spread on the Markit CDX North America Investment Grade Index, which rises as credit risk increases, widened just over three basis points as of 4:33 p.m. New York time Wednesday. The index had tightened earlier this afternoon as the Fed delivered an expected hike, but Powell insisted that a rate cut this year was not the Fed’s “base case" and rates would go higher if necessary.
South Korean shares fell on Thursday, tracking weakness in Wall Street, but losses were capped as investors found the U.S. Federal Reserve's policy meeting outcome to be in line with their expectations.
Wall Street stocks slumped Wednesday as the US Federal Reserve continued hiking interest rates to fight inflation, while noting that banking sector turmoil could weigh on the economy.
The tumble came after European markets made timid gains ahead of the US central bank's rate decision, and follows a relief rally earlier this week.
Stocks had gained after financial authorities moved to prevent contagion in the banking sector, following the collapse of three US regional lenders this month.
Wall Street widely expected the Federal Reserve to raise interest rates by 25 basis points, which is exactly what happened. But equity investors debated conflicting messages: the policy guidance shifted from “ongoing" rate increases to “some additional" policy firming, though Chair Jerome Powell said that the Fed’s hands aren’t tied.
Wall Street gyrated to end sharply lower on Wednesday after the U.S. Federal Reserve delivered a widely expected 25 basis point policy hike, while hinting that it was on the verge of pausing future increases in view of recent turmoil in the financial sector.
The three major U.S. stock indexes, which were mostly directionless prior to the Fed announcement, jumped higher then deflated as investors digested the accompanying statement and Chair Jerome Powell's subsequent Q&A session.
Gold prices climbed on Wednesday after the U.S. Federal Reserve toned down its aggressive approach to reining in inflation in a widely anticipated policy statement, and indicated that an end to interest rate hikes was on the horizon.
Spot gold was up 1.7% at $1,973.52 per ounce by 3:56 p.m. EDT (1956 GMT), after advancing as much as 2%. U.S. gold futures settled 0.4% higher at $1,949.60 before the Fed announcement.
The Hong Kong Monetary Authority raised its benchmark interest rate by 25 basis points on Thursday, following the lead of the Federal Reserve which hiked rates even as the unfolding bank crisis sent jitters through financial markets.
The base rate was increased to 5.25% from 5%, according to a statement from the HKMA on Thursday.
Fed chief said SVB collapse underscores the need for better controls despite what had been escalating oversight by the Fed's own examiners.
"My only interest is that we identify what went wrong here...make an assessment of what are the right policies to put in place so that doesn't happen again, and then implement those policies," Powell said. (Reuters)
The Federal Reserve indicated that there may be more hikes to come in a clear sign it’s confident that its bid to quell inflation won’t deepen a nascent banking crisis.
“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so," Powell said. “It is important that we sustain that confidence with our actions as well as our words."
Officials are prepared to raise rates higher if needed, Fed chief added. (Bloomberg)
The recent banking turmoil probably will take a toll on growth and the economic outlook, Fed chief Powell said, resulting in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.
Fed chief reassured depositors, consumers and businesses that the banking system was sound after the spate of actions that the central bank and other regulators have taken in the last two weeks.
"These actions demonstrate that all depositors' savings in the banking system are safe," Powell said.
The Fed is prepared to use all of its tools as needed to keep the banking systen safe and sound, Powell added.
The Federal Reserve plans to address financial stability through its more targeted programs, Chair Jerome Powell said.
Financial conditions have tightened as a result of the recent collapse of Silicon Valley Bank and likely more than what traditional measures indicate, Federal Reserve Chair Jerome Powell said.
The question for the Fed in determining where next to take monetary policy will be the extent and duration of that tightening, Powell said. (Reuters)
“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so," Chair Jerome Powell said.
Powell also said the US banking system is sound and resilient.
Federal Reserve Chairman Jerome Powell said that while banking system stress following the failure of Silicon Valley Banking has added uncertainty to the outlook, it's still possible the economy may not face a sharp downturn as the Fed works to contain inflation.
In terms of a soft landing for the economy, "There’s a pathway to that and that path still exists," Powell said at his news conference. (Reuters)
Federal Reserve Chair Jerome Powell said that officials considered not raising interest rates at its meeting due to banking system stress following the collapse of Silicon Valley Bank. (Reuters)
Fed hiked rate by 25 bps to continue its fight against sticky high inflation. It also released economic forecasts. Here are the key highlights:
Read here: US hikes rates by 25 bps, key highlights from Fed statement
Fed's Jerome Powell shunned the possibility of rate cut this year. He said, "Rate cut this year are not our baseline expectation."
