New Zealand central bank is on the path of aggressive interest rate hikes

May 25, 2022

US indices were trading yesterday without a single trend. By the close of trading, the Dow Jones index (US30) added 0.15%, while the S&P 500 index (US500) decreased by 0.81%. The NASDAQ Technology Index (US100) lost 2.35%.

A Bank of America managers survey showed that investors are becoming increasingly bearish on tech stocks as the US shows more signs of a recession. Monthly new home sales in the United States fell to a two-year low in April, reinforcing the notion of a slowing housing market due to rising interest and mortgage rates.

Fed members, including Chairman Jerome Powell, recently paved the way for two 50 basis point rate hikes in the next two meetings, giving the central bank a breather to reassess inflation. Atlanta Fed President Rafael Bostic supported the idea of a Fed “pause” later this year. “I have a baseline view, and I think a pause in September might make sense,” Bostick told reporters. Amid such statements, the dollar index decreases as the two-rate hike scenario is already priced in.

Shares of Snap fell more than 43% after the social media company cut its revenue and profitability forecast, citing a deteriorating macroeconomic environment. Analysts believe Snap’s decline will raise concerns about the developing impact of deteriorating macroeconomic indicators on digital advertising. Concerns about a weaker ad spending backdrop have already shocked all social media stocks. Shares of platform Meta fell more than 7%, Twitter lost more than 5%, and Pinterest collapsed more than 23%.

Meanwhile, Zoom Video Communications reported better-than-expected quarterly results and raised its full-year guidance, sending its shares up more than 5%.

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Major European indices mostly declined yesterday. German DAX (DE30) lost 1.80%, French CAC 40 (FR40) decreased by 1.66%, Spanish IBEX 35 (ES35) added 0.06%, British FTSE 100 (UK100) fell by 0.39%. The index of business activity in the manufacturing sector as well as in the service sector declined in the Eurozone. The slowdown in activity has been attributed to high inflation, rising energy prices, and problems in the supply chain, which has not yet recovered from the Covid restrictions. Some ECB officials have begun saying it would be appropriate to raise interest rates by 0.5% (0.25% previously planned) as early as July.

Sweden and Finland formally applied to join the North Atlantic Alliance Organization (NATO) ahead of the NATO summit in Madrid on June 29-30. Finland and Sweden believe that the invasion of Ukraine has fundamentally changed their own perceptions of threats to Russia. The timing and coordination of the two countries’ bids indicate that they are eager to join together. Most NATO members appear likely to support Finland and Sweden’s membership at the NATO summit in June. All 30 NATO members are demanding ratification, but Turkey has disagreed. Turkey has criticized Sweden and Finland for what it views as support for the Kurdistan Workers’ Party (PKK), which it considers a terrorist organization.

The Biden administration’s zeal to lower oil prices from record highs with a potential ban on US oil exports to increase domestic supply could end a rally in the oil market. Oil prices have been declining for the past 2 days as energy traders try to gauge how significant the slowdown in economic activity will be to the short-term outlook for crude demand. The oil market remains tight, but the Covid situation in China points to a gradual increase in demand, which may keep oil prices above $100 a barrel for some time.

Asian markets closed yesterday in red zone. Japan’s Nikkei 225 (JP225) decreased by 0.94%, Hong Kong’s Hang Seng (HK50) fell by 1.75%, while Australian S&P/ASX 200 (AU200) ended the day down 0.28%.

As expected, the Reserve Bank of New Zealand raised the interest rate from 1.5% to 2.0%. The minutes of the meeting state that a broad range of indicators highlight that productive capacity constraints and ongoing inflation pressures remain prevalent. Employment remains above its maximum sustainable level, with labor shortages now the major constraint on production. The Committee agreed to continue raising the OCR at a pace that will bring consumer price inflation confidently into the target range. Reserve Bank Governor Adrian Orr significantly increased his forecast of how high the OCR could rise over the next three years. The Reserve Bank now predicts that the rate will have to rise to about 3.4% by the end of this year, peaking at 3.9% next June.

Main market quotes:

S&P 500 (F) (US500) 3,941.48 −32.27 (−0.81%)

Dow Jones (US30) 31,928.62 +48.38 (+0.15%)

DAX (DE40) 13,919.75 −255.65 (−1.80%)

FTSE 100 (UK100) 7,484.35 −29.09 (−0.39%)

USD Index 101.74 -0.34 (-0.33%)

Important events for today:

– New Zealand RBNZ Interest Rate Decision at 05:00 (GMT+3);
– New Zealand RBNZ Monetary Policy Statement at 05:00 (GMT+3);
– New Zealand RBNZ Press Conference at 06:00 (GMT+3);
– Eurozone Germany GDP (q/q) at 09:00 (GMT+3);
– Japan BoJ Governor Kuroda Speaks (Tentative);
– Eurozone ECB President Lagarde Speaks at 11:00 (GMT+3);
– Eurozone ECB Financial Stability Review at 12:00 (GMT+3);
– US Core Durable Goods Orders (m/m) at 15:30 (GMT+3);
– US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
– US FOMC Member Brainard Speaks at 19:15 (GMT+3).
– US FOMC Meeting Minutes at 21:00 (GMT+3).

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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New Zealand central bank is on the path of aggressive interest rate hikes