According to Bloomberg News, stocks were found climbing amidst a brief spell of investor relief following the Federal Reserve’s move to raise interest rates as anticipated to tame high inflation while combating fears of the super-sized hike.
The brief upward trend of stocks and bonds
European shares surged by 1.8% at the open, after the S&P 500 index’s biggest daily advance since 2020 and a higher move in the Asian bourses. Futures in S&P 500 and NASDAQ 100 dropped while the dollar was found turning with the Treasury yields.
Fed Chair Jerome Powell stated that a hike of 75 basis points is not something the committee is contemplating, giving rise to a spur in the market rally. The Fed hiked rates a half point and sent signals of similar moves for the meeting in the near future.
Erin Gibbs, the chief investment officer at Main Street Asset Management LLC, while talking to Bloomberg Television, revealed that removing uncertainties helps get some cash that has been sidelined in the markets, whether they are equities or bonds.
The reaction in the market is likely to gradually evolve as investors try to come to terms with Powell’s commentary. However, the economic growth could still be hurt by a global monetary tightening aside from commodity-fueled price pressures. With China’s Covid restrictions and Russia’s ongoing war in Ukraine, global supply chains are being disrupted.
In Europe, orders in German factories dropped, highlighting the effects of the war. Fabio Panetta, the European Central Bank Executive Board Member, revealed that economic expansion has almost halted in the European region.
The Bank of England is anticipated to hike rates later to the highest level in 13 years and give a clarification on how it intends to sell off some of the 847 billion pounds equivalent to $1.1 trillion in the government bond holdings.
The surge in wheat and oil has underlined the risks. Crude has hit $108 per barrel, with European Union planning a ban on the Russian barrels over the next half a year. There was a surge in wheat with the expectation that there might be curbs in export by major Indian growers.
According to Bloomberg News, swaps linked to Fed meetings are now being priced in lower than 150 basis points for further increases in rates over June, July, and September decisions. This raises doubts about the scope for the remaining three hikes of 50 basis points.
In June, the US central bank will let its Treasuries holdings and mortgage-backed securities drop at a combined initial monthly pace of $47.5 billion, stepping up to $95 billion over three months.
There was a rise in gold by 1% amidst a decline in yields and expectations of cooling policy tightening. This dynamic let Bitcoin hold a climb to $40,000.
