03 Nov

Stock indices are falling after a hawkish speech by Jerome Powell

November 3, 2022

By JustMarkets

The US indices continued to fall yesterday after hawkish comments from Jerome Powell. At the stock market’s close, the Dow Jones indexм(US30) decreased by 1.55%, and the S&P500 index (US500) lost 2.50%. The NASDAQ Technology Index (US100) fell by 3.36% on Wednesday.

The US Federal Reserve raised interest rates by 0.75% to a new 14-year high. The Bank believes higher borrowing costs will cool the economy and lower price inflation.

The main points of Mr. J. Powell’s speech:

  • The Bank is determined to pursue a restraining monetary policy to achieve price stability.
  • Monetary policy always has a time lag, so the Bank is not ready to say what rate will be sufficient to meet the 2% inflation target.
  • Looking back at the actions of other central banks, the US Fed believes it is moving at the right pace, not too fast and not too slow.
  • If the Fed over-tightens, there are tools to stimulate the economy.
  • If the Bank doesn’t tighten enough, inflation could take hold.
  • The Fed will continue to reduce assets in Treasury securities.
  • The unemployment rate remains low, and pay is strong, so there is no reason to ease policy now, and it is too early to say it is time to pause.

Mr. Powell also talked about his favorite yield curve indicator, the 3-month/18-month forward spread, noting that the Fed is watching it closely. The indicator is on the verge of an inversion. This means a 31% chance of a recession in the next 12 months.

Experts are divided on how high the US Federal Reserve will raise rates at its next meeting on December 13-14. CME Group’s FedWatch tool showed a 56.8% chance of a 50 basis point increase and a 43.2% chance of a 75 basis point increase.

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Famous companies that report today are ConocoPhillips (COP), Amgen (AMGN), Starbucks (SBUX), and PayPal Holdings Inc (PYPL).

Equity markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.61%, French CAC 40 (F 40) lost 0.81%, Spanish IBEX 35 (ES35) fell by 0.38%, and British FTSE 100 (UK100) closed on Wednesday down 0.58%.

ECB spokesman De Kos said yesterday that he sees a higher recession probability in the Eurozone. Therefore, the ECB’s desire to curb inflation will require further interest rate hikes.

AP Moller-Maersk A/S, which controls one-sixth of global container shipping, predicts a 2-4% slowdown in global trade, a serious warning not only to the container industry but to the entire oil and gas industry. Recession, according to Moller-Maersk, is almost inevitable in Europe because of the Russian invasion of Ukraine and the looming energy crisis.

The head of the Swiss Central Bank said yesterday that the bank has not ruled out further rate hikes to ensure price stability.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.06%, Hong Kong’s Hang Seng (HK50) ended the day up 2.41%, and Australia’s S&P/ASX 200 (AU200) increased by 0.14%.

On Thursday, the Hong Kong Monetary Authority (HKMA) raised its benchmark rate by 75 basis points to 4.25%. It said households should prepare for a period of higher commercial rates and carefully manage financial risks. The HKMA decision also prompted HSBC, the city’s largest commercial bank, to raise its best lending rate by 25 basis points to 5.375 % since November 4. The city’s de facto Central Bank said that interbank rates in the Hong Kong dollar would rise even more if the US Federal Reserve continued to raise interest rates.

S&P 500 (F) (US500) 3,759.69 −96.41 (−2.50%)

Dow Jones (US30) 32,147.76 −505.44 (−1.55%)

DAX (DE40) 13,256.74 −82.00 (−0.61%)

FTSE 100 (UK100) 7,144.14 −42.02 (−0.58%)

USD Index 112.14 +0.66 (+0.59%)

Important events for today:
  • – Switzerland Consumer Price Index (m/m) at 09:30 (GMT+2);
  • – Eurozone ECB President Lagarde Speaks at 10:05 (GMT+2);
  • – Norwegian Interest Rate Decision (m/m) at 11:00 (GMT+2);
  • – UK Services PMI (m/m) at 11:30 (GMT+2);
  • – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+2);
  • – UK BoE Interest Rate Decision (m/m) at 14:00 (GMT+2);
  • – UK BoE Monetary Policy Statement (m/m) at 14:00 (GMT+2);
  • – UK BoE Gov Bailey Speaks at 14:30 (GMT+2);
  • – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
  • – Canada Building Permits (m/m) at 14:30 (GMT+2);
  • – US ISM Services PMI (m/m) at 16:00 (GMT+2);
  • – US Natural Gas Storage (w/w) at 16:30 (GMT+2).

By JustMarkets

 

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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