As per Fed, Monetary policy has to be tight enough to bring down inflation, and some of that tightness can come from credit conditions.
"At the end of the day, we will do enough to bring inflation down to 2%," he said.
Fed's chair revealed that at a meeting he heard a significant number of people anticipating tightening in credit conditions. And he added that therefore they were including that forecast for tighter credit conditions in their forecasts.
However, as per Powell, possible tightening in credit conditions ahead could mean monetary tightening has less work to do.
On further rate hikes, Powell said that in assessing need for further hikes, Fed will particularly be focused on actual, expected effects of credit tightening.
After the FOMC decided to hike key fund rates by 25 bps which is a much smaller hike, the US Senate majority Schumer when asked about Fed's interest rates decision by Reuters, said, "I am concerned about its effect on the economy".
On the banking crisis, Jerome Powell said, in principle can think of banking strain as equivalent to rate hike. He added that considered banking system issues in days running up to meeting. Powell emphasized that it is important to sustain confidence with actions and words after the two collapse of US banks which led to relentless selling in the banking sysem.
He revealed that banks deposits have been stabilized.
S&P 500 lost some ground after Federal Reserve chair Jerome Powell's press conference began on the latest monetary policy. The index almost dipped by 0.3% as his meeting began. However, it is currently floating with marginal upside.
In a press conference, Fed chair Jerome Powell said, since last meeting, economic data has come in stronger than expected.
However, he added that projections are not a plan, path will adjust as appropriate.
- US Fed raises interest rates by 25 bps as it continues fight against inflation
- Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation.
- FOMC members say some additional tightening might be possible, but suggested it was on the verge of pausing future hikes
- The U.S. banking system is sound and resilient: Fed said.
Fed chair Jerome Powell will be addressing the latest monetary policy outcome today. FOMC hiked key rates by a quarter of percentage point.
As per Fed, in assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook.
The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for this monetary policy action involved Fed's chair Jerome H. Powell, along with vice chair John C. Williams. Other FOMC members are --- Michelle W. Bowman; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
Seeking to achieve maximum employment and inflation at the rate of 2 percent over the longer run, FOMC decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent.
It said, "the committee is strongly committed to returning inflation to its 2 percent objective."
Fed said, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
FOMC said that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
On Wednesday, FOMC said, The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
The U.S. banking system is sound and resilient, said FOMC on Wednesday. It added, 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.
FOMC said, "recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated."
In the policy statement, FOMC said, the the Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
Wall Street gives thumbs up Fed's policy rate outcome on Wednesday. US indices recovered early losses and were trading in the green. Dow Jones made a gap-up upside and crossed the 32,700 mark. S&P also gained momentum. While the tech-heavy Nasdaq Composite index soared nearly a percent.
The stock market treaded water after retracing all of its losses since the start of the banking turmoil, with investors awaiting one of the most-challenging Federal Reserve decisions in recent memory.
Leader of the crypto market, Bitcoin races towards the $29,000 mark as investors brace for Fed policy. This would be the first time Bitcoin approached this mark since June last year.
At the time of writing, at CoinMarketCap, Bitcoin traded up by over 1.4% to $28,510. It reached near $28,679 levels earlier in the day. Bitcoin's weekly gains are over 17%.
- Majority of experts forecast a 25 bps rate hike
- The FOMC outcome comes in the backdrop of banking crisis in the US
- The genesis of SVB collapse seems to be the change in rate cycle by the US Fed
- After an easy money policy during the pandemic, US Fed started to increase interest rates to combat sticky high inflation
Metal prices gain steam. Benchmark copper on the London Metal Exchange (LME) advanced more than 1% to nearly $8,882 per tonne, extending its recovery from last week's 10-week low of $8,442. However, investors also maintained caution ahead of Fed's rate decision.
Gold prices picked up momentum as treasury yields and the dollar slide down. Traders have positioned themselves for the Fed's key rate outcome and its chair Jerome Powell's comments on monetary policy.
At the time of writing, spot gold jumped 0.5% to $1,949.42 per ounce. US gold futures zoomed 0.6% at $1,953.00.
