The S&P 500 and Nasdaq composite indexes rose on Wednesday after the Federal Reserve said it would raise interest rates by a quarter of a point. Investors, however, are still uncertain about what this rate hike will mean for US economic growth.
The “is the fed likely to raise interest rates” is a question that is being asked by many. The answer to this question is that the Fed has been hinting at raising rates for a while now, and it seems like these hints are finally going to be taken seriously.
After the Federal Reserve hiked interest rates for the first time since 2018, stock futures in the United States fell slightly and government bonds took a break, while Chinese stocks continued their strong rise.
Futures tied to the S&P 500 declined 0.3%, pointing to a decline in the broad-market index after it closed more than 2% higher on the past two consecutive days. Nasdaq-100 futures fell 0.4%, suggesting moderate losses for technology stocks after the opening bell.
Officials at the Federal Reserve have penciled in six more interest rate hikes by the end of the year, as the central bank moves more forcefully to curb inflation, which is at a four-decade high.
“The Fed knew that raising interest rates would hinder growth. The issue now is how much the economy’s tightening will hinder growth. That’s what markets are searching for, according to Pictet Asset Management’s Shaniel Ramjee, a multiasset fund manager.
Others saw the Fed’s action as possibly positive. Despite the fact that the central bank’s attitude has shifted, it “wants to design a gentle landing, which is really quite a favourable result for stocks,” according to Adrian Zuercher, head of global asset allocation at UBS’s chief investment office.
Mr. Zuercher cited indicators that the Fed was ready to let inflation exceed its 2% target—most officials now expect core inflation to finish the year at 4.1 percent—as evidence that policymakers were focused on not sabotaging the recovery.
Stocks had begun to stage a comeback after coming under pressure from the war in Ukraine, surging energy prices from uncertainty about the impact of Western sanctions on Russia’s oil-and-gas industry, and uncertainty about how major central banks would react. Investors said they are focusing on the resumption of cease-fire talks between Ukraine and Russia and more clarity about the Fed’s plans. The S&P 500 is on track for its best weekly performance in over three months.
The Nikkei 225 index in Japan increased by roughly 3.5 percent.
FABRIZIO BENSCH/REUTERS/FABRIZIO BENSCH/REUTERS/FABRIZIO BENSCH/RE
The yield on the benchmark 10-year Treasury note fell to 2.130 percent on Thursday from 2.185 percent the day before, reversing a three-day upward trend. When prices fall, yields climb. Shorter-dated bonds, which are more sensitive to monetary policy changes, were also less popular, with the two-year yield falling to 1.934 percent after gaining for eight trading days.
“Many investors believe the Fed will be unable to provide as much as it has in the past owing to market and economic reactions,” said James Athey, an investment manager at Abrdn. “We may call this the pinnacle of hawkishness.”
The Russia-Ukraine crisis continues to put pressure on commodity prices. Oil prices increased, with Brent oil up 3.2 percent to $101.12 per barrel. For the week, the benchmark was still down approximately a third of a percent.
According to SPI Asset Management, investors are still concerned about long-term energy supply difficulties. Sanctions on Russia, according to the International Energy Agency, might cause a supply shock, according to a research released on Wednesday.
Gold, a classic safe-haven asset, increased by 1.5 percent to roughly $1,938 per troy ounce.
The Stoxx Europe 600 index rose 0.2 percent across the continent. The Russian stock market was closed, and the ruble fell 6% against the dollar, trading at roughly 104 rubles to the dollar. Since the beginning of the year, it has lost 28% of its value.
For the second day in a row, Chinese stocks soared, with the Hang Seng Index in Hong Kong climbing more than 7% and the Shanghai Composite Index rising 1.4 percent.
Tencent Holdings and Meituan gained more than 6% and 16%, respectively, among the major Chinese technology businesses. Country Garden Holdings, a company that owns run-down properties, saw its stock rise by 7%.
Following several days of strong selloffs, supportive government words drove a massive comeback in Chinese markets on Wednesday, with the Hang Seng recording its greatest single-day rise since 2008 and numerous tech firms surging more than 30%.
According to Mr. Zuercher of UBS, China’s market will likely be very volatile over the next several weeks, partially owing to the conflict in Ukraine, since China depends on Russia for certain commodities imports. If China’s Covid-19 breakouts are not brought under control quickly, extended lockdowns might impact corporate profitability, he noted.
Key equity indexes in Australia and South Korea gained more than 1% in Thursday’s trading, while The Nikkei 225 index in Japan increased by roughly 3.5 percent.
Clarence Leong and Anna Hirtenstein can be reached at [email protected] and [email protected], respectively.
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