Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

The morning catch up: Fed hikes interest rates despite bank crisis and sends markets down

Published 23/03/2023, 09:40 am
Updated 23/03/2023, 10:00 am
© Reuters.  The morning catch up: Fed hikes interest rates despite bank crisis and sends markets down

© Reuters. The morning catch up: Fed hikes interest rates despite bank crisis and sends markets down

Fed chair Jerome Powell failed to rule out further rate hikes overnight after another 0.25% rise, which sent the S&P 500 tumbling.

Powell said he failed to “see rate cuts this year” and that the Fed was “committed to restoring price stability”.

IG Market’s analyst Tony Sycamore noted, “It’s hard to believe that US officials could have found a more explosive mix to drop on markets after fighting the past fortnight to limit the fallout of recent banking stress.

"The KBW Bank Index fell 4.7%, while the glimpse of survival handed to First Republic Bank earlier in the week was snatched away as it fell 15.57%. Pac West Bancorp fell 17.12% to $10.12.”

The ASX is set to follow suit.

While the local market added 60 points (0.87%) yesterday to close at 7,016, led by Energy (+4.19%), Consumer Staples (+1.77%), and Consumer Discretionary (+1.42%), today will be a different story.

ASX 200 futures are 0.7% lower at 6,990 after the US session ended.

“Providing the ASX 200 continues to hold above support 6,910/00, the pullback from the February 7,567 high is viewed as a countertrend and we expect a rebound to follow,” Sycamore said.

“Aware that should the ASX200 see a sustained break below support at 6,910/00, it would negate our positive bias and warn of a retest of the bottom of its 12-month range at 6,410.”

Here’s what we saw (source Commsec):

European markets

European sharemarkets were higher as investors awaited the US Federal Reserve's rates decision.

Food and beverage shares rose by 1.1% while rate-sensitive real estate stocks shed 3.8%.

The continent-wide FTSEurofirst 300 index rose by 0.2%. Annual UK inflation rose from 10.1% in January to 10.4% in February (survey: 9.9%), which is likely to prompt the Bank of England to raise interest rates. The UK FTSE 100 index gained 0.4%.

US markets

While Powell said that if the economy proceeded as policymakers expected, there won't be a case for interest rate cuts later this year as projected by markets, the language was a little more hawkish.

The post-meeting statement noted that, while “the banking system is sound and resilient”, the recent banking stress is “likely to weigh on economic activity, hiring and inflation”. They noted, “additional policy firming may be appropriate”.

US Treasury secretary Janet Yellen said she was not considering a broad increase in bank deposit insurance.

In response, the KBW Regional Bank index fell by 5.3%. Shares of First Republic Bank slid 15.5% amid worries that it may need to downsize or seek government support. Pacific Western Bank (-17.1%) announced it had raised US$1.4 billion from investment firm Atlas SP Partners. Shares of Bank of America (NYSE:BAC) (-3.3%), JPMorgan Chase (NYSE:JPM) (-2.6%) and Wells Fargo (NYSE:WFC) (-3.3%) all fell.

Nike (NYSE:NKE) shares slid 4.9% after the sports apparel maker raised its full-year revenue outlook but warned of margin pressures.

At the close of trade the Dow Jones index fell by 530.5 points or 1.6%. The S&P 500 index lost 1.7% and the Nasdaq index shed 190 points or 1.6%.

The stats

  • The Euro rose from US$1.0757 to US$1.0908 and was near US$1.0855 at the US close.
  • The Aussie dollar lifted from US66.69 cents to US67.57 cents and was near US66.80 cents at the US close.
  • The Japanese yen rose from 133 yen per US dollar to JPY131.08 and was near JPY131.40 at the US close.
  • Global oil prices rose by 1.8% on Wednesday despite a surprise weekly build in US crude inventories, as the US dollar slid to a six-week low.
  • The US Energy Information Administration said crude stockpiles rose by 1.1 million barrels last week (survey: -1.6m).
  • The Brent crude oil price rose by US$1.37 or 1.8% to US$76.69 a barrel.
  • The US Nymex crude oil price gained US$1.23 or 1.8% to US$70.90 a barrel.
  • Base metal prices advanced on Wednesday. The copper futures price rose by 1.2% as dwindling exchange inventories raised the threat of tight supply. The aluminium futures price lifted by 1%.
  • The gold futures price rose by US$8.50 or 0.4% to US$1,949.60 an ounce. Spot gold was trading near US$1,969 an ounce at the US close.
  • Iron ore futures fell by US28 cents or 0.2% to US$127.73 a tonne.
The Fed decision

eToro investment analyst Callie Cox analysed the Fed's most recent update.

“The Fed just told us not to worry about the banking system, in both its words and its actions. They’ve decided to keep hiking, and based on new forecasts, they don’t anticipate any major shocks to the economy based on what’s happening to the banks. That’s an important vote of confidence in investors' eyes, and it could take the edge off of another bear case.

“However, it’s clear that the Fed is still concerned about elevated inflation – a scenario that we think markets have discounted a little too much in recent days. If the banking system’s woes don’t eat into growth, then the Fed may have to keep rates higher for longer. The grand pause that everybody thought could come may not be happening for a few more months.

“It’s comforting that the Fed thinks it can handle the banking crisis. But now, the trade that held markets together through banking headlines could unwind itself.”

Read more on Proactive Investors AU

Disclaimer

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.