The hiking of interest rates by 75 basis points by the Federal Reserve evaporated any hopes of a soft landing. The stock market declined predictably, with Fed signaling a further tightening of monetary policy.
Stoxx 600 fell 1.4% at the market opening touching its lowest level since July 5 after losses in China, South Korea, and Japan. Contracts fell 0.75% on the S&P 500 index and indicated more decline. The benchmark index Wednesday’s slide brought it down to more than 20% of the peak in January.
Two-year yields of treasury bonds rose and surpassed 4%, the highest since 2007. Investors prepared themselves for further rate hikes, with the US dollar trading at an all-time high.
Fed Chair Jerome Powell vowed that he would crush inflation, and his message was that fed officials would work towards bringing inflation down to the 2 % target. The official forecast of the Fed is that the rates will touch 4.4% by the end of 2022 and 4.6% in 2023, a hawkish shift from the expected dot plan.
Principal Global Investors Chief Global strategist Seema Shah said that the Federal Reserve is contemplating a hard landing, and a soft one is out of the question. Powell’ admitting to below-trend growth means that the federal reserve indirectly hints at recession. Times will be tough from her on, according to Shah.
Geopolitical tensions
The tension between China and Taiwan and Russia’s fresh escalation of war with Ukraine further dampened the sentiments.
The Euro was at its lowest in 20 years, and Yuan also weekend. China’s reference rate was stronger than expected for a continuous 21 days.
Asian markets were also watching meetings of other Central bank meetings in the region. The Philippines, Indonesia, and Taiwan will hike the interest rates on Thursday.
JPMorgan Asset Management, global strangest Clara Cheong told Bloomberg Radio said the banks meeting outcomes will keep the pressure on risky assets. The effect of a strong dollar means that it will hurt the export companies.
