Relief after Fed decision
Wall Street ignites fireworks after interest rate hike
05/04/2022 10:46 p.m
The Fed chief predicts a soft landing for the US economy. Although Powell has just announced a drastic rate hike, the relief on Wall Street is sparking price fireworks. The first economists are already warning against too much euphoria.
Wall Street initially found it extremely difficult to develop a trend in the middle of the week. But then US Federal Reserve Chairman Jerome Powell triggered a firework display for stocks and bond listings, while the dollar suffered. The Fed is not currently considering raising interest rates by 75 basis points, Powell said after the interest rate decision. But the majority of market players had been betting on just such a “big” rate hike with regard to the next Fed meeting.
The US Federal Reserve had previously tightened its monetary policy as expected and raised the key interest rate by 50 basis points. In addition, the bloated balance sheet is to be reduced – bond holdings are to be sold. Economists had forecast the rate hike by 50 basis points. With the prospect that the Fed will not push the current pace of future rate hikes, the shot Dow Jones Index by 2.8 percent to 34,061 points, S&P 500 and Nasdaq Composite increased by 3.0 and 3.2 percent respectively. A total of 2691 (Tuesday: 2027) price winners and 624 (1293) losers were counted on Wall Street, 123 (111) titles closed unchanged.
The Fed chairman also said he was confident that the US economy would have a “soft landing” and that a recession could be avoided. The day’s economic data, which played no role in price determination, was already pointing to a slowdown in the expansion of the US economy. “In the early 1990s, we were able to go through a rate hike cycle and avoid an economic downturn. In all honesty, that was the only time in the last five rate hike cycles that we had a soft landing,” warned Ameriprise Financial chief economist Russell Price not to get too excited about the rate hike Failure to increase interest rates by more than 75 basis points.
Dollar comes under pressure with Powell pronouncements
The prospect of a few bold rate hikes weighed on the dollar, the dollar index lost 0.8 percent. On the bond market, quotations rose sharply with the Powell statements, yields plummeted, especially for shorter maturities. The price of gold recovered significantly over the course of the day – supported by lower market interest rates and a weak dollar.
the oil prices however, increased sharply. The EU wants to get serious about the embargo on Russian oil, although three states – Hungary, Slovakia and the Czech Republic – have raised objections. However, the EU wants to introduce an exception for these states so that the import ban would apply to the other EU states. This reduced the supply, which fueled prices. The fact that crude oil inventories in the USA, contrary to expectations, according to US government data did not fall does not curb the rise in oil prices. This was also due to the fact that petrol stocks decreased more significantly.
Reporting season sets the pace
The oil price rally boosted the corresponding sector stocks (+4.1%), semiconductor stocks (+4%) benefited from lower bond yields. In addition, the reporting season determined events. AdvancedMicro devices (AMD) increased by 9.2 percent. The chip manufacturer posted record sales and also increased the annual outlook. However, the price was also supported by lower market interest rates.
Starbucks (+9.8%) had increased sales and profits in the second fiscal quarter. Airbnb (+7.7%) turned over more in the first three months of 2022 and contained the loss more than expected. The US biotechnology company Moderna (+5.8%) had earned and implemented significantly more than expected in the past quarter. Moderna generated most of its revenue from sales of the Covid-19 vaccine.
lyft collapsed by almost 30 percent after the transport service provider had mostly exceeded expectations in the first quarter, but disappointed with the profit and sales forecast. The share price of competitor Uber slipped by 4.6 percent. Uber more than doubled its revenue in the first quarter. The bottom line, however, was a loss of billions due to investments.