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Markets celebrate Fed decision to hold rates steady

The Federal Reserve (Fed) kept interest rates unchanged at a 22-year high at its second meeting in a row on Wednesday. The central bank left open the option of hiking again as early as the central bank’s next meeting in December, as it watches whether inflation continues to fall or stalls. Stock markets on both sides of the Atlantic traded higher on Wednesday and US Treasury yields dropped.

Shane Strowmatt, LGT
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5 minutes
Federal Reserve
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The Fed kept its benchmark interest rate unchanged in a range between 5.25% and 5.5%. It noted that the economy has largely remained resilient, despite its aggressive monetary policy, but officials weren’t sure whether the current rate levels would be sufficient to get inflation back down to its 2% target. The Fed’s preferred gauge of annual inflation, known as the Core Personal Consumption Expenditure Index (PCE), came in at 3.4% in September.

The Fed decision comes despite a labour market that looks like it may be able to withstand additional hikes. Job openings increased again in September for a second month in a row, data released Wednesday showed. Open positions climbed to 9.6 million from 9.5 million in August. A strong labour market contributes to economic growth by putting cash in consumers pockets, which then leads to consumer spending, a key driver of the US economy. While the labour market still seemed fairly strong, factory activity took a hit in October, according to data released Wednesday. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) dropped 2.3 points during the month, falling to 46.7 points.

In New York, markets celebrated the Fed’s decision and Chair Jerome Powell’s comments as a possible end to the current interest rate hiking cycle. Traders added risky assets such as tech stocks and yields on ten-year Treasuries fell to 4.73%, much lower than the 5%-mark, which had been broken a couple times in the previous weeks. The Dow Jones Industrial ended Wednesday’s session 0.7% higher and the S&P 500 gained 1.1%. The Nasdaq-100 shot up 1.8%.

In the Asia-Pacific region, stock markets were mostly trading in positive territory. In Tokyo, the Nikkei 225 was up 1.2% after Prime Minister Fumio Kishida unveiled a fiscal stimulus package of 17 trillion yen to counteract the effects of inflation on the Japanese consumer. The measures include tax cuts. South Korea’s Kospi jumped 1.8%, despite the nation’s Consumer Price Index accelerating for a third month in a row in October to 3.8%. In Australia, the S&P/ASX 200 gained 0.9%. Hong Kong's Hang Seng Index was up 0.9%, while the Shanghai Composite was the only major stock index in the region to suffer losses, trading down 0.2%.

In geopolitics, the conflict in the Middle East was looking more and more difficult to contain midweek. In addition to skirmishes with Hezbollah on Israel’s northern border and Yemen’s Houthis saying they were launching drones and missiles at Israel on Tuesday, Jordan recalled its ambassador to Israel out of protest against the war on Wednesday. A broader regional conflict could have far-reaching consequences for markets, particularly the oil market.

In Europe, Swiss manufacturing activity declined in October with manufacturing PMI coming in at 40.6 points. Manufacturing PMI has remained below the threshold of 50, which signals contraction, since the start of this year. For the last couple of months, it had appeared as if Switzerland’s manufacturing sector could be making a comeback. However, the low level in October is a sign that Switzerland’s manufacturing is likely being dragged down into a deeper rut along with its European neighbours.

Corporate news in focus: Quarterly figures from Adecco, Fresenius, Lufthansa, Geberit, Valiant, ING, Swisscom, SGL Carbon, Hugo Boss, Novo Nordisk, PVA TePla, Shell, Conoco Philips, Eli Lilly, Booking Holdings, Expedia Group, Starbucks, Apple, Coinbase.

Economic data in focus: Swiss Consumer Price Index (08:30 CET), SECO Swiss consumer sentiment (09:00), German unemployment rate (09:55), Bank of England interest rate decision (13:00), US weekly initial jobless claims (13:30), Swiss National Bank Chairman Thomas Jordan speaks (18:00).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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