On Wednesday, the US Federal Open Market Committee (FOMC) rate decision announcement is expected to be released at 2 pm ET (or 11.30 pm India time) followed by a press conference by US Fed Chairman Jerome Powell at 2:30 p.m ET.
Also, the release will include a Summary of Economic Projections.
Ahead of the Fed policy outcome, US Treasury Secretary Janet Yellen on Wednesday defended the Biden administration’s actions to bolster confidence in the US banks. As per Bloomberg report, she emphasized that there was no bailout for shareholders and debtholders in the failed banks.
Centrum analysts in a note said that the banking crisis has sent shockwaves in the financial sector with two banks failing in the span of 2 weeks, the fed has a lot on its plate to make a decision on whether they should opt for a 25 bps rate hike or rather take a breather and keeping the interest rates unchanged for the meeting on Wednesday.
It has been very difficult for the experts to forecast the US FOMC meeting outcome this time as the Fed is walking a tightrope. While the US central bank is fighting a sticky inflation situation on one hand, the quick turnaround in interest rate cycle has created problems for the US banking system.
Since the central banks started increasing rates, 3 US banks and 1 Swiss bank have been declared bankrupt.
As uncertainties rise over what will be Fed's outcome take in its upcoming monetary policy, crude oil prices jumped by around 1% --- hitting one week high. On the other hand, dollar slipped to 6-week low. Fed's policy decisions is likely to affect fuel demand outlook.
For long term investors, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "If the US Fed decides to raise interest rate by 25 bps or around 25 bps, then fall in IT, auto and banking stocks should be considered as good buying opportunity by positional investors. One should look at Mahindra & Mahindra (M&M) in auto segment while State Bank of India (SBI), Canara Bank, Axis Bank and ICICI Bank in banking space."
Read here: Ahead of FOMC meet, experts decode US Fed's rate hike impact on Indian stock market
Dutch multinational banking, ING believes that one of the problems is that the Fed will struggle to escape the perception that further hikes would make regional banks’ funding position more difficult, and that cuts would help them. And this is without talking about the unrealised losses on their bond holdings.
ING's note said, "We fully expect the Fed to draw the distinction between monetary policy and financial stability but whether that distinction holds depends on the amount of stress the system is under. Above a certain level of stress, the system takes precedence, as the preventive extension of dollar swap lines with foreign central banks has shown." But the European bank still believes that Fed to still be in a position of a 25 bps rate hike.
Read here: Financial stability or fight to tame inflation? US Fed in tough spot for policy decision
During the mid-session, Wall Street holds steady as investors await US Fed's monetary policy. A 25 bps rate hike is expected on the cards, however, traders also gauge Fed's views on the recent banks' turmoil.
US indices such as Dow Jones, Nasdaq, and S&P 500 are marginally down. A week ago, the market was certain that Fed will hike policy rates, however, now with three banks' failure and illiquidity crisis dragging financial stocks -- a possibility of a pause in rate hike is also seen.
Ahead of US Fed's monetary policy, Chicago grains futures dipped on Wednesday. Wheat hit a 20-months low as wartime Black Sea export deal continues. Futures were also dragged by the timely rains in France and elsewhere in western Europe, which offset worries of dry conditions for their wheat crops.
In recent weeks, mortgage bonds have taken a massive blow by the US banks crisis. For March, the excess returns on the bonds, which compares mortgage-backed security performance to Treasuries is currently down by nearly a percent.
As per the Bloomberg report, regional lenders including the failed Silicon Valley Bank are expected to sell at least some of their holdings of bonds widely to boost their liquidity. Further, the report said, US Fed's next move this policy to tackle inflation without further destabilizing the financial system --- could add pressure to these securities.
US' conservative Republican Rick Scott and a progressive Democrat Elizabeth Warren in the U.S. Senate, as per Reuters report, has urged to introduced legislation on Wednesday to replace the Federal Reserve's internal watchdog with one appointed by the president, aiming to tighten bank supervision following the failures of Silicon Valley Bank and Signature Bank. and Democrat
The two senators blamed the collapse of the two banks on regulatory failures at the US central bank, which has operated up to now with an internal inspector general who reports to the Fed board.
