Fear of interest rate escalation
Wall Street with heavy losses
5/5/2022, 8:08 p.m
US Federal Reserve Board Chairman Powell has expressly assured that the next interest rate hike will not be higher than recently. But there are doubts in the market. The indices on the US stock exchanges are going down sharply.
Investor fears of ever-bigger rate hikes by the US Federal Reserve boomeranged back on US stock markets and sent Wall Street plummeting. Of the Dow Jones Index plummeted 3.1 percent to 32,998 points, the S&P 500 rushed to 3.6 and the Nasdaq Composite down 5.0 percent.
On Wednesday, the stock exchanges had gained more than three percent after the central bank had raised interest rates by 50 basis points as expected. Fed Chair Jerome Powell specifically ruled out a 75 basis point rate hike in an upcoming meeting. Nonetheless, investors’ fears of aggressive monetary tightening in the face of high inflation quickly flared again. “I would say that the markets are not buying into the Fed’s dovishness,” said Callie Cox, US investment analyst at broker eToro.
Some Fed members have already insisted that interest rates must rise faster and immediately, said Cox. “So it makes sense that investors are returning to this place of fear that the Fed could do much more than they imagined to use monetary policy to fight inflation.” In futures markets, bets of a 75 basis point rate hike increased at the Fed’s June meeting.
This view gave the US dollar a boost: The dollar index shot up 0.9 percent. The greenback was supported not only by the prospect of interest rates continuing to rise, but also by its reputation as a safe haven in uncertain times. Because the economy is clouding over from China to Europe to the USA. How uncertain the times are at the moment was shown by the start of the Volatility index VIX by 23 percent after a 13 percent drop on the previous day. The index is considered a “fear barometer”.
Investors also had to process a flood of company balance sheets. eBay fell under the wheels after a worse-than-expected forecast by the online retailer and ended up falling by 11.6 percent. The online furniture retailer Wayfair shocked investors with an unexpectedly large loss and the departure of its chief financial officer. The titles collapsed by more than 25.7 percent.
The shares of Booking increased by 3.3 percent. The online travel agency exceeded Wall Street’s expectations in the first quarter and is counting on a good summer travel season. The cereal manufacturer Kellogg convinced on the other hand and pleased with an improved outlook, the share rose by 3.5 percent. Shopify fell by 15 percent, weak business figures and the largest acquisition in the company’s history weighed on it.