The Wall Street opened Thursday with heavy lossesAfter the US Federal Reserve’s decision to raise interest rates aggressively, it raised concerns about a possible recession at a time when the world’s economies are facing runaway inflation.
In the first minutes of trading, the Dow Jones fell 2.1%, while the selective S&P 500 lost 2.5% and the Nasdaq tech index fell 2.8%.
US Treasury yields also fell.
In this way, the stock market is pessimistic about the idea that the US central bank will continue with its sharp increases in interest rates, to which a series of bad indicators have been added. There are concerns that higher interest rates will hamper economic activity too much and cause a recession.
The Federal Reserve raised its target interest rate on Wednesday by 75 basis points, which represents Its biggest rise since 1994She predicted a slowdown in the economy and a rise in unemployment in the coming months.
The day before, Wall Street closed higher and the Dow Jones Industrial Average, its main index, rose 1% after the Federal Reserve announced it would fight inflation.
Although the session was bullish, the sharp gains seen when US Central Bank President Jerome Powell spoke to the media quickly ran out of steam and the major indexes ended with only moderate gains. Powell noted during his appearance that Another rate hike of 0.5 or 0.75 points is likely at the Federal Reserve’s July meeting, although he made it clear that the hike announced today was “unusually high”..
The official said the Fed is moving “quickly” to bring interest rates closer to normal levels after a surprising report last week that showed consumer inflation unexpectedly accelerated last month, dashing hopes that inflation may have already peaked. However, Powell also hinted that price increases later this year could be lower. This appeared to assuage fears that the central bank may exceed its goal of calming inflation and pushing the economy into recession.
The Fed is “not trying to create a recession now, so let it be clear,” Powell said. He described Wednesday’s big rally as “front loading.”
For his part, the The Bank of England raised its key interest rate on Thursday, but only by a quarter of a pointand avoided pressure to take bolder action to combat the price hike that has pushed inflation to its highest level in 40 years. This is the fifth quarter-point increase by the Bank of England since December, when it set the key rate at 1.25%.
The Swiss National Bank surprisingly raised interest rates by half a percentage point to 0.25%, which is still low. Taiwan’s central bank raised its key interest rate by 0.125 basis points to 1.5%. “The clear reading is that the Federal Open Market Committee (the Federal Reserve) has taken the genie out of the central banks’ lamp, and we should expect more aggressive oversight by other central banks, except for those with economic problems,” said Stephen Innes. SPI Asset Management, in a comment.
France’s CAC 40 is down 2%, Germany’s DAX is down 2.7% and Britain’s FTSE 100 is down 2.3%.
In Asian trading, the Japanese benchmark Nikkei 225 index rose 0.4% to end at 26,431.20. Australia’s S&P/ASX 200 gave back its earlier gains and fell nearly 0.2% to 6,591.10 points. South Korea’s Kospi index rose 0.2 percent to 2451.41 points. Hong Kong’s Hang Seng lost 2.2% to 20,845.43 points, while the Shanghai Composite lost 0.6% to 3,285.38 points.
The Bank of Japan started its two-day monetary policy meeting which ends on Friday. The BoJ is under pressure to act, given the downward pressure on the yen from higher interest rates in the US and very low rates in Japan. However, their goal was to promote sustainable inflation after years of avoiding deflation or lower prices.
Investors were selling yen and buying dollars in anticipation of higher returns on their dollar holdings. Japanese politicians and the head of the central bank have expressed concern about the yen’s decline, but no drastic changes are expected in monetary policy.
The US dollar fell to 132.80 yen from 133.82 yen. It recently crossed 135 yen, the highest level in 20 years. The euro was priced at $1.0394, up from $1.0447.
All kinds of investments, from bonds to bitcoin, have plummeted this year as rising inflation forces central banks to try to rein in inflation that has soared as economies recover from the turmoil of the pandemic. The war in Ukraine added to these price pressures.
Even when there is no recession, higher interest rates hurt investment prices. The hardest hit were those that surged in the easy money era of ultra-low interest rates, including high-growth technology stocks and cryptocurrencies.
The war in Ukraine helped drive up oil prices, as the region is a major energy producer.
In the energy sector, US benchmark crude fell $1.59 to $113.72 a barrel in electronic trading on the New York Mercantile Exchange. On Wednesday, it lost $3.62 to $115.31 a barrel. Brent crude, the international benchmark, fell $1.73 to $116.78 a barrel.
(With information from AFP, Reuters and The Associated Press)