Wall Street tumbled but European stock markets rose today as investors awaited the US Fed's latest interest rate decision following the banking sector turmoil. Stocks moved modestly lower after trading began on Wall Street, with the Dow edging down 0.1 per cent while the S&P 500 and tech-heavy Nasdaq both shed 0.2 perc ent.
US Federal Reserve Chair Jerome Powell is expected to acknowledge the banking risks , says Ian Shepherdson, chief economist at Pantheon Macroeconomics. Shepherdson, however, argues that the threat is contained.
Gold traded in a tight $12-range today as investors positioned for the Fed's interest rate decision and Chair Jerome Powell's comments on the path of future hikes. Spot gold edged up 0.1% to $1,942.57 per ounce by 9:40 am ET (1340 GMT) after dropping 2% yesterday. US gold futures were up 0.2% to $1,945.80.
Bond investors will be hoping the Fed Chair can instil some calm given the wild volatility of recent days. Two-year Treasury yields were last down about 6 basis points on the day at 4.11%, having made a remarkable round-trip from 5.085% to 3.635% in just nine sessions.
Stocks are holding steady as Wall Street bides its time until the Federal Reserve announces whether it will tighten the screws further on the economy. The S&P 500 was 0.1% lower early Wednesday.
Oil was little changed before a key interest-rate decision by the Federal Reserve, following a two-day rally on easing concerns over banking crises in the US and Europe.
Most Wall Street banks expect the US Fed to hike interest rates by 25 basis points at the end of its two-day meeting today, although some have flagged the possibility of a pause as worries about a global banking crisis mount.
Traders have now priced in a near 90% chance of a 25-basis-points-hike later in the day as US inflation remains sticky and the labor market tight. The Fed has raised rates by 450 bps since last March, leaving the Fed Funds target rate in the 4.5% to 4.75% range.
Gold prices ticked higher but traded in a relatively tight range on today as investors hunkered down for the U.S. Federal Reserve's interest rate decision. Spot gold was up 0.1% at $1,941.10 per ounce as of 1136 GMT, after dropping 2% in the previous session. U.S. gold futures edged 0.2% higher to $1,944.10.
US equity futures were steady and European stocks rose as investors prepared for the Federal Reserve’s much-anticipated interest-rate decision. The pound rallied to a six-week high after a surprise rise in UK inflation increased pressure for action from the Bank of England. Contracts for the S&P 500 and the tech-heavy Nasdaq 100 were little changed following two days of gains for the underlying gauges.
Fed Chair Powell is expected to be grilled on how the latest turmoil affects financial conditions and the economic outlook and whether he sees a path to reducing inflation without causing a recession.
He’s also certain to get tough questions on why supervisors at the San Francisco Fed failed to spot or head off problems at Silicon Valley Bank, which suffered losses on securities when interest rates rose. Senator Elizabeth Warren has blasted Powell for “an astonishing list of failures" that she says helped fuel the current crisis.
The FOMC statement is likely to see substantial changes, and the committee could choose to drop its pledge of “ongoing increases" and substitute softer or conditional language that still hints at further tightening.
“There are no easy options. A pause could signal that the Fed is not confident in the resiliency of the banking system or the economy, or sees problems that aren’t yet visible to the market. On the other hand, a hike could add to bank stress and spook investors."
Uncertainty over Fed's interest rate hike decision is among the highest since the coronavirus pandemic sparked emergency rate cuts in 2020.
Expectations for rate hikes among investors and economists have declined over the last two weeks, amid the collapse of three US regional banks and the takeover of Credit Suisse by UBS.
Until the bank turmoil erupted, officials were expected to continue — or even potentially step up — their yearlong campaign to raise interest rates and dampen rising prices.
Jerome Powell and his colleagues began their meeting on 21 March with the outcome unusually unclear. While most economists expect a quarter-point interest-rate hike, some say policymakers should pause to shore up financial stability.
Indian indices advanced for a second straight session today as concerns over a banking crisis receded further, while investors braced for a crucial interest rate decision by the US Fed. The Nifty 50 index closed 0.26% higher at 17,151.90, while the S&P BSE Sensex rose 0.24% to 58,214.59.
The decision and forecasts of FOMC will be released at 11: 30 pm IST. Powell will hold a press conference 30 minutes later.
The US Fed's committee (FOMC) will be weighing still high inflation with the recent bout of banking market turmoil caused by Credit Suisse and the implosion of California-based SVB.
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