Wall Street falters after the Fed’s accommodative hike

The control room of Euronext, the company that manages the Paris Stock Exchange (AFP/Archives/ERIC PIERMONT)

Global stock markets generally posted a mixed trend on Wednesday, even though the decision of the American central bank (Fed) to raise its rates ended up causing Wall Street to falter.

The Fed decided on an accommodating hike of just a quarter of a percentage point in its key rate and signaled that it only envisaged another hike of this order in the short term, in a context undermined by the banking crisis.

Wall Street fell sharply, dropping 1.63% for the Dow Jones, 1.60% for the Nasdaq and 1.65% for the S&P 500.

At the same time, Fed Chairman Jerome Powell sought to reassure the financial world about the recent banking crisis by indicating that the money of American savers was “safe” and that the banking system remained solid.

For their part, the European markets, which closed before the announcement of the Federal Reserve, ended on a mixed trend: Paris gained 0.26%, London 0.41% and Frankfurt 0.14%, but Milan lost 0.12%.

On a tightrope, torn between the imperative to raise interest rates to fight stubborn inflation and the temptation to curb these hikes in order to avoid further banking upheavals, the Fed has chosen to raise only modestly rate.

Jerome Powell argued that the banking crisis had the potential “to weigh on economic activity” even though “all savers’ money” was “safe”.

In other words, the banking episode which saw the collapse of two American regional banks and the takeover of Credit Suisse by its competitor UBS at a knockdown price, tightened financial conditions, doing the work of a further rate hike.

“Such a tightening of financial conditions goes in the same direction as a tightening of rates. You can see that as the equivalent of a rate hike or perhaps more than that,” Mr. Powell even said during his speech. press conference.

Despite Jerome Powell’s assurances that the banking system is “sound”, fears surrounding US regional banks have not yet completely disappeared. First Republic, which had taken off 30% on Tuesday thanks to the lifelines of the authorities, fell 15.47%.

The Californian establishment Pacwest also collapsed by 17.12% after indicating that it had recorded the withdrawal of 20% of its customers’ deposits.

US Treasury Secretary Janet Yellen added to Wall Street concerns by telling the US Senate that there were no plans to significantly increase bank deposit coverage, currently limited to $250,000.

The European banking sector held steady, according to the broader Eurostoxx 600 Bank Index.

On the bond market, yields on 10-year US Treasury bonds eased significantly to 3.44% from 3.60% the previous day.

After the Fed on Wednesday, it will be the Bank of England’s turn on Thursday to decide on its monetary policy as inflation rose again in February to 10.4%, when economists were betting on a decline. Yields on UK government bonds jumped to 3.45% for the 10-year maturity.

European real estate suffers from rates

The real estate sector had been the most penalized on Wednesday before the announcements of the Fed. A note from Morgan Stanley Bank estimates that the share price of most European companies in the sector will fall in the face of high interest rates.

URW fell 7.50% in Paris, Vonovia fell 4.50% and Deutsche Wohnen fell 2.29% in Frankfurt, CTP fell 2.12% in Amsterdam and British Land fell 6.89% in London.

The sodas are gassing

British soda maker Fevertree soared 9.46% in London after reporting better-than-expected results in 2022.

On the side of oil and currencies

Oil rose after an unexpected rise in US hydrocarbon inventories.

A barrel of Brent North Sea oil for May delivery rose 1.81% to close at $76.69. That of American West Texas Intermediate (WTI), also expiring in May, gained 1.75%, to 70.90 dollars.

The dollar slipped against the euro, the greenback yielding 0.80% around 8:35 p.m. GMT, to 1.0857 dollars for one euro, the lowest in a month and a half. Earlier, it fell to $1.0912.

© 2023 AFP

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