The US Federal Reserve yesterday raised interest rates by 75 basis points and confirmed that further increases would be appropriate to contain high inflation, which is putting pressure on global economic activity. The Fed said that some parts of the economy, such as spending and production, have weakened. However, there has been significant job growth in recent months, and the unemployment rate remains low. At a press conference following the monetary policy announcement, Fed Chairman Jerome Powell supported the idea that the central bank would hold another rate hike in September. However, he said that a slower pace of increases might be needed to give the Fed time to evaluate the implications. It is positive for the market, as the peak of the Fed's hawkish mood has passed. As the stock market closed yesterday, the Dow Jones Index (US30) increased by 1.37%, and the S&P 500 Index (US500) added 2.62%. Technology Index NASDAQ (US100) jumped by 4.06% yesterday.
Experts believe the Fed's policy measures to rein in inflation seem to be having the desired effect as recent data and quarterly reports from consumer demand-sensitive sectors, including retail, have revealed fears of slowing economic growth. But many fear that in its fight against inflation, the Fed could slow the economy too much, avoid a so-called "soft landing," and tilt the economy into recession.
Microsoft shares increased by 6.7% after forecasting double revenue growth. Alphabet shares jumped by 7.7% on the report. The company reported better-than-expected sales of Google Ads Search, easing fears of a slowing advertising market. Companies reporting today include Apple (AAPL), Amazon.com (AMZN), Mastercard (MA), Pfizer (PFE), Merck&Co (MRK), Shell ADR (SHEL), Intel (INTC), Baidu (BIDU) and others.
Most Gulf central banks raised their key interest rates by three-quarters of a percentage point Wednesday, following the US Federal Reserve, as their currencies are pegged to the dollar. The Central Bank of Kuwait, the only one of the six Gulf Cooperation Council (GCC) countries that peg its currency to a basket, not just the dollar, raised its key discount rate by 25 basis points to 2.5%.
Equity markets in Europe closed yesterday in green territory. German DAX (DE30) gained 0.53% on Wednesday, French CAC 40 (FR 40) jumped by 0.75%, Spanish IBEX 35 (ES35) added 0.68%, British FTSE 100 (UK100) closed in plus 0.57%.
Rising inflation and concerns over low natural gas supply combined with the risk of recession caused consumer sentiment in the euro area to plummet to record lows. The main reasons for the sharp deterioration in confidence are primarily related to the Russian invasion of Ukraine. Firstly, because of fears of low natural gas supply. Secondly, fears of recession, as the war has triggered inflation, especially in energy and commodities. In addition, investors are concerned about the political uncertainty in Italy and the struggle for the position of Prime Minister in the UK.
Oil rose more than $2 on Wednesday as a report of lower US inventories, and reduced Russian gas supplies to Europe offset fears of lower demand and a US interest rate hike. US crude reserves were down by 4.5 million barrels last week as exports rose to a record high due to a significant discount in US crude against the international benchmark Brent, the Energy Information Administration said.
The gas market also remains tight. Just days after Europeans breathed a sigh of relief when Russia's Gazprom announced it would resume supplies through its Nord Stream 1 pipeline, it announced Monday that flows would be cut again. The announcement, in which Gazprom said it would repair a turbine along the pipeline, was met with disbelief and condemnation in Europe. The move will reduce gas flows to Germany by up to 20% of its capacity. Germany, the region's largest economy and a traditional growth driver, has particular cause for concern. Germany is heavily dependent on Russian gas and is sliding into recession. Since Russia is under a slew of international sanctions in response to its war with Ukraine, gas is one of the weapons Russia uses against Europe. As a result, natural gas prices continue to rise significantly. Analysts predict a harsh winter for Europe if the situation does not change.
On Thursday, Asian stocks showed cautious gains as investors sensed a possible slowdown in the pace of rate hikes in the United States. Japan's Nikkei 225 (JP225) gained 0.22%, Hong Kong's Hang Seng (HK50) decreased by 1.13%, while Australia's S&P/ASX 200 (AU200) was up 0.23% on the day.
S&P 500 (F) (US500) 4,023.61 +102.56 (+2.62%)
Dow Jones (US30) 32,197.59 +436.05 (+1.37%)
DAX (DE40) 13,166.38 +69.45 (+0.53%)
FTSE 100 (UK100) 7,348.23 +41.95 (+0.57%)
USD Index 107.22 +0.73 (+0.69%)
- – Australia Retail Sales (m/m) at 04:30 (GMT+3);
- – US GDP (q/q) at 15:30 (GMT+3);
- – US Treasury Sec Yellen Speaks at 15:30 (GMT+3);
- – US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
- – US Natural Gas Storage (w/w) at 17:30 (GMT+3).
by , 2022.07.